Judge Rules OMB Clause Can't Be Used to End Grants Based on New Agency Priorities

A federal judge in Massachusetts ruled Friday that the Trump administration cannot use a clause in governmentwide grant rules to end federal awards based on agency priorities adopted after those grants were issued, a decision affecting a dispute over more than $5.39 billion in active grants.

U.S. District Judge Indira Talwani, of the U.S. District Court for the District of Massachusetts, issued the ruling July 17 in a lawsuit brought by a coalition of 20 states, the District of Columbia, and the governors of Pennsylvania, Kansas and Kentucky. California is among the plaintiffs. The defendants include the U.S. Office of Management and Budget, OMB Director Russell Vought in his official capacity, and multiple federal agencies that make grants.

Talwani granted the plaintiffs’ motion for summary judgment on Count I, which asked the court to interpret a termination provision in the federal grants “Uniform Guidance,” the governmentwide rules for grants and cooperative agreements. The dispute centered on 2 C.F.R. Section 200.340(a)(4), which says an award may be terminated, “including, to the extent authorized by law, if an award no longer effectuates the program goals or agency priorities.” Talwani rejected the administration’s reading of that language, writing that “the Termination Clause does not permit agencies to terminate awards based on program goals and agency priorities identified after grants were awarded.”

The stakes are broad. According to the opinion, the plaintiff states said the active grants at issue exceed $5,391,125,688, and agencies have terminated more than 1,000 grants held by the plaintiffs, with additional terminations likely. Examples cited by the court include a roughly $26 million U.S. Department of Agriculture award to the Illinois State Board of Education under the Local Food for Schools and Child Care Cooperative Agreement Program, Justice Department awards under the Matthew Shepard & James Byrd Hate Crimes Program, and multiple terminations affecting the University of Wisconsin-Madison. The lawsuit says agencies across the administration began invoking the clause after January 2025 in areas including public safety, school meals, public health, research, clean water and unemployment programs.

The ruling came with an important limit. Friday’s order resolved Count I only, the core legal question about what the regulation means. Counts II and III remain pending. That means the decision did not itself vacate every prior grant termination challenged in the case, even as it rejected the administration’s interpretation of the rule that agencies had relied on. The clause at issue was first added to OMB’s Uniform Guidance in 2020 and later revised in 2024.

In a statement released by his office, California Attorney General Rob Bonta welcomed the ruling. He said the administration had used “a single subclause buried deep in federal regulations as its sole justification to withhold billions of dollars in federal funding to California.”