OMB memo freezing federal funds leaves many state, local programs in limbo
Update: U.S. District Judge Loren L. AliKhan on Tuesday afternoon blocked the Trump administration memo that would have frozen trillions of dollars in federal funds. The administrative stay pauses the funding freeze until Monday, the Associated Press reported.
On Monday evening, the acting director of the White House’s budget office issued a memo temporarily pausing all federal grants and loans, leaving state and local governments unsure of how or if their programs — some of which are technology programs — will be impacted.
The memo, authored by White House Office of Management and Budget Acting Director Matthew Vaeth, directs federal agencies to “temporarily pause all activities related to obligation or disbursement of all Federal financial assistance,” beginning Tuesday at 5 p.m. E.T. While the memo does not directly name which programs will be impacted, it does cite carveouts for Medicare and Social Security benefits, and any federal financial aid received directly by individuals.
White House Press Secretary Karoline Leavitt noted during a press conference Tuesday that members of Congress were provided with a list of federal programs that were impacted, but said she had not seen the list.
“This memo requires federal agencies to identify and review all federal financial assistance programs and supporting activities consistent with the president’s policies and requirements,” Leavitt told reporters. “The American people gave President Trump an overwhelming mandate on Nov. 5, and he’s just trying to ensure that the tax money going out the door in this very bankrupt city actually aligns with the will and the priorities of the American people.”
Reuters reported a federal judge will hear a request Tuesday filed by nonprofit advocacy and small business groups to block OMB’s directive, claiming OMB exceeded its authority. The groups — which include the National Council of Nonprofits, the American Public Health Association, Main Street Alliance and SAGE — said the freeze “will have a devastating impact on hundreds of thousands of grant recipients.”
Several states, including New York, California and Massachusetts, have said they will file lawsuits in response to the memo. New York State Attorney General Letitia James called the directive “reckless, dangerous, illegal and unconstitutional,” during a virtual press conference Tuesday, Reuters reported.
Uncertainty
The memo’s vagueness continues a trend of uncertainty for states and local governments ever since President Donald Trump’s administration. An executive order Trump signed last Monday put into question the future of federal infrastructure funding, including the Broadband Equity, Access, and Deployment program.
OMB last week shared another memo clarifying that the executive order only applied to funding for the projects falling under the “Green New Deal.”
Under the latest freeze, as much as $3 trillion in federal funds could be affected. Vaeth wrote in the memo that the action’s intent is to end the use of federal resources to advance “Marxist equity, transgenderism, and green new deal social engineering policies.” However, a number of federally funded state technology programs that have nothing to do with Karl Marx, transgender people or electric vehicles could be disrupted.
Broadband projects like those being funded by BEAD seem to be unscathed for now, but there are also dozens of federal grant programs that assist state, local, tribal and territorial governments for other functions, such as support and expansion of their emergency communications infrastructures or rural utilities services, many of which are currently advertising funding opportunities.
Despite OMB’s carve-outs for Medicare and Social Security, Medicaid was not exempt from the freeze directive and at least 20 states are reporting trouble accessing their online Medicaid portals. Sen. Chris Murphy, a Democrat, confirmed on X Tuesday that hospitals in his state of Connecticut were unable to access the system.
“Connecticut’s Medicaid payment system has been turned off. Doctors and hospitals cannot get paid. Discussions ongoing about whether services can continue,” he wrote.
New York State also is experiencing disruptions. Attorney General Letitia James confirmed during a press conference Tuesday that state health care providers were locked out of their Medicaid reimbursement systems.
‘We are aware’
The State and Local Cybersecurity Grant Program, a $1 billion, four-year program created by the 2021 infrastructure law and jointly administered by the Federal Emergency Management Agency and the Cybersecurity and Infrastructure Security Agency, could also be impacted. The White House did not respond to requests for clarification on whether the cyber grants will be affected.
For state education departments, which receive billions in federal funding to pass along to local school districts, a number of programs could be impacted. Allocations from the Department of Education’s many federal education grant programs, such as Title I-A or Title IV-A, can be used by school districts to purchase digital devices, software and programs designed to improve learning environments for students from low-income families or those with disabilities.
Also potentially impacted are programs under the federal Office of Justice Programs, housed within the Department of Justice, that fund the purchase or lease of body-worn cameras for publicly funded law enforcement agencies or correctional agencies.
StateScoop reached out to state technology offices about the memo, but few agreed to comment on the record.
“We are aware of the OMB memo and are communicating with the federal government to gather further guidance,” Gina Long, a spokesperson for the Tennessee Department of Finance and Administration wrote in an email. “The Lee administration is committed to serving Tennesseans and working with federal agencies to ensure essential services continue.”
The memo also directs federal agencies to submit to OMB “detailed information on any programs, projects or activities subject to this pause” by Feb. 10.
