The Trump Administration Shakes Up Federal Grantmaking

The federal government distributes more than $1 trillion in grant funding every year to state and local governments, universities, aid groups, scientists, and health researchers, among others. These grants fund everything from repairing bridges to cancer research. 

A sweeping new rule proposed by the Trump administration could remake how that money is awarded and give the president and his political appointees discretion to cancel funding or target recipients for virtually any reason—with little opportunity for recourse. 

White House officials argue the new rule is necessary to assert more accountability over federal grantmaking, but observers fear the shift will expand opportunities for politicization, abuse, and even corruption for an administration that has already demonstrated a penchant for using the levers of the federal government to punish partisan enemies and reward ideological allies. 

The federal government funds a huge portfolio of grantmaking programs. Congress establishes grant programs and appropriates money to support them, but the level of specificity congressional statutes prescribe for how funds are administered can vary widely. In some cases, Congress mandates that specific eligible groups or parties receive funding through a program like Medicaid or the Supplemental Nutrition Assistance Program. 

But for a large chunk of federal grants, statutes leave more leeway for executive agencies to decide how to structure awards and select recipients. These grants are known as discretionary or competitive awards and encompass much of the scientific and medical research funding administered by agencies like the National Science Foundation (NSF) and the National Institutes of Health (NIH), but programs across the federal government also make competitive grants. For example, the Department of Transportation’s Bridge Investment Program is a discretionary grant program that provides funding to state and local authorities to repair bridges. 

Most of these discretionary grants are awarded through a competitive or peer review process in which civil servants or outside academics and subject matter experts review grant applications and determine which ones are best positioned to fulfill the grant’s purpose. The White House Office of Management and Budget (OMB) released a 412-page proposed rule last month that would upend that system.  

The rule contains dozens of notable provisions, but some of the most significant changes include sidelining merit-based reviews for grant applications and elevating political appointees’ control over individual grant decisions, effectively enabling the White House to cancel any award at any time—even after it has already been through the approval process—and significantly narrowing the ability of grant recipients to challenge the termination of awards.  

The new rule makes it so that the peer review process is no longer a decisive factor in grant decisions, declaring that peer review recommendations should be treated as “advisory” and not “routinely deferred to.” 

It also adds a “pre-issuance” review that would be required before the money can go out, in which a senior political appointee can deny awards on the basis of a range of new, subjective criteria, including whether the awards “demonstrably advance the president’s policy priorities” or promote or encourage “illegal immigration; or any other initiatives that compromise public safety or promote anti-American values.” The rule also formalizes measures in several executive orders last year rolling back diversity, equity, and inclusion (DEI) priorities and stipulations in grantmaking, and prohibits funding that promotes or supports "theories of disparate impact liability” or gender ideologies that “deny the biological reality of sex of the sex binary.”

And even after an award has made it past political litmus tests, it could be terminated at any point during the award term—grants are often awarded for multi-year proposals—if political appointees decide it is no longer “in the interest of the federal agency” or “the national interest.” Agencies would be further empowered to terminate grants if recipients take actions that “damage the reputation” of the federal government. These stipulations would introduce significant uncertainty and unpredictability to federal grants, potentially setting up wholesale turnover of previous funding decisions when a new president takes office. 

Taken together, the rule could fundamentally reshape how hundreds of billions of federal dollars are spent—or not spent. Over the past 18 months, the administration has tried to cancel or freeze a huge portion of federal grants with mixed success, as a number of recipients have filed lawsuits challenging the funding cancellations.“This is the most significant of just about everything else that the administration has put out to date,” Jessica Abrahams, a partner at the Faegre Drinker law firm with extensive experience litigating federal contracts and grant awards, told The Dispatch. “To me, what the government couldn’t accomplish in the courts it’s trying now to do by fiat with this proposed rule.” 

Under the current system, funding recipients have challenged recent grant cancellations, citing the Administrative Procedure Act and seeking injunctive relief from the courts. But the new rule tries to re-frame grants as federal contracts, which can be terminated “for convenience” by the government. “If this proposed rule becomes the final rule, then it would just be much more difficult for grantees to get relief because the government has the power then to treat their grant like a contract and just terminate it at their discretion,” Dominique Casimir, a government contracts lawyer and partner at the Blank Rome law firm, told The Dispatch.

A number of executive agencies appear to be instituting this new political review even before the rule has gone into effect, according to reporting from NOTUS. At the Department of Health and Human Services (HHS), hundreds of millions of dollars in grants for public health response and mental health and substance abuse programs have ground to a halt, waiting on review from senior political officials. Significantly, the proposal would supersede all individual agencies’ grantmaking processes and replace them with a single OMB rule, centralizing power in the White House.

The proposal has sparked significant criticism from a wide range of groups, particularly scientific and health research organizations. The rule docket has already garnered more than 35,000 public comments. “Scientific judgment and political preference serve different purposes,” David Skorton, the head of the Association of American Medical Colleges, argued in an op-ed earlier this month opposing the rule. “Mixing them does not improve research. It undermines the very thing that has made American discovery work, which is the freedom of scientists to follow the evidence wherever it leads, without permission from Republicans or Democrats in Washington.”

