ARTICLE
4 February 2025

An Impoundment By Any Other Name

FH
Foley Hoag LLP

Contributor

Foley Hoag provides innovative, strategic legal services to public, private and government clients. We have premier capabilities in the life sciences, healthcare, technology, energy, professional services and private funds fields, and in cross-border disputes. The diverse experiences of our lawyers contribute to the exceptional senior-level service we deliver to clients.
A Monday night memorandum issued by the Office of Management and Budget ("OMB") ordered federal agencies to "temporarily pause"...
United States Government, Public Sector

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.

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