Federal Funding Pause — What We Know and Questions We Have

  • Nonprofits
  • 1/29/2025
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Update: As of January 29, the White House Office of Management and Budget has rescinded the federal funding pause.

Timeline:

  • As of January 29, the White House Office of Management and Budget has rescinded the federal funding pause.
  • On the afternoon of January 28, a federal judge granted an immediate, temporary injunction halting the funding pause from going into immediate effect. This temporary stay was to be in effect until 5 p.m. on Monday, February 3.

On Monday, January 27, 2025, the Office of Management and Budget issued a memo to the heads of all executive departments and agencies of the federal government, requiring a temporary pause in all activity and a mandatory review of all funded agencies and programs.

What we understand about the situation

Based on the memo and the series of executive orders issued since the new administration started its work a week ago, we anticipate the following impacts for organizations (which include nonprofits, higher education institutions, state and local governments, health care entities, and more) with federal funding:

  • The pause is relevant for all “federal financial assistance,” which is defined by 2CFR 200.1 as assistance that recipients or subrecipients receive or administer in the form of grants, cooperative agreements, non-cash contributions, direct appropriations, food commodities, loans, loan guarantees, interest subsidies, and insurance.
  • Any pending payments organizations are waiting to receive on federal grants will likely be delayed or stopped. The memo states all activity must cease by 5 p.m., Tuesday, January 28, so there is a chance a pending payment already in process is paid out today.
  • Processes to review new federal grants are paused. For example, the National Science Foundation was slated to hold grant review panels this week — all of which have been cancelled.
  • Federal agencies are required to review all grants (and other financial assistance, disbursements, etc.) and compile lists of recipients no longer eligible under the series of executive orders.
    • The National Council of Nonprofits has been compiling a summary of the executive orders and their likely impacts on nonprofits.
    • The memo outlines that the list of newly ineligible funding recipients is due to the OMB by February 10, and pauses should continue until the OMB has reviewed the list and provided the agency guidance on next steps.
  • The memo does state that the OMB may grant exceptions on a case-by-case basis, and to the extent required by law, agencies may continue certain administrative actions.
  • Medicare and Social Security benefits were noted in Footnote 2 of the memo as benefits and funding streams NOT impacted by the pause.

Questions we have

  • How will the Executive Orders be interpreted during this evaluation? Will it focus on the direct work done in the program funded by the government grant only? Will it be much broader and look at the overall organization’s mission, vision, and values?
  • Many federal grants are operated with or through states or local governments. How will the OMB’s mandatory review take into consideration prime versus sub-recipients of federal funding?
  • What access will nonprofits have to individuals at their funding agencies to ask questions and receive guidance during this evaluation period, particularly in light of staffing freezes and terminations?
  • What are the potential ramifications in our communities if funding is cut, organizations are forced to downsize or close, and needs go unmet?

What organizations can do now

The most urgent need for many organizations — particularly for those with tight balance sheets and reliance on timely federal grant reimbursements — is cash flow. A few considerations:

  • Build a daily cash flow model and run scenarios for paused federal payments (through February 10, through end of February, through March, etc.) to determine when the organization will be challenged to meet expense obligations.
  • Connect with your banker(s) to refresh on your cash flow options and what may be available to your organization. What are the terms on your lines of credit? What ability do you have to pull funds from CDs or other similar products?
  • Consider engaging with other funding sources (individuals, foundations, and other non-federal sources) that are not impacted by the order to see if they could assist in temporary cashflow support.
  • Run scenario plans and engage in discussions with your leadership and governance. If all of your federal funds were cut, what changes would you need to make to program services, staffing, or other expenses to remain viable?

There is likely to be legal action taken to attempt to pause or delay this process, which may delay or lessen the impact on the sector. But with the uncertainty this creates for many organizations, it is advisable to start on these assessments and discussions now.

How CLA can help you navigate the funding pause

First, we will be paying careful attention to all information as it is available and sharing our understanding of the information with our nonprofit clients, friends, and communities as soon as we are able. Second, with more than 25,000 clients across the broad group of likely impacted organizations, we are here to help and advise you as you navigate these situations.

This blog contains general information and does not constitute the rendering of legal, accounting, investment, tax, or other professional services. Consult with your advisors regarding the applicability of this content to your specific circumstances.

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