Proposal Would Use Political Gatekeepers to Oversee Federal Grants

Last week the Office of Management and Budget issued a proposal that would overhaul the way that more than 100,000 nonprofits receive grants to carry out government programs. Among other things, the sweeping rule change would prohibit federal awards to groups that support diversity, equity, and inclusion programs, undocumented immigrants, and people who are transgender. The public has until July 13 to comment on these proposed changes. 

The proposal would place a political appointee as a gatekeeper at each federal agency to make certain taxpayer funds don’t veer from White House priorities. In addition, the pending regulations would make it easier for agencies to terminate grants if they are no longer deemed “in the national interest.”

Frankie Miranda, president of the Hispanic Federation, worries that the proposed changes would decimate nonprofits. He believes the new layer of political review would likely result in the loss of public funding for many of the federation’s 850 member nonprofits who serve vulnerable communities, including immigrants and trans people.   

“Many of these organizations will not be able to exist anymore,” he said Wednesday during a break from a series of meetings with about 100 members of Congress, an annual event the federation organizes with lawmakers on Capitol Hill.

Before the proposed rule changes were made public, Miranda was already on guard. In May the Trump administration targeted 49 nonprofits, including the federation and other prominent organizations such as the ACLU and the National Urban League, with requests for financial information. Miranda said he has consulted attorneys but has not taken any action in response. Nor has the administration contacted or subpoenaed him, he said, noting that all the requested information is publicly available.

Miranda called upon philanthropy and nonprofit leaders to organize a response to the proposal before the July 13 deadline. 

“We need to make sure that our elected officials understand the impact of this rule if it goes into effect,” he said, and to consider suing to stop the regulations from taking effect, he added. 

A Further Attempt to Undermine ‘Public-Private Partnership’ 

The proposal is part of a broader crackdown on fraud in government contracting and heightened oversight of the nonprofit sector under President Trump. Vice President JD Vance leads an anti-fraud task force to root out abuses and waste in federal benefit programs, and in September Trump established a law enforcement task force to investigate connections between nonprofit organizations and political violence.

By enforcing the president’s policy preferences through grant-making regulations, the proposal states that it seeks to reverse “unlawful DEI policies” that were put in place during the Biden administration.

The proposal lays out the administration’s motivations for making these changes. “These and other burdensome policies and requirements imposed through Federal award programs diverted substantial amounts of taxpayer funding away from traditional public purposes recognized in law — such as transportation, infrastructure, scientific research, public health, and other essential public goods that serve all Americans — to instead support favored identity groups and left-wing activists,” it reads.

Social sector advocates countered that many essential public services carried out by nonprofits, including early childhood education and health care, could be left by the wayside if the rule takes effect.

The threat of having a grant suddenly terminated and positioning political appointees to watch over grants could steer many nonprofits away from even applying for federal money, said Sarah Saadian, senior vice president of public policy at the National Council of Nonprofits.

Injecting politics into federal grant making is likely simply a way of excluding nonprofits the administration happens to disfavor, Saadian said, adding that this is the latest of several attempts to use the federal grant-making rules to stifle the work of progressive nonprofits. Saadian pointed to a January proposal that would require grantees to certify, under threat of potential fraud charges, that they do not engage in DEI activities. That proposal is not final; it received 22,000 comments from the public.

Last week’s proposal is a further “attempt to undermine the public-private partnership that exists between nonprofits and the federal government,” Saadian said. 

The language in the proposal requiring grantees to promote  national interests is vague, said Patrice Davis, founder of Grants Works, a firm that manages federal grants for nonprofits. She agreed with Miranda that if put in place the new rules could decimate the sector.

But it is the prerogative of every administration to change the rules on federal grant making, she said, pointing to Biden-era changes that gave preferences to supporting racial equity and underserved communities.

“Administrations have always embedded their policy priorities into regulations,” she said.

Other aspects of the proposal merit attention, Davis said, including the elimination of “fixed amount” grants, which could bring greater accountability to the grant-making process, which is needed. In a fixed-amount grant, a federal agency provides funds, sometimes upfront, for a project, rather than reimbursing a grantee for the money it actually spends.

Stricter accountability is welcome, said Bill Glahn, a policy fellow with the Center of the American Experiment, a conservative research and advocacy group in Minnesota. In his state, bona fide nonprofits have been given a “black eye” because of a ring of Medicare fraudsters, many of whom have been tried and convicted for scamming about a quarter-billion dollars in Medicare payments.

Tighter controls, he said, like many of the items called for in the proposed rulemaking, could ensure bad actors don’t tarnish the reputations of nonprofits as a whole. 

“This new regulation is saying that ‘we are expecting more accountability, we are expecting you to actually review financial reports, and we are expecting you to verify that the documentation substantiates the cost.’” he said.

But those changes will come with costs and will be difficult for smaller organizations, warned Miranda at the Hispanic Federation.

“Many of our member agencies and sister organizations do not have the luxury of moving away from some of these contracts,” Miranda said. “Many of them that have survived cuts in federal funding continue to operate with slim, slim budgets and may not be able to withstand these latest impacts.”

Correction: A previous version of this article said a proposal to require certification from grantees that they do not engage in DEI activities received 2,300 comments. In fact, it received 22,000 comments.