On His Eighth Day in Office, President Trump Gave to Me Memorandum No. M-25-13

Bottom Line Up Front

Just eight (8) days into President Trump’s second term (and following other headline-making Executive Orders which Goodwin has covered here and here), the Acting Office of Management and Budget (“OMB”) Director issued Memorandum No. M-25-13 (the “OMB Memorandum”) dated January 27, 2025, which required federal agencies to temporarily pause all federal financial assistance. The OMB Memorandum also required federal agencies to temporarily pause other activities implicated by President Trump’s numerous Executive Orders. The release of the OMB Memorandum sent federal agencies and assistance recipients into a state of chaos, which resulted in OMB issuing a second Memorandum (the “Guidance Memorandum”) which attempted to clarify the categories of financial assistance that would actually be subject to the temporary pause. However, by the time the Guidance Memorandum had been issued, numerous legal challenges had already been raised in Courts, and a federal judge in the U.S. District for the District of Columbia issued an administrative stay that temporarily limited the OMB Memorandum’s impact. A day later, on January 29, 2025, the White House rescinded the OMB Memorandum in an effort to “…end confusion on federal policy created by the court ruling and the dishonest media coverage,” according to White House Press Secretary Karoline Leavitt. Still, the Trump Administration is signaling that it will continue its efforts related to the review of federal funds expenditures. Accordingly, businesses that are receiving federal funds, including loans, grants, and other forms of federal financial assistance, should closely consider the Memorandum’s potential business implications, pay attention to the messaging from the White House regarding the President’s goals and objectives and prepare to take action.

The OMB Memorandum

The OMB Memorandum required:

• All federal agencies to identify and analyze all federal “financial assistance” programs and supporting activities for consistency with the President’s policies and requirements. Notably, the term “financial assistance” excludes procurement contracts and federal assistance that individuals receive directly such as Medicare or Social Security benefits.  
• While conducting the analysis of financial assistance programs, all federal agencies are to temporarily pause all activities related to the obligation or disbursement of all federal financial assistance, and other relevant agency activities that may be implicated by President Trump’s Executive Orders, effective January 28, 2025 at 5:00 p.m. ET. During this temporary pause, federal agencies would not be able to issue new awards and would be prohibited from paying out federal funds under existing awards. 
• Federal agencies are to immediately report to OMB any legally mandated actions or deadlines associated with assistance programs while the temporary pause is in effect and submit detailed information about programs, projects, or activities subject to the temporary pause no later than February 10, 2025. 
• Federal agencies are to assign responsibility and oversight of each federal financial assistance program to a senior political appointee. 
• Federal agencies are to review pending funding announcements, unpublished funding announcements, and existing awards for consistency with the administration’s priorities. 
• Federal agencies are to modify or withdraw funding announcements as appropriate, as the OMB Memorandum permits agencies to continue to close out federal awards consistent with 2 C.F.R. § 200.344.
• Federal agencies are to investigate underperforming recipients and to cancel awards as appropriate.

The OMB Memorandum provided that the Trump Administration would review federal agency programs and determine the best uses of the funding for those programs consistent with the law and the President’s priorities. The OMB Memorandum made it clear that decisions about which federal assistance programs would be terminated would ultimately be made by the Trump Administration. Even though the OMB Memorandum has been rescinded, it is unlikely that the Administration’s efforts will subside.

The Guidance Memorandum

Hours after the release of the OMB Memorandum and in the midst of the media frenzy that followed, OMB issued a Guidance Memorandum that attempted to clarify the Trump Administration’s intent. The Guidance Memorandum provided that the only federal financial assistance programs that were subject to the OMB Memorandum and the temporary pause were those implicated by the President’s Executive Orders, and lists the following Executive Orders:

• Protecting the American People Against Invasion
• Reevaluating and Realigning United States Foreign Aid
• Putting America First in International Environmental Agreements
• Unleashing American Energy
• Ending Radical and Wasteful Government DEI Programs and Preferencing
• Defending Women from Gender Ideology Extremism and Restoring Biological Truth to the Federal Government
• Enforcing the Hyde Amendment

However, because of the way the Memoranda are drafted, there appears to be room for the Trump Administration to expand the applicability of the temporary pause to a broader group of financial assistance programs if they are implicated by future Executive Orders. Given the actions of the Trump Administration to date, we believe such expansion is highly likely.

The Guidance Memorandum also expressly stated that any program that provides direct benefits to Americans is explicitly excluded from the temporary pause and exempted from the OMB Memorandum mandated review process. This exclusion includes, in addition to Social Security and Medicare, mandatory programs like Medicaid and Supplemental Nutrition Assistance Program (SNAP). The Guidance Memorandum also stated that funds for small businesses, farmers, Pell grants, Head Start, rental assistance, and other similar programs are not to be paused, and that federal agencies should consult OMB if they identify aspects of these programs that may be implicated by the Executive Orders so that they may receive guidance on how to begin to address these aspects without a pause in the payments.