“American science has long been state funded but not state directed,” Alex Tabarrok, an economist at George Mason University and co-author of the influential economics blog Marginal Revolution, wrote earlier this month. “The system has flaws—conformity, gerontocracy, waste—but it had one great virtue, the system was decentralized and not under state control. This rule proposes to bring science funding under top-down, state control.” 

Trump officials have sold the new rule as necessary to improve accountability over federal spending, arguing that the Biden administration politicized the grantmaking process by pursuing DEI goals and funneling money towards left-wing activist groups. “The freakout by those on the Left subsidized by taxpayer funds over OMB’s update of the regulation governing federal grant making tells you how important it is to keep the bureaucracies from leaking out spending that is woke, wasteful, and contra to the policies of the Trump Administration thru the NGOs,” OMB Director Russell Vought wrote on X this month. 

The Biden administration certainly had its own priorities for federal grantmaking and pursued them through a number of executive orders, memos, and guidance to federal agencies. This included adding DEI requirements and stipulations to grant awards and initiatives like Justice40, a plan to direct 40 percent of money and benefits from a selection of programs working on energy, housing, and climate issues toward underserved and disadvantaged communities. But those priorities still had to be worked out through individual federal agencies, which had mixed success with implementation. 

Some former officials argue that’s largely in keeping with how the system has traditionally worked. “In the normal standard model, the political engagement is on the front end to shape the program, to shape the applications, but then it’s left to a nonpartisan process to determine who best meets those criteria,” Devin O’Connor, a former OMB official in the Obama administration who also served in the Biden administration, told The Dispatch. The logic is that politics should shape the goals and focus of federal grants, but competitive and merit-based reviews, not partisan considerations, should govern who gets an award once the priorities and parameters are set. “The general view is that competition is the best way to ensure that the best person for the job gets the funds,” he added. 

A common conservative and Republican critique of the federal government is that Congress has ceded far too much authority to executive agencies, giving them too much discretion over both regulations and funding awards. The OMB rule abandons that argument and adopts the logic of expansive executive power.

“In the previous administration, executive agencies frequently chose to subsidize and expressly prioritize projects based on their ideological alignment,” OMB states in the proposed rule. “If executive agencies were entitled to subsidize those types of activities during the previous administration, there is no constitutional basis to prevent the government from reaching a different policy determination regarding which activities to fund during this administration.”

Put simply, if the Biden administration abused the system for ideological ends, we can do the same. But that framing elides how much power the new rule would concentrate with the president and his appointees compared to previous administrations. “There’s no question that if you compare what the situation had been and what this new rule proposes, this new rule proposes a great deal more control than had been the case,” Casimir told The Dispatch. “This is a mechanism by which the president can exercise a level of granular control that is currently not possible through executive orders or the existing grantmaking structure.” OMB did not respond to The Dispatch’s request for comment. 

The rule cites multiple reports from the Heritage Foundation on the Biden administration’s promotion of DEI across federal agencies. But those reports concluded that the government was making changes that “ought to be the purview of legislation not executive diktat.” They also warned that politicizing grants, many of which go to state and local governments, “have the added effect of coercing these governments into adopting the same ideological bend if they want a full share of the funding streams paid for by taxpayers from their states.”

David Ditch, a former Heritage Foundation analyst who co-authored the reports, argued that the Biden administration’s channeling of funds towards left-leaning causes and groups reflected a significant escalation in the politicization of federal funds and that the new rule could be used to undo some inappropriate awards. 

But he reiterated that the rule is in keeping with the long-term trend of increasing executive power and that ultimately, Congress needs to act to reclaim its authority over the federal purse. “People who are concerned about a president that they don’t like having too much power, then being extremely comfortable with the president that they do like getting more power, need to account for the fact that every four years it’s practically a coin flip right now in this country that there’s a president you don’t like who’s going to have control over the federal government,” he told The Dispatch. 

O’Connor argued that if people believe the Biden administration put a thumb on the scale with grantmaking, this new rule exponentially expands the opportunities for politicization. “I think it should appear to people who are critical of the Biden administration on that score to be their criticism on steroids,” he said of the rule. He also emphasized that the new ongoing ability to terminate grants with little or no justification provides a huge opportunity for abuse and coercion. 

Last month, OMB reportedly circulated a memo to federal agencies requesting data on funds going to a list of nearly 50 nonprofits. Most of the group included left-leaning legal and advocacy organizations working on immigration and refugee issues, the environment, and legal aid, such as the American Civil Liberties Union, the International Rescue Committee, and the Vera Institute of Justice. 

Democratic lawmakers have raised alarms about the potential for abuse under the proposed rule and pressed the administration’s nominee for deputy OMB director, Hal Duncan, on the new rule during hearings on Capitol Hill last week. Sen. Elissa Slotkin of Michigan asked Duncan if a protest against the Iran war on campus at a university receiving a federal cancer research grant could be considered damaging to the reputation of the federal government and grounds for funding termination. The nominee demurred and simply said the administration was committed to funding gold standard science.

During a separate hearing, Sen. Jeff Merkley of Oregon asked Duncan if he would commit to not letting partisanship take over the grantmaking process. “Senator, [I] certainly commit to ensuring that grants are spent in accordance with the law, but fundamentally in accordance with the president’s priorities as well,” Duncan answered.