The Trump administration has employed shifting legal strategies to freeze and terminate grants, contracts, and other forms of financial assistance that are not in line with the administration’s policy priorities. After initial losses in court, its current approach is not to rely on executive orders (or other instruments requiring governmentwide action), but rather to assert that each agency is acting pursuant to its own regulations, terms, and conditions that purportedly permit the agency to freeze or terminate funding. In some cases, those agency-specific authorities do not in fact authorize the agencies to act as the administration claims. But even where regulations, terms, or conditions do purport to authorize agencies to freeze or terminate funding based on changing policy priorities, a separate statute — the Impoundment Control Act of 1974 (ICA) — may prohibit agencies from undertaking these freezes and terminations. The ICA forbids agencies from intentionally delaying or rescinding funding outside of the narrow circumstances it delineates, which do not include a president’s changing policy priorities. And no regulation, term, or condition can supersede this statutory prohibition.
Early Challenges Halt the Administration’s Initial Strategies to Stop Spending Funds
The Trump administration’s efforts to stop spending funds on programs deemed to be inconsistent with the administration’s policy priorities began on Inauguration Day. In a Jan. 20, 2025 Executive Order (E.O.) titled “Unleashing American Energy,” President Trump directed “[a]ll agencies” to “immediately pause the disbursement of funds appropriated through the Inflation Reduction Act of 2022 . . . or the Infrastructure Investment and Jobs Act.” The E.O. instructed agencies not to disburse funds appropriated under these two laws, even for binding obligations already entered with third parties, until senior political appointees approved the relevant disbursement.
Another E.O. issued on Jan. 20, titled “Reevaluating and Realigning United States Foreign Aid,” directed agencies to “immediately pause new obligations and disbursements of” foreign assistance funds “pending reviews of such programs for programmatic efficiency and consistency with United States foreign policy, to be conducted within 90 days.” Secretary of State Marco Rubio effectuated this E.O. several days later, directing that stop work orders be issued for nearly all existing foreign assistance.
On Jan. 27, 2025, the Office of Management and Budget (OMB) vastly expanded the scope of frozen funds by issuing M-25-13, a memorandum directing federal agencies to “temporarily pause all activities related to obligation or disbursement of all Federal financial assistance.” The memorandum explained that this freeze was to provide time “to align Federal spending and action with the will of the American people as expressed through Presidential priorities.”
A group of states and several nonprofit coalitions quickly filed suits challenging M-25-13. The district court in Washington, D.C. in the nonprofits’ lawsuit promptly entered an administrative stay against enforcement of the OMB memo. Following that stay, OMB rescinded its memo. Still, the administration maintained that the rescission of M-25-13 was “NOT a rescission of the federal funding freeze,” because “[t]he President’s EO[]s on federal funding remain in full force and effect.”
Thereafter, the district court in the states’ lawsuit issued a temporary restraining order prohibiting any action to “pause, freeze, impede, block, cancel, or terminate” the states’ funding, “except on the basis of the applicable authorizing statutes, regulations, and terms.” Even after this order, the Department of Justice (DOJ) asserted that the funding freezes under the E.O.s remained in effect.
On Feb. 10, 2025, the district court in the states’ case entered a new order that explicitly prohibited the agencies from pausing funding based on the E.O.s. The court’s order also did not mention that its prior order had a carveout for actions taken “on the basis of the applicable authorizing statutes, regulations, and terms.”
The Administration’s Evolving Strategies for Impounding Funds
At this point, the administration’s strategy shifted to purportedly relying on agency-specific authority to stop spending funds. DOJ sought an emergency stay from the First Circuit, but rather than rely on the E.O.s as the primary authority for the spending freezes, the administration emphasized that the district court’s order did not specify that agencies could take action based on their “authorizing statutes, regulations, and terms.” When the District Court clarified that the administration remained free to limit access to federal funds on these bases, the administration dropped its First Circuit appeal. In subsequent district court briefing, the administration asserted that any ongoing freezes or rescissions of funding are the result of “independent agency decisions,” through which “agencies [are] implementing their own authorities.”