Importantly, and no doubt in anticipation of the coming legal challenges, the Guidance Memorandum asserted, without analysis, that the temporary pause should not be considered an impoundment¹ under the Impoundment Control Act of 1974, which is a law that limits the White House from withholding funds that Congress has appropriated. Impoundment is an act by a President, made illegal by the Impoundment Control Act of 1974, that prevents the expenditure of funds that have been appropriated by the U.S. Congress. The Impoundment Control Act of 1974 permits the President to propose rescission of specific funds, but that rescission must be approved by both the House of Representatives and Senate within 45 days.

Legal Challenges

Challenging OMB’s authority to issue the OMB Memorandum under the Administrative Procedures Act (5 U.S.C. § 704) and alleging a violation of the U.S. Constitution’s Separation of Powers, Spending, Presentment, Appropriations, and Take Care Clauses, over 20 State AGs—and separately a number of nonprofit organizations—have contested the legality of OMB Memorandum in the U.S. District Court for the District of Rhode Island and the United States District Court for the District of Columbia, respectively. On January 28, 2025, the same date that both lawsuits were filed, the U.S. District for the District of Columbia issued a temporary administrative stay, blocking the OMB Memorandum’s impact on “open [(active)] awards” until 5:00 p.m. on February 3, 2025. In the Court Order that granted the stay, the Court stated that it was limiting the duration of the stay to only the few days in anticipation of an expedited briefing and hearing on the merits. These lawsuits may fade, in light of the OMB Memorandum’s abrupt recission, but they provided insight into the types of legal challenges that are possible in response to future White House actions impacting federal procurement. The authors of this alert, as well as others within Goodwin, are following these developments closely and will likely issue additional analysis in the coming days.

Potential Implications

Notwithstanding the legal arguments raised, the potential implications of the OMB Memorandum are potentially far-reaching, impacting not only business recipients performing cutting edge inventive work or research and development under financial assistance programs, but also individual states receiving federal assistance to facilitate recovery during and after natural disasters. States also receive federal assistance to fund essential law enforcement functions and to supplement education budgets to improve teaching and learning.

Takeaways

1. Continue to execute under current financial assistance programs. Considering the new administration’s endeavor to “increase the impact of every federal taxpayer dollar” and the OMB Memorandum’s requirement for federal agencies to initiate investigations when warranted to identify underperforming recipients, it is important for current awardees to continue performing at a high level under federal financial assistance programs. Despite the recission of the OMB Memorandum, the White House will likely continue to drive agency level investigations.
2. Communicate with Agency Points of Contact. Recipients of federal funding that may be impacted by future White House action should remain in communication with agreement officers and others who may provide real-time guidance related to the administration of their specific assistance programs. They should document communications about performance and temporary pauses in writing and contemporaneously, and inform federal contacts of any impacts that these actions will have on performance.
3. Continue to document expenses. Federal fund recipients must continue to track all expenses, including any expenses incurred as a result of, or related to, temporary pauses that result from the Trump Administration’s actions, as well as any costs associated with an award termination.
4. Follow the litigation. There are numerous active challenges to the OMB Memorandum, and it remains to be seen whether the recission of the OMB Memorandum will quiet these lawsuits or simply give rise to others.
5. Consider alternative sources of revenue. To the extent that legal challenges to White House actions targeting the expenditure of federal funds are unsuccessful, awardees should consider alternative sources of revenue, particularly if an awardees’ performance is related to: Diversity, Equity, and Inclusion (“DEI”); foreign aid; climate change; and other topics covered under President Trump’s executive orders. Awardees should also expect funding delays as the current landscape for federal financial assistance is evolving by the day, and sometimes by the hour. Alternative funding sources become even more important when awardees are contemplating or undergoing a corporate transaction, if federal funding accounts for a significant portion of revenue.

Goodwin’s Government Contracts and Grants Team has significant experience counseling clients on matters involving federal financial assistance awards and matters related to the performance and termination of these awards. Please contact the authors of this alert if you have questions regarding the implications of the OMB Memorandum and associated guidance for your business.

^[1] The GAO, a nonpartisan congressional watchdog, said in a decision issued Thursday that the White House budget office violated the Impoundment Control Act, a 1974 law that limits the White House from withholding funds that Congress has appropriated. This is not the first time that President Trump has been accused of taking actions that violate the law against impoundment. In 2020, the Government Accountability Office concluded that the Trump administration broke the law when, in 2019, it withheld US security aid to Ukraine that had been appropriated by Congress. This was the Presidential act that was at the center of the House’s impeachment case against the President.

This informational piece, which may be considered advertising under the ethical rules of certain jurisdictions, is provided on the understanding that it does not constitute the rendering of legal advice or other professional advice by Goodwin or its lawyers. Prior results do not guarantee similar outcomes.