New federal grant rule could make funding more uncertain and unwieldy

By Caroline Grinder, legislative advocate (community services)

Cal Cities submitted comments last week expressing concerns with a sweeping federal proposal that would affect nearly every form of federal funding available to cities. The proposal would increase administrative burdens, introduce new compliance requirements, and allow grants to be terminated mid-award.

If adopted, the changes would go into effect on Oct. 1, 2026. It’s unclear how the proposal would impact existing grant agreements.

What’s at stake for cities

The proposal has drawn widespread opposition from federal grant recipients because it allows federal agencies to alter grant conditions or terminate awards based on Executive Branch priorities. In its letter, Cal Cities argued that these changes would create significant risks for cities, especially those that enter into contracts based on anticipated federal funding. If awards can be modified or rescinded midstream, cities may be forced to delay, scale back, or abandon critical projects.

But the rule also makes it harder for cities to apply for federal funding. For example, cities would need to provide detailed documentation for payment requests, including justifications for the purpose of each payment and the specific award-related work it supports. Cal Cities explained that federal grants already require significant administrative capacity. Adding new administrative burdens could discourage already under-resourced cities from pursuing federal funding.

The proposal touches every part of the federal grant process. For example, pass-through entities like states would need to conduct pre-payment checks before disbursing funds to cities. The rule also ties funding to executive orders and bars cities from taking actions that are “reputationally harmful” for the federal government.

It also allows federal agencies to consider “questionable practices” and “risk factors” when awarding grants and adds a “pre-issuance review” with political appointees at each agency. These vague requirements could shift funding decisions away from objective, performance-based criteria, create ambiguity for applicants, and undermine confidence in award decisions.

Provisions that could benefit cities

The rule does include several helpful provisions, such as requiring plain language in funding notices, centralized applications through Grants.gov, the use of executive summaries and statements of interest for high-demand programs, and ensuring funding notices are posted for at least 30 days. These elements could help streamline the application process and improve access to federal funding, which Cal Cities supports.

Unfortunately, the added administrative burdens, heightened uncertainty, and loss of local control outweigh the potential benefits of these provisions. For those reasons, Cal Cities is urging the Office of Management and Budget (OMB) to reconsider elements of the proposal that could make it more difficult for cities — especially those with limited capacity — to apply for, manage, and rely on federal grants.

Cal Cities will continue to work with the National League of Cities (NLC) to monitor the OMB guidance and provide cities with updated information. NLC has provided a more detailed overview and webinar recording, which provide additional information about what this proposal means for federal grants.