Federal Government Cannot Implement Sweeping Funding Freeze: Appeals Court

The Trump administration tried freezing trillions of dollars in funding, prompting a legal challenge.

The Eisenhower Executive Office Building, which houses the Office of Management and Budget, in Washington on Oct. 3, 2024. Madalina Vasiliu/The Epoch Times

A federal appeals court has upheld a lower court decision blocking the Trump administration from freezing trillions of dollars in funding to states.

A U.S. Court of Appeals for the First Circuit panel of judges said in the March 16 ruling that the White House Office of Management and Budget (OMB) arbitrarily and capriciously directed agencies in early 2025 to pause funding.

The OMB “directed the Agency Defendants to freeze such funds without considering an obvious aspect of the problem—namely, the reliance interests of the recipients of the obligated federal funds that were to be frozen,” U.S. Circuit Judge David Barron, writing for the unanimous panel, said in a 58-page decision.

“We thus agree that the States are likely to succeed in showing that it was ‘arbitrary and capricious to ignore such matters,’” he added, quoting from a different ruling.

The budget office on Jan. 27, 2025, directed agencies to review programs to determine whether they were consistent with President Donald Trump’s policies and requirements.

“Federal agencies must temporarily pause all activities related to obligation or disbursement of all Federal financial assistance ... that may be implicated by the executive orders,” the memorandum stated.

U.S. District Judge John McConnell, in Rhode Island, blocked the freeze, finding that the executive branch is not authorized to unilaterally suspend payment of federal funds to states or others.

OMB withdrew its directive after lawsuits were lodged, but the legal challenges have continued because parties have introduced evidence that steps were taken to freeze money even after the withdrawal.

Government lawyers said that the memo included language indicating that funds would not be blocked for programs “where reliance interests would be most acute, including for direct assistance to individuals, payments required by law, and payments that agencies believed appropriate to continue on a case-by-case basis.”

The new ruling stated that the relevant question was whether officials considered whether payments were legally required, and that the memo does not show officials undertook that consideration before freezing funds.

“Moreover, the Government does not point to anything other than the text of the OMB Memorandum when it comes to how the Agency Defendants decided to take the challenged actions,” Barron said.

The First Circuit panel largely upheld McConnell’s injunction, apart from vacating the portion that required the government to disburse money to states for awarded grants or executed contracts, pointing to Supreme Court decisions in a separate case that said district court judges lacked jurisdiction to order agencies to pay for certain grants. It kept in place the order for the government to pay “other executed financial obligations,” while saying arguments about the definition of those obligations should be settled by McConnell.

California Attorney General Rob Bonta, a Democrat who is helping lead the litigation, said in a statement that the decision “affirmed what we all know to be true: The Trump Administration’s sweeping directive to unilaterally freeze all federal funding in its first days in office was deeply harmful, reckless, and wholly unreasoned.”

The White House did not return a request for comment by the time of publication.