A Monday night memorandum issued by the Office of Management
and Budget ("OMB") ordered federal agencies to
"temporarily pause" all federal funding and other agency
activities that "may be implicated by" the slew of executive orders Trump issued last
week. The directive jeopardizes hundreds of billions of dollars of
federal funding, including funds already obligated via award
contracts. Several of Trump's underlying executive orders do
the same, purporting to, e.g., "pause the disbursement of
funds appropriated through the Inflation Reduction Act ... or the
Infrastructure Investment and Jobs Act." The result has been
chaos and confusion. Affected parties include
states and municipalities, nonprofit organizations, and private
entities that were awarded federal funds to tackle issues related
to energy and climate, healthcare, infrastructure, and other
critical policy domains.
There is little question that the OMB directive and certain of
Trump's executive orders constitute attempts to
"impound" vast sums of appropriated (and in many
instances obligated) federal funds—though the Administration
claims otherwise. In a follow-up Q&A document purporting to clarify the
Monday night memorandum, OMB asserts that the funding freeze
"is not an impoundment under the Impoundment Control
Act." Instead, OMB insists, it is merely a "temporary
pause to give agencies time to ensure that financial assistance
conforms to the policies set out in the President's Executive
Orders, to the extent permitted by law." But aside from the
"permitted by law" clause halfheartedly tacked onto the
end, that is an apt definition of impoundment—even if, for
now, Trump has ordered only a freeze of federal funds rather than a
permanent recission. Such actions violate not only the Impoundment
Control Act of 1974, but also, at the least, the Constitution's
separation of powers and—in the case of OMB's
directive—the Administrative Procedure Act's prohibitions
against ultra vires and arbitrary or capricious agency action. This
is just the beginning, so as we outline below, federal funding
recipients should take steps now to mitigate risk and prepare for
what lies ahead.
Programmatic Deferrals vs. Impoundments
It is true that a "programmatic deferral"—i.e.,
"a brief delay in expending or obligating funds" for
"purely administrative reasons"—may occasionally be
warranted. New Haven v. United States, 809 F.2d 900, 909
(D.C. Cir. 1987). But programmatic deferrals seek to
"advance congressional budgetary policies by ensuring
that congressional programs are administered efficiently." Id.
at 901. By contrast, "policy deferrals"—a.k.a.
"impoundments"—typically operate "to
negate the will of Congress by substituting the fiscal
policies of the Executive Branch for those established by the
enactment of budget legislation." Id. That is
precisely the case here, where the goal is expressly to
"conform" federal funding "to the policies set out
in the President's Executive orders."
Indeed, even Russell Vought, Trump's pick to lead OMB and an outspoken critic of the Impoundment Control
Act, has argued that a programmatic deferral is a delay
for "a very short period so that [the Executive Branch] may
determine the best policy in order to comply with the
statute." A "policy deferral" or
"impoundment," Vought has acknowledged, refers to
instances in which the President seeks to "defer[] funds"
because "the Executive Branch disagrees with the
policy of a statute." The OMB directive (and Trump's
underlying orders) leave no doubt on which side of the line they
fall: "The use of Federal resources to advance Marxist equity,
transgenderism, and green new deal social engineering policies is a
waste of taxpayer dollars" that must end, the OMB Directive
states.
Presidential Impoundment Authority
Since we are in impoundment territory, the question is when such
impoundments are permitted by law. Congress answered that question
when it enacted the Impoundment Control Act of 1974 (ICA) in
response to President Nixon's repeated refusals to spend
appropriated funds. In a nutshell, the Act permits the President to
rescind or defer "budget authority"—funds
appropriated for obligation and expenditure—when, and only
when, authorized by Congress. See 2 U.S.C. §§ 683(b)
& 684. Notably, even when its requirements are met, the ICA
permits the President to retract or defer only
appropriated funds, not those already obligated.
Of course, Trump has not invoked the ICA, which is no surprise.
Beyond insisting that his massive and indefinite funding freeze
"is not an impoundment," Trump has made clear his view
that the ICA is unconstitutional. Instead, he claimed on his campaign website, the
President's "inherent authority to 'take Care that the
Laws be faithfully executed,' ... mean[s] that the president
can impound funds when doing so allows him to enforce the law more
effectively and efficiently."
But the Supreme Court rejected this position almost two centuries
ago in Kendall v. United States, 37 U.S. 524, 608 (1838).
To contend that the President's duty to faithfully execute the
laws "implies a power to forbid their execution," the
Court reasoned, "is a novel construction of the
[C]onstitution, and entirely inadmissible." Id. at
613. Multiple federal district courts reaffirmed this principle
during the Nixon era. See, e.g., La. ex rel. Guste v.
Brinegar, 388 F. Supp. 1319, 1324-25 (D.D.C. 1975); Sioux
Valley Empire Elec. Asso. v. Butz, 367 F. Supp. 686 (D.S.D.
1973). So did the DOJ's Office of Legal Counsel (OLC) under President
Reagan. "There is no textual source in the Constitution for
any inherent authority to impound," OLC advised. Reliance on
the Take Care Clause, OLC explained, "creates the anomalous
result that the President would be declining to execute the laws
under the claim of faithfully executing them." And in 2018, a
federal court of appeals again rejected Trump's argument when
he sought to withhold and defund all federal grants awarded to
so-called "sanctuary jurisdictions." "When it comes
to spending," the court repeated, "the President has none
of 'his own constitutional powers' to 'rely'
upon." City & Cty. of S.F. v. Trump, 897 F.3d
1225, 1233–34 (9th Cir. 2018).
What now?
Although Trump's impoundment efforts appear plainly
unlawful, that assurance may be cold comfort to the countless
recipients of federal funds now struggling to understand OMB's
memorandum and to make business decisions in the face of rampant
uncertainty. Hours after a group of nonprofit organizations sued to
enjoin the OMB directive on Tuesday afternoon, a federal court temporarily stayed the funding
freeze—but only until Monday, February 3 at 5 p.m. During the
stay, the Administration is barred from implementing the funding
freeze "with respect to the disbursement of Federal funds
under all open awards." Later on Tuesday, twenty-two states and the District of Columbia
also sued to enjoin the OMB memorandum under the Administrative
Procedure Act (APA) and the Constitution's separation of powers
and Spending Clause.
This is just the beginning. Minutes before this post was scheduled
to go live, we learned that OMB had rescinded its Monday-night
directive. But this again might be cold comfort and merely a
cynical response to the district court's stay. After all,
Trump's EOs ordering the suspension of huge amounts of federal
funding are still in effect and may be vigorously enforced. Indeed,
the recission memo itself reminds agency heads
that they must "implement[] the President's Executive
Orders."
Whatever happens in these initial lawsuits and those that follow,
this Administration will continue to push to "conform"
federal spending to Trump's agenda. In the meantime, federal
funding recipients can take steps to mitigate risk and prepare for
what lies ahead. Although recipients' needs will be
case-specific, many would be advised to carefully review the terms
of conditions of their award agreements to confirm their rights and
obligations under the award; establish a robust compliance program
to ensure compliance with all terms and conditions; continue to
submit proper drawdown requests for allowable costs under the award
agreement and document any agency delay or denial; develop
protocols for internal and external communications to mitigate
oversight risk; and prepare a litigation strategy in the event
funding is suspended or rescinded.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.