Federal Court Allows Programs to Continue – OMB Rescinds “Freeze Memo”

Yesterday, January 28^th, just minutes before the federal Office of Management and Budget (OMB) memo to federal agencies pausing federal grants and loans was set to take effect, a federal court in Washington, DC, issued an “administrative stay” allowing federal agencies to continue making disbursements to existing grantees through next Monday, February 3 at 5 p.m. (ET).

Moments ago, we were made aware that the OMB has now issued a memo rescinding their earlier memo that would have frozen all programs.

As we alerted you yesterday, the OMB memo requires all federal agencies to pause issuing new grant awards, disbursement of funds under existing grants, and other relevant agency actions related to their grant programs. It also requires agencies to review their grant programs and report to OMB by February 10 on grants that are inconsistent with President Trump’s Executive Orders. The wording of the memo was very vague, leading to uncertainty for the tens of thousands of nonprofits that are paid with federal funds to deliver services in communities. Even the federal agencies themselves did not seem to know what funding would be affected and what wouldn’t be.

Our colleagues at the National Council of Nonprofits (NCN) took swift action, joining with the American Public Health Association, Main Street Alliance, SAGE, and Democracy Forward to file suit in federal U.S. District Court to have the funding freeze blocked. Just before the freeze was set to take effect, United States District Court Judge Loren L. AliKhan issued an Administrative Stay through Monday, February 3, at 5:00 p.m. (ET).

With the stay in place, the court now reviews the merits of the case to decide to extend or release the stay. Federal agencies may not, however, issue new grant awards for the time being.

It would appear that this most recent rescission memo means the court challenge is moot for the time being. We are coordinating with our state association allies and NCN to clarify if new steps will need to be taken to protect these programs.

As you have seen in the past week, much is happening, and the issues are fast moving. For the latest on the OMB grants pause, previous EOs, and their impacts on Oregon nonprofits, sign up for NAO membership, sign up for our email distribution list and check out the NAO resource page, and the NCN Resource Page, which will be updated regularly. Here are some quick answers to questions nonprofits have been asking NAO (some of which have been updated since yesterday update):

Which federal funding streams are on the list to be affected?
Potentially, the pause applies to all (or at least most) federal grants to nonprofits and to state and local governments. The memo directs agencies to “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, including, but not limited to, financial assistance for foreign aid, nongovernmental organizations, DEI, woke gender ideology, and the green new deal.” Because several of these terms are not clearly defined, it is possible that some or all federal agencies may interpret the memo to require a pause in virtually all of their grants to nonprofits. The memo does not apply to federal aid to individuals, including Social Security, Medicare, Medicaid, Supplemental Nutrition Assistance Program (SNAP), Pell grants, and rental assistance, so these payments should continue. OMB has the authority to grant exceptions to allow agencies to grant new awards or make payments on a case-by-case basis. Politico published a second memo from OMB that gave instructions on how to implement the first memo and lists all the programs that were set to be paused. You can click and see the full list here.

How long would the pause of federal programs have been in effect?
The memo was unclear on how long the pause in grants will be in effect. At a press conference, the White House press Secretary stated the pause would only be in effect for 30-60 days while agencies review programs that do not align with the President’s agenda.

Could this lead to the cancellation of existing grants?
Yes. The pause was designed to give agencies time to review programs that do not fit the President’s agenda and cancel them. With the rescission memo it is likely a new tactic will be deployed to halt and/or end programs that are not consistent with the President’s agenda.

Is there anything nonprofits with federal grants can do now?
At this time, federal agencies SHOULD BE willing to make advance payments to nonprofits before that time. If your nonprofit has a federal grant and is expecting a disbursement in the next few weeks, you may want to reach out to your grant administrator to find out whether you may be able to get your next disbursement. Let us know if you cannot by filling in this survey.

What was the basis of the court challenges?
The National Council of Nonprofits (NCN), along with small business and public health advocates, filed a lawsuit yesterday asking the U.S. District Court for the District of Columbia to stop the implementation of the OMB memo. The lawsuit alleges that OMB’s memo is not allowed under the Administrative Procedures Act because it is: (a) arbitrary and capricious; (b) in violation of the First Amendment to the U.S. Constitution; and (c) beyond OMB’s statutory authority. The NCN lawsuit seeks a temporary restraining order and preliminary injunction that would immediately stop the implementation of the memo, along with a permanent injunction that would invalidate the memo. Shortly before the pause was set to take effect on January 28, the court issued an administrative stay delaying the implementation of parts of the memo until Monday, February 3 at 5 p.m. (ET). As the court explained in its ruling, “[a]n administrative stay ‘buys the court time to deliberate’ when issues are not ‘easy to evaluate in haste.’” We know that the State of Oregon joined a suit to file similar actions in federal court.

The OMB rescission memo just obtained would indicate that the stay will become moot.

How can my nonprofit share the impact of the grants pause on our organization?
To help understand the impact of the pause on federal grants, NAO is asking nonprofits in Oregon with federal funding to respond to this quick survey. Our colleagues at NCN are going to be leading the response and working with us to help us best advocate for solutions to provide for continuity of federal funding. Please also reach out to our Oregon Congressional Delegation to let them know how this situation is impacting your nonprofit and community. You can find details to connect with their offices here.

NAO Session this Friday, January 31^st from 12:15 to 1:15 p.m. (PT) – Navigating Financial Uncertainty Amidst Executive Order Rollout

Join us for a timely and informative webinar where we’ll share the latest developments as we understand them; discuss what they mean for nonprofits and our communities; and provide proactive tips to help you navigate the current landscape from a financial perspective.

This webinar will not be recorded, so please ensure you are able to attend live during the scheduled time.