Federal OMB Funding Freeze and Litigation Primer

Amid a surge of presidential executive orders since the change in administrations, the federal Office of Management and Budget (OMB) has published a series of documents that have spawned much confusion and litigation. Via these directives, OMB announced what looked to be a facially sweeping freeze on nearly all federal funding awards, then quickly walked back that announcement—but continues to endorse federal agencies’ independent ability under applicable law to review and restrict funding within each agency’s purview, to align with presidential priorities as expressed in the executive orders.

OMB issues, then promptly rescinds, a memorandum directing all federal agencies to effectuate a federal funding review and “pause”

In a memorandum dated January 27, 2025, OMB’s Acting Director instructed the heads of all executive departments and agencies to effectuate a “temporary” pause on federal grants, loans, and other financial assistance (OMB Memo). This memo began by noting that, in fiscal year 2024, the federal government had spent “more than $3 trillion [in] Federal financial assistance,” which OMB asserted “should be dedicated to advancing Administration priorities,” rather than “to advance Marxist equity, transgenderism, and green new deal social engineering policies.” To promote these avowed goals, the OMB Memo contained two separate but ostensibly related directions.

First, OMB directed all federal agencies to undertake a comprehensive review and analysis of “all Federal financial assistance programs and supporting activities,” for consistency with the President’s executive orders and policies. It identified, by way of example, seven executive orders that had been issued during the administration’s first week: Protecting the American People Against Invasion (Jan. 20, 2025), Reevaluating and Realigning United States Foreign Aid (Jan. 20, 2025), Putting America First in International Environmental Agreements (Jan. 20, 2025), Unleashing American Energy (Jan. 20, 2025), Ending Radical and Wasteful Government DEI Programs and Preferencing (Jan. 20, 2025), Defending Women from Gender Ideology Extremism and Restoring Biological Truth to the Federal Government (Jan. 20, 2025), and Enforcing the Hyde Amendment (Jan. 24, 2025).

Second (and more controversially), OMB added that, “to the extent permissible under applicable law, Federal agencies must temporarily pause all activities related to obligation or disbursement of all Federal financial assistance, and other relevant agency activities that may be implicated by the executive orders.” The OMB Memo posited that this course of action would “provide the Administration time to review agency programs and determine the best uses of the funding.”

Slated to begin just one day later, on January 28, 2025, at 5:00 p.m., the funding pause expressly extended to “(i) issuance of new awards; (ii) disbursement of Federal funds under all open awards; and (iii) other relevant agency actions that may be implicated by the executive orders.” Although each agency was required by February 10, 2025, to “submit to OMB detailed information on any programs, projects or activities subject to this pause,” the pause itself had no fixed duration or end date.

In addition, the OMB Memo expansively defined the federal financial assistance subject to freezing to include all grants, loans, direct appropriations, or other “assistance received or administered by recipients or subrecipients of any type,” with an exception “for assistance received directly by individuals.” But the OMB Memo carved out only Medicare and Social Security benefits by name. And it empowered OMB to grant exceptions on a case-by-case basis yet shed no light on how claims for exemptions could be made or would be analyzed.

Given its lack of forewarning, imminent onset, and nearly unbridled textual scope, the OMB Memo understandably set off alarms across a wide swath of funding recipients and nonfederal governmental entities. (That the Medicaid funding portal reportedly went offline could not have assuaged concerns.) Two lawsuits—described below—soon followed.

Early the next day, on January 28, 2025, OMB published Q&A guidance regarding the funding pause. This guidance listed the seven executive orders that the OMB Memo had mentioned, then endeavored to clarify that the funding pause would not extend to “[a]ny program not implicated by the President’s Executive Orders” and that “[a]ny payment required by law to be paid will be paid without interruption or delay.”

In somewhat conflicting fashion, this Q&A guidance also stated that OMB and other federal agencies would “determine quickly whether any program is inconsistent with the President’s Executive Orders” and had “already approved many programs to continue.” Some funding sources, OMB wrote, could be paused “for as short as a day.”

Appearing to cabin the OMB Memo, this guidance further assured the public that “any program that provides direct benefits to Americans is explicitly excluded from the pause and exempted from this review process.” Among the exempted payments were those for Medicaid and SNAP, along with funds for small businesses and farmers, Pell grants, Head Start, rental assistance, “and other similar programs.” The funding freeze was otherwise necessary, OMB stressed, so that federal agencies could “act as faithful stewards of taxpayer money.”

