Judge Rules Trump Admin Cannot Cancel Grants Over New Policy Priorities

The ruling limits agencies’ use of an Office of Management and Budget termination clause but does not restore funding already withdrawn from states.

Russ Vought, director of the Office of Management and Budget, testifies on Capitol Hill in Washington on June 4, 2025. Madalina Vasiliu/The Epoch Times

A federal judge has ruled that President Donald Trump’s administration cannot use a White House budget office regulation to terminate federal grants it determined no longer align with priorities adopted after the funding was awarded.

In a July 17 memorandum and order, U.S. District Judge Indira Talwani in Boston declared that the regulation does not allow agencies to cancel grants based on new program goals or agency priorities introduced after an award was made.

Talwani granted partial summary judgment to officials representing 23 Democratic-led states and the District of Columbia, who had accused the Trump administration of mounting an “unprecedented and unlawful” campaign to terminate billions of dollars in congressionally appropriated federal funding that the states deemed “critical.”

The judge also denied the administration’s motion to dismiss the central count of their lawsuit, while leaving two alternative counts as pending.

The ruling neither restores funding already lost nor requires the government to return any withdrawn funding.

Dispute Over OMB Regulation

The case centers on a provision in regulations issued by the Office of Management and Budget in 2020 and later revised.

The provision states that a federal award may be terminated under the terms and conditions of the award, including when it “no longer effectuates the program goals or agency priorities.”

Since Trump returned to office, federal agencies have cited that language when canceling grants that support programs the administration views as inconsistent with its agenda, including initiatives related to diversity, equity, and inclusion (DEI), climate change, and gender ideology.

In their complaint, the states described the cancellations as a nationwide “slash-and-burn campaign” based on an expansive new interpretation of a single regulatory subclause.

Government attorneys argued in court filings that the regulation’s wording placed no time limit on when the relevant agency priorities must have been adopted. Under their reading, the clause allowed agencies to consider their current priorities, not merely those in place when a grant was awarded.

They also argued that changes in policy following an election are a normal part of representative government.

“A change in administration brought about by the people casting their votes is a perfectly reasonable basis for an executive agency’s reappraisal of the costs and benefits of its programs and regulations,” government attorneys wrote, citing Supreme Court precedent. “Some of Plaintiffs’ arguments are very hard to square with that important principle of representative democracy.”

The administration further argued that the states lacked standing, that possible future grant cancellations were speculative, and that the lawsuit did not challenge a final agency action.

Priorities Must Be Disclosed

Talwani rejected those arguments as they applied to the states’ request for a declaration governing active grants.

The states did not seek damages or other relief concerning past cancellations in this case. Instead, they focused on protecting active grants from future termination.

The judge found that the states faced a substantial risk of further cancellations, noting that they held at least 1,180 active grants worth more than $5.39 billion from the defendant agencies.

Talwani concluded that the termination clause applies to the goals and priorities identified when an award is made—not to new priorities introduced later.

“Defendants’ interpretation of the Termination Clause is not clearly supported by the text of the provision, runs counter to the regulatory scheme, receives no support in the rulemaking history, and would violate the Spending Clause’s requirement that conditions be imposed unambiguously,” she wrote.

The judge said the regulatory framework requires agencies to disclose their goals and priorities when announcing a funding opportunity, allowing applicants to “make an informed choice” whether to accept the terms.

If agencies could later change those standards and use them to cancel existing grants, states could not knowingly agree to the conditions attached to federal funding, Talwani found.

Talwani acknowledged, however, that presidents and federal agencies are free to establish new priorities when awarding future grants.

“The regulation, as declared by this court, demands only that grantees be apprised of those goals and priorities before grants are awarded,” she wrote.

The White House had no immediate comment.

New Jersey Attorney General Jennifer Davenport called the decision a victory for states, saying it confirmed that the administration acted “recklessly and illegally” when it cut federal funding to select programs.

“The President and his allies cannot hold critical programs hostage to their personal whims and political ideologies, destabilizing the country by yanking essential federal funding that was already awarded to the states,” Davenport said.

Reuters contributed to this report.