The courts paused a federal funding freeze. Can cities breathe a sigh of relief?

Federal agencies can still pause funding at their own discretion

By Brian Hendershot, Cal Cities Advocate managing editor, and Caroline Grinder, legislative affairs lobbyist   

Two courts have blocked an attempted federal funding freeze that sparked widespread confusion, concerns, and service delays. The decisions provide some clarity to federal grant administrators and grantees. However, uncertainty remains over how the administration will evaluate federal programs going forward.

The legal clashes started last week when the Office of Management and Budget sent a now-rescinded memo rolling back many priorities funded by the Bipartisan Infrastructure Law and Inflation Reduction Act. U.S. District Judge Loren L. AliKhan temporarily blocked the order until moments before it went into effect on Jan. 28.

On Monday, AliKhan again upheld the temporary block. “For many, the harms caused by the freeze are non-speculative, impending, and potentially catastrophic,” she wrote.

Then on Friday, Chief Judge John McConnell in Rhode Island sided with 23 attorney generals — including California — who filed a second lawsuit. In his decision, McConnell issued a temporary restraining order prohibiting the administration from actions that "pause, freeze, impede, block, cancel, or terminate its awards or obligations to provide federal financial assistance unless specifically allowed under the law.” He also required the administration to notify federal agency employees about the decision.

Despite the orders, the administration is not retreating on the issue and appeared in court on Tuesday arguing against an extension of the original temporary block. The moves are part of a larger effort from the new administration to slim down the federal government.

How does this decision impact cities? 

According to the National League of Cities (NLC), the Rhode Island decision covers grants to local governments in every state. While the order does not stop agencies from pausing access to federal funds in every case, it prohibits funding freezes stemming from the administration’s rescinded memo. Agencies can still pause funding at their own discretion — as long as any current or future funding freeze is not the direct result of executive action.

The legal battle over federal purse strings has only begun, and cities should prepare for future attempts. Cal Cities recommended several next steps in last week’s newsletter.

If your city does experience issues accessing expected federal funding through grants or loan programs, please share that information with the National League of Cities by emailing advocacy@nlc.org. NLC is also sharing the latest information on its Presidential Actions Resource webpage.