On January 29, 2025, after a court‑issued temporary restraining order (TRO) had partially blocked the contemplated funding pause, OMB issued another memorandum formally rescinding the earlier memo announcing the pause. That same day, however, White House Press Secretary Karoline Leavitt published the following message on X (formerly known as Twitter): “This is NOT a rescission of the federal funding freeze. It is simply a rescission of the OMB memo. Why? To end any confusion created by the court’s injunction. The President’s EOs on federal funding remain in full force and effect and will be rigorously implemented.”

Following a second TRO on the funding pause, the U.S. Department of Justice circulated a Notice of Court Order, advising all federal agencies and their employees and contractors to comply with the restraining orders. This notice cautioned federal agencies not to “pause, freeze, impede, block, cancel, or terminate any awards or obligations on the basis of the OMB Memo, or on the basis of the President’s recently issued Executive Orders.” Such a categorical prohibition extended “to all awards or obligations” nationwide, including both “existing awards” and “future assistance,” to any recipient.

According to this notice, federal agencies could nevertheless exercise their independent authority “to pause, stop, delay, or otherwise withhold federal financial assistance,” insofar as the governing statutes, regulations, or award terms would authorize doing so.

Private and public entities file lawsuits challenging the funding pause

The day after the OMB Memo was released, private and public entities filed respective lawsuits to block the federal government from pausing funding awards during any policy-based review.

National Council of Nonprofits et al. v. Office of Management & Budget et al. (D.D.C.)

The first lawsuit challenging the OMB Memo and funding pause was filed in the U.S. District Court of the District of Columbia. The plaintiffs are nonprofit entities and trade associations—including the National Council of Nonprofits, the American Public Health Association, and Main Street Alliance—comprising tens of thousands of members. Named as defendants are OMB and its then-acting director.

The complaint asserts three claims for relief, all under the federal Administrative Procedure Act (APA). The first alleges that OMB’s actions are arbitrary and capricious because the OMB Memo failed “to acknowledge the catastrophic practical consequences that an immediate, across-the-board freeze on federal grant programs will produce,” failed to account for grantees’ “substantial reliance interests” in receiving this funding and failed “to articulate why the review of existing grant programs that it envisions requires [their] immediate cessation.” The second claim alleges that OPM impermissibly based the funding deprivations on political viewpoint or association. And the third alleges that OPM lacked the statutory authority “to unilaterally terminate all federal financial assistance programs across the entire government.” The complaint seeks declaratory and injunctive relief.

On the afternoon of January 28, 2025, just before the funding pause was set to take effect, the district court entered a TRO on the OMB Memo’s implementation. By its terms, this TRO lasted less than a week, until a fuller hearing could be held, and extended only “to the disbursement of Federal funds under all open awards,” to avoid any immediate injury to the plaintiffs or their members from suddenly losing expected funding.

On February 3, 2025, the court entered an order extending the TRO through a forthcoming decision on the plaintiffs’ motion for preliminary injunction. At the outset, the court held that the plaintiffs had Article III standing—i.e., the concrete interest necessary to maintain suit—and rejected OMB’s argument that the memo’s rescission had mooted the controversy. Quoting Press Secretary Leavitt’s message that the funding freeze would nonetheless go forward, the court wrote that “it appears that OMB sought to overcome a judicially imposed obstacle without actually ceasing the challenged conduct,” which the court labeled “disingenuous.”

The court concluded that the plaintiffs had shown the prospect of irreparable injury without a restraining order, based on “evidence that fund recipients continue to be deprived of critical loans, grants, and other resources.” And the court was “not persuaded that the continuing freezes [we]re solely due to independent agency action,” rather than to OMB’s earlier directive—when, for example, a community health center had been denied access to grant funds that did not appear to fall under any of the President’s recent executive orders.

The court then held that the plaintiffs had established a likelihood of success on their APA claims. The court questioned why even “an exhaustive review of what programs should or should not be funded” necessitated simultaneously “depriving millions of Americans access to vital resources.” As the court emphasized, the $3 trillion in funding potentially in question constituted “a breathtakingly large sum of money to suspend practically overnight.” According to the court, such an executive action also would encroach on, and interfere with, Congress’s appropriations power.

The district court thus enjoined the defendants “from implementing, giving effect to, or reinstating under a different name the directives in” the OMB Memo, but only “with respect to the disbursement of Federal funds under all open awards.”

A preliminary-injunction hearing is calendared for February 20, 2025.

State of New York et al. v. Donald J. Trump et al. (D.R.I.)

A coalition of twenty‑two States—led by New York and including Connecticut—via their Attorneys General filed a separate complaint for declaratory and injunctive relief against the OMB Memo in the U.S. District Court for the District of Rhode Island. Named as defendants are President Donald J. Trump and dozens of federal agency officials. While acknowledging that “a full account of all federal grant programs benefiting Plaintiff States is impossible,” the multistate complaint outlined some of the allegedly vital state‑sponsored services supported by federal funding, including for healthcare (such as Medicaid), disaster relief, education, law enforcement, environmental protection, and scientific research.

