Recent Developments Concerning the Federal Government’s Effort to Pause Grant, Loan and Other Financial Assistance Programs
By Alexander K. Buchholz, CPA, MBA, CGMA, Partner
Late yesterday, U.S. District Judge Loren L. AliKhan issued a temporary restraining order, ruling that the Office of Management and Budget (OMB) cannot implement or reinstate any of the directives from Memorandum M-25-13. This ruling requires the release of federal funds under all open awards, effectively ending the temporary funding freeze that had been paused just days earlier for the time being.
Key Developments Leading to the Ruling
The OMB issued Memorandum M-25-13 on January 27, which required federal agencies to identify and review all federal financial assistance programs and supporting activities. Federal financial assistance was defined in the memo as assistance that recipients or subrecipients receive or administer in various ways. Entities receiving federal funding under 2 CFR 200.1 would be impacted.
In order to achieve the objectives set forth in the memorandum, federal agencies would have enacted a temporary pause of all activities (to the extent permissible under applicable law) related to the obligation or disbursement of federal financial assistance for certain cause-related purposes under review by the current administration. The pause was to be in effect January 28, 2025, at 5 p.m. It excluded anyone receiving Medicare, Medicaid, Social Security, student loans or food stamps. Each federal agency was required to pause:
- The issuance of new awards.
- Disbursement under all open awards of federal funds.
- Other relevant agency actions that may be implicated by the executive orders (to the extent permissible by law).
However, just minutes before it was to go into effect, U.S. District Judge Loren L. AliKhan issued a temporary stay on the funding freeze, which was to last until the afternoon of Monday, February 3. Shortly after the temporary stay was issued by the federal judge, the White House rescinded the memorandum. This did not end the legal uncertainty, as the situation continued to unfold in court.
The confusion surrounding the abrupt implementation and subsequent reversal of Memorandum M-25-13 led to Judge Loren L. AliKhan’s Monday ruling. The lack of clarity regarding which programs were affected, coupled with conflicting communications from different agencies, created operational concerns for organizations relying on federal funds. The court’s intervention aimed to address these concerns, ultimately halting the OMB’s ability to impose or reintroduce similar directives without clearer justification and procedural safeguards.
Guidance
As new initiatives are being proposed by the current administration, we offer the following suggestions for organizations that may be affected by future potential federal funding reductions:
- Cash Flow Projections: Robust budget and cash flow models are important to determine which actions may be required in response to different economic scenarios. Organizations should look at both short- and long-term scenarios to ensure adequate cash flow needs.
- Drawing on Reserves: Organizations should examine any cash reserves set aside by the board to ascertain whether amounts need to be utilized to continue operations.
- Borrowings and Lines of Credit: Organizations should contact financial institutions to determine whether existing or new lines of credit can be drawn down or obtained as a source of temporary cash inflows to sustain operations.
- Long-Term Scenario Planning: Leadership and board governance should also be collaborating to determine any potential impacts to current and future programs. This should encompass, but not be limited to, staffing and programmatic considerations, should federal assistance be reduced or eliminated in the future.
- Alternative Funding Sources: Organizations should seek other sources of private and public funding to make up for any shortfalls caused by OMB restrictions.
More to Come
We expect the coming weeks to bring additional news and further clarity to this government-spending review. Our not-for-profit team will continue to provide you with updates and further guidance on a regular basis.
Contact Us
If you have any questions, please contact your PKF O’Connor Davies not-for-profit client service team or:
Alexander K. Buchholz, CPA, CGMA, MBA
Partner
Not-for-Profit Services
abuchholz@pkfod.com | 646.965.7783