Unlawful Funding Freeze Sows Chaos

David Super

At a minimum, delaying the “obligation or disbursement of all Federal financial assistance” is clearly a “deferral of budget authority", which section 1011 of the Impoundment Control Act defines to include “withholding or delaying the obligation or expenditure of budget authority (whether by establishing reserves or otherwise) provided for projects or activities”.  (If there were any doubt, the Act also includes “any other type of Executive action or inaction which effectively precludes the obligation or expenditure of budget authority, including authority to obligate by contract in advance of appropriations as specifically authorized by law” within the definition of a deferral.) 

This is an unlawful deferral under the Act for at least two reasons.  First, section 1013(a) of the Act requires the President to transmit to Congress a “special message” containing various information “[w]henever the President, the Director of the Office of Management and Budget, the head of any department or agency of the United States, or any officer or employee of the United States proposes to defer any budget authority provided for a specific purpose or project”.  Nothing that the Administration has said suggests that any such special message has been provided or will be prior to the deferrals. 

Second, section 1013(b) of the Act, entitled “Consistency with legislative policy”, prohibits deferrals driven by policy disagreements with the spending involved.  It states:

“Deferrals shall be permissible only—

“(1) to provide for contingencies;

“(2) to achieve savings made possible by or through changes in requirements or greater efficiency of operations; or

“(3) as specifically provided by law.

“No officer or employee of the United States may defer any budget authority for any other purpose.”

Nothing in the OMB memo makes even the slightest gesture toward any of the three permissible grounds.  Instead, it seeks to root out “activities that may be implicated by the executive orders, including, but not limited to, financial assistance for foreign aid, nongovernmental organizations, DEI, woke gender ideology, and the green new deal.”

     A third likely breach of the Impoundment Control Act relates to section 1013(c), which states that “The provisions of this section do not apply to any budget authority proposed to be rescinded or that is to be reserved as set forth in a special message required to be transmitted under section 1012 of this Act.”  As the Administration clearly intends permanently to withhold funds it believes contradict President Trump’s executive orders, those are funds governed by section 1012, the impoundments section of the Act.  Thus, the Administration likely means to illegally double-dip on the withholding of some of the funds at issue. 

     This all shows that the Administration does not mean what it repeatedly says about following the law.  This likely reflects the oft-stated views of OMB Director-designate Russell Vought and presidential advisor Elon Musk that the Impoundment Control Act is unconstitutional.  That position is difficult to square with Clinton v. New York, which held that the President may not exercise the power Vought and Musk claim even with congressional approval.  Obviously congressional authorization puts presidential power “at its maximum, for it includes all that he possesses in his own right plus all that Congress can delegate”; if withholding appropriated funds was not constitutional with specific legal authority, it is difficult to see how it could be where it violates a statute and “his power is at its lowest ebb, for then he can rely only upon his own constitutional powers minus any constitutional powers of Congress over the matter. Courts can sustain exclusive presidential control in such a case only by disabling the Congress from acting upon the subject”.  It would take a novel constitutional theory indeed to disable Congress’s “Power of the Purse”. 

     More practically, if the Impoundment Control Act were invalidated, the result would be less, not more, presidential power to withhold funding.  In Train v. New York, the Supreme Court unanimously held that President Nixon’s withholding of sewage treatment funds for local governments violated the terms of the statutes authorizing and appropriating those funds.  The U.S. Court of Appeals for the District of Columbia Circuit subsequently held that, if the Impoundment Control Act were unenforceable, the President would lose all deferral authority as Congress intended the Act as a limited exception to the general prohibition on Presidents refusing to spend appropriated funds for policy reasons.  Although Congress does occasionally provide presidents with funds they may spend or not at their discretion, that is not the norm.   Therefore, this “pause” likely violates the statutes providing for much of the spending involved.  The Administration has not advanced any legal theory as to why these laws are all unconstitutional. 

     In many instances, this “pause” is likely to result in breaches of contracts to which the federal government is a party.  Many government contracts contain clauses allowing interruption of funding if the government has a reasonable belief that the non-federal party is using the funds in a manner contrary to the contract or to federal law.  But this “pause” applies across-the-board, without any particularized beliefs as to the parties involved.  If these agreements really did make one party’s payments optional, my Contracts students could tell you that they are not contracts at all but rather mere options, which bind neither party.  So we likely must add numerous breaches of contract to the list of illegalities in OMB’s memo.

     All this would be easier to address specifically if the order provided any clarity as to its reach.  It does not.  It speaks of “federal financial assistance” and refers to a definition at 2 CFR § 200.1.  This definition is extremely broad.  Recognizing this, OMB specifies only paragraphs (1) and (2) of this definition, but those are exceedingly broad, too.  OMB says that “this term does not include assistance provided directly to individuals” and declares that “[n]othing in this memo should be construed to impact Medicare or Social Security benefits.”  But Medicare is not “assistance provided directly to individuals”:  it is payments made to health care providers and health plans.  Does this imply that the Supplemental Nutrition Assistance Program (SNAP) is also exempt because it seeks to benefit individuals even though the actual payments go to food retailers that redeemed SNAP benefits for food?  What about Medicaid, in which the federal government reimburses states which reimburse health care providers for services rendered to low-income individuals?  As the third very large entitlement program in the federal budget, one would expect it to be listed with Medicare and Social Security if OMB intended to treat it similarly.  Moreover, the focus on paragraphs (1) and (2) could be read as disavowing the effects of paragraph (4), which excludes from the definition some “amounts received as reimbursement for services rendered to individuals”.  The closer one looks at OMB’s memo, the more questions arise. 

     The memo declares that “OMB may grant exceptions allowing Federal agencies to issue new awards or take other actions on a case-by-case basis.”  It provides neither criteria nor a timetable for such exceptions.  Given the huge number of entities this action affects, OMB – always thinly staffed and now even more depleted as President Trump has ousted many previous officials without installing new ones – will surely be unable to cope with requests for exceptions.  Exemptions from this freeze, even when legally compelled, may therefore depend on having the political connections to elevate one’s request.  This is precisely the sort of chaos and potential cronyism that the Impoundment Control Act seeks to prevent.  If President Trump wished to test the Act’s constitutionality, he could have identified a handful of grants to provoke a test case, as President Clinton did to test the constitutionality of the Line-Item Veto Act.  Even if one takes seriously the Administration’s far-fetched legal theories, this chaos is utterly unnecessary.

     The memo gives agencies – many of which still lack political appointees – two weeks to complete their reviews of programs and submit the results to OMB.  It does not, however, empower those agencies to resume federal funding upon completion of their reviews or provide any timeline for OMB to review the agencies’ findings and release the funds.  As noted, OMB will surely be swamped and lacking effective political guidance. 

     An implicit premise of the memo is that all recipients of federal funds – and enormously diverse group including state and local governments, large institutions, grassroots charities, researchers, and innumerable service providers – all have sufficient financial reserves to weather however long a suspension of funding may ensue.  That is demonstrably false.  Meals-on-Wheels programs still have to purchase food from vendors who will not keep delivering if their payments are “paused”, still have to pay electric bills for walk-in refrigerators that will not run if utility service is “paused”, and still have to record information to comply with federal reporting requirements, which most certainly will not be “paused”.  With many operating on a shoestring to begin with, assuming that services for vulnerable people will not be interrupted is unrealistic.  All the inevitable post hoc declarations that this or that harmful result was not intended will not change the fact that this is an unnecessarily reckless action whose harmful results are wholly predictable. 

     @DavidASuper1/DavidASuper.bsky.social