The multistate complaint asserts five claims for relief. The first, under the APA, alleges that federal executive officials “have no authority to impose a government-wide pause on federal awards without regard to the individual authorizing statutes, regulations, and terms that govern each funding stream.” The second claim, also under the APA, alleges that the OMB Memo is arbitrary and capricious because it “provides no reasoned basis for pausing the disbursement and obligation of trillions of federal dollars and fails to consider the consequences of that action.” The third claim is for violation of the separation of powers, the fourth is for violation of the Constitution’s Spending Clause, and the fifth is for violation of the Constitution’s Presentment, Appropriations, and Take Care Clauses—all based in sum and substance on OMB’s allegedly flouting duly enacted Congressional appropriations.

On January 31, 2025, the district court entered a TRO in the States’ favor. This court too rejected the federal government’s argument that the OMB Memo’s rescission had mooted the controversy. The court concluded instead that “the alleged rescission of the OMB Directive was in name-only and may have been issued simply to defeat the jurisdiction of the courts,” especially given “the Press Secretary’s unequivocal statement” that neither the funding freeze nor the underlying executive orders had been altered.

In evaluating the merits, the court expressly assumed that there were “some aspects of the pause that might be legal and appropriate.” But the court was “equally sure” that many applications of the “wide‑ranging, all‑encompassing, and ambiguous ‘pause’ of critical funding [were] not” valid. Resting its analysis on the “worst case scenario,” the court determined that the States were “likely to succeed on the merits of some, if not all, their claims.” As the court elaborated, the federal funding pause applied “no matter the authorizing or appropriating statute, the regulatory regime, or the terms of the grant”; the executive branch had tried to impose conditions that contravened Congressional appropriations expressly directing the funding “to specific recipients”; and the OMB Memo had “threaten[ed] the States’ ability to conduct essential activities,” all on “less than 24 hours’ notice.” The evidence of disruption to “vital programs and services” likewise established irreparable injury to the plaintiff States without a TRO.

The court thus ordered that, notwithstanding any ongoing review, “Defendants shall not pause, freeze, impede, block, cancel, or terminate Defendants’ compliance with awards and obligations to provide federal financial assistance to the States, and Defendants shall not impede the States’ access to such awards and obligations, except on the basis of the applicable authorizing statutes, regulations, and terms.” In addition, the court “restrained and prohibited” the defendants “from reissuing, adopting, implementing, or otherwise giving effect to the OMB Directive under any other name or title.”

In a brief electronic order, the court later extended the TRO to remain in effect through a forthcoming decision on the States’ preliminary-injunction motion. The court then issued another order, enforcing the TRO, after the States contended that the federal government had not promptly disbursed certain grants or other forms of funding. In that order, the court instructed the defendants “immediately” to “restore frozen funding during the pendency of the TRO” and to “take every step necessary to effectuate the TRO, including clearing any administrative, operational, or technical hurdles.” The court further, and specifically, ordered the defendants to “resume the funding of institutes and other agencies of the Defendants (for example the National Institute for Health) that are included in the scope of the Court’s TRO.” Moreover, the court separately directed the defendants to release payments allegedly owed under the Inflation Reduction Act and the Infrastructure Improvement and Jobs Act—which the defendants had maintained fell outside the TRO’s scope.

On February 10, 2025, the federal government appealed the TRO and enforcement order to the U.S. Court of Appeals for the First Circuit. (Attempts to appeal TROs are relatively rare, since TROs are not ordinarily appealable. To obtain review of such an order, the appellant must demonstrate, in essence, that the TRO functions as an injunction and that an appeal cannot realistically wait.)

The federal government sought a stay of the TRO pending appeal, and an emergency stay until the broader motion could be decided, on the asserted ground that the executive branch could not be made to seek preclearance from the district court to take permissible action within federal agencies’ discretion to modify funding awards. On February 11, 2025, the First Circuit denied emergency relief, without prejudice, expressing confidence that “the District Court will act with dispatch to provide any clarification needed.” The following day, the district court entered an order clarifying that neither of that court’s prior orders “require the Defendants to seek ‘preclearance’ from the Court before acting to terminate funding when that decision is based on actual authority in the applicable statutory, regulatory, or grant terms.” Apparently satisfied with this clarification, the federal government then voluntarily dismissed the appeal.

Please check this page for updates as these matters continue to evolve. Meanwhile, funding recipients should analyze the governing terms, conditions, and legal standards for any existing or prospective awards.