As in the states’ lawsuit challenging the OMB memo, in a suit challenging the administration’s actions toward foreign assistance programs, a court in Washington, D.C. has preliminarily permitted the administration to act based on terms and conditions of awards. While the court temporarily enjoined the administration from pausing or giving effect to terminations of agreements that were in place prior to the change in administrations, the court stipulated that “nothing in this order shall prohibit the Restrained Defendants from enforcing the terms of contracts or grants.” In a status report following this order, the administration took the position that “at least substantially all of the terminations, suspensions, and stop-work orders issued on [United States Agency for International Development] USAID contracts, grants, and cooperative agreements were allowed by the terms of those instruments or terms implicitly incorporated into those instruments.”
In addition to relying on purported agency-specific authority to pause or terminate awards, the Trump administration has recently argued that the relevant statutes appropriating funds give the administration authority to pause the disbursement of funds. In the administration’s view, so long as the relevant statutory provisions do not mandate disbursement “to specific entities on specific timelines,” the administration retains “discretion to temporarily pause funding.”
Regulations Governing Suspension and Termination of Grants and Contracts
Various existing regulations set out the circumstances in which an agency may pause or terminate a grant or contract.
With respect to grants, OMB issues the “Uniform Grants Guidance” (UGG) in 2 C.F.R. part 200, which is a template of regulations for agencies to adopt to govern their financial assistance awards. Most agencies have adopted the UGG in full or in large part in their own regulations.
There is no provision in the UGG that generally permits agencies to pause an award based on changing agency policy priorities. The first Trump administration did, however, add such a provision with respect to terminations. In 2020, OMB revised 2 C.F.R. 200.340(a)(2) to purportedly permit agencies to terminate a financial assistance award, “to the extent authorized by law, if an award no longer effectuates the program goals or agency priorities.”
In 2024, the Biden administration revised Section 340, and specifically 2 CFR 200.340(a)(4) and (b), to permit termination on these grounds only where such bases for termination are “clearly and unambiguously” stated in the terms and conditions of an award. OMB explained that under the revised Section 340, agencies may terminate a grant or award based on new program goals or agency priorities “[p]rovided that the language is included in the terms and condition of the award.” The Biden administration’s revised UGG went into effect on Oct. 1, 2024.
With respect to contracts, the Federal Acquisition Regulation (FAR) instructs agencies to insert a clause in their contracts that permits the agency to stop work for up to 90 days. Beyond 90 days, all parties to the contract would be required to consent to any extension of the stop worker order. The FAR also instructs agencies to include a clause in most contracts that allows the agency to terminate the contract “for convenience,” whenever the agency determinates that “a termination is in the Government’s interest.”
The Impoundment Control Act – Presidential Policy Preferences are Not a Permitted Basis for Deferring or Rescinding Appropriated Funds
Of course, regulations and terms and conditions cannot supersede contrary federal statutes. The most relevant statute here is the Impoundment Control Act of 1974 (ICA). The ICA sets forth limited circumstances in which the president or an agency may “defer” or “rescind” congressionally appropriated funds.
Under the ICA, a “deferral” encompasses any “withholding or delaying the obligation or expenditure of” appropriated funds, as well as “any other type of Executive action or inaction which effectively precludes the obligation or expenditure of” appropriated funds. A deferral thus includes both delays in obligating funds and delays in disbursing funds that are already obligated. When the executive branch wishes to defer funds, it must send a special message to Congress detailing the money to be deferred and the reasons for deferral.
There are only three permissible grounds for deferrals: (1) “to provide for contingencies” (which generally means keeping a small cushion in case obligations incurred with an appropriation end up costing more than anticipated); (2) “to achieve savings made possible by or through changes in requirements or greater efficiency of operations;” or (3) “as specifically provided by law.” Id. § 684(b). The Government Accountability Office (GAO) has repeatedly held that “policy reasons,” including efforts to ensure funds are spent in accordance with the president’s policy preferences, are not a proper basis for deferrals.
Where the president seeks to “rescind” appropriated funds, the ICA requires that the president send a special message to Congress specifying, among other things, the funds he seeks to have rescinded and the reasons for his proposal. The administration can withhold obligating the relevant funds for 45 session days after the president transmits his request, but if Congress does not rescind the funds in that period, the administration must make the funds available for obligation.
The GAO has held that “programmatic delays” in spending funds do not constitute deferrals or rescissions subject to the ICA. Per GAO, “programmatic delays occur when an agency is taking necessary steps to implement a program, but because of factors external to the program, funds temporarily go unobligated.” Permissible programmatic delays do not include when the executive branch withholds money “on its own volition” for policy reasons.
Application of the Impoundment Control Act to Suspensions and Terminations
In light of the ICA, the administration is wrong that agencies have free rein to pause or terminate grants or contracts pursuant to an agency’s “statutes, regulations, and terms.”
Regarding statutes, the ICA flatly contradicts DOJ’s assertion that agencies have “discretion to temporarily pause funding” so long as the statute appropriating funds does not mandate disbursement “to specific entities on specific timelines.” A deferral under the ICA includes any “withholding or delaying the obligation or expenditure of” funds. Thus, any intentional “pause” in disbursing funds is a deferral. The ICA prohibits any such pause unless it is a permissible programmatic delay (which, as explained above, does not include changed policy preferences) or the agency has followed the ICA’s procedures and criteria for deferrals.
As for regulations and terms, the ICA may prohibit suspending or terminating grants and contracts based on changing agency policy priorities—even where an agency’s regulations or terms and conditions purport to authorize such action.
A straightforward example involves funds for which the period of availability has expired. Where Congress appropriates funds for a fixed period (e.g., a single fiscal year), agencies generally must obligate the funds within that fixed period and cannot obligate the funds after. In some cases, particularly with grants, agencies may continue disbursing funds after the period for obligation has ended, as long as the funds were obligated before the funds expired.
Say, therefore, that the Department of Education awarded a grant during Fiscal Year 2024, using funds that expired at the end of that fiscal year, but for which the grant continues to be paid out over several years. If the Department were to terminate the grant now for policy reasons, the Department could not re-obligate that money for other purposes because the period of availability has ended. The appropriated funds, therefore, would go unspent. This likely would violate the ICA, even if the grant terms and conditions purported to permit the Department to terminate the grant based on changing agency policy priorities.
The ICA may also prohibit terminating grants or contracts where the period of availability has not expired. If an agency terminates grants or contracts and thereby delays the obligation or expenditure of funds, without undertaking efforts to promptly re-obligate and disburse the funds to better implement the relevant program, that may constitute an unlawful deferral under the ICA.
Similarly, if an agency terminates all or nearly all agreements that were entered using a particular appropriation, without any intent to re-obligate the funds for the purpose for which Congress appropriated the money, that may constitute an unlawful rescission under the ICA, regardless of the terms and conditions of each individual agreement. Evaluation of whether terminations violate the ICA for funds that have not expired requires a case-by-case evaluation of the stated reasons for the termination, the agency’s stated intent (or lack thereof) for re-purposing the funds, and other relevant case-specific factors.
Bringing an ICA Claim
A final note concerns an obstacle the administration is likely to raise in response to any litigation premised on ICA violations. The administration is likely to argue that, even for claims brought under the Administrative Procedure Act against final agency action, parties cannot premise claims on ICA violations because the ICA sets forth a separate procedure by which the Comptroller General may challenge certain ICA violations in the District Court for the District of Columbia.
That argument should carry no water in the context of the types of ICA violations at issue here. The ICA permits the Comptroller General to sue over only one particular type of ICA violation: a refusal to make funds “available for obligation.” The ICA does not authorize the Comptroller General to bring suit over violations involving funds already obligated, such as freezing the disbursement of obligated funds or canceling the obligations. Thus, the ICA’s authorization of the Comptroller General to sue in those limited instances should not hinder the ability of other parties to assert claims based on these other types of ICA violations.
Conclusion
The first month of the Trump administration has featured an unprecedented Executive branch campaign to refuse to honor appropriations that Congress lawfully enacted. The administration’s novel reliance on terms and conditions to interrupt entire categories of grants and contracts reflects the ends to which the administration will go to carry out this campaign. These terms and conditions were never intended to serve as a means for mass defiance of congressional prerogatives. The administration’s novel strategy for leveraging these terms and conditions may give rise to novel claims through which impacted entities may seek recourse.
Editor’s note: This piece is part of the Collection: Just Security’s Coverage of the Trump Administration’s Executive Actions