Mass Impoundment Shakes Our Government to the Core

The repercussions from the OMB’s freezing of all federal grants and assistance are raising alarms and already inviting lawsuits

Russell Vought, President-elect Donald Trump's pick to be director of the Office of Management and Budget, who has yet to be confirmed. Tom Williams/CQ-Roll Call, Inc via Getty Images.

Shock and fear rippled across federal, state and local governments yesterday, as well as through the nonprofit, education and research communities, after a two-page memo issued from the Office of Management and Budget (OMB) purporting to pause disbursement of all federal financial assistance effective Tuesday, January 28, 2025 at 5 p.m.

While direct payments to individuals and Social Security and Medicare are expressly excluded, other large programs such as Medicaid, which is paid out indirectly via the states, could be swept in. In the words of the memo, this freeze affects “all Federal financial assistance” provided by the government, “including, but not limited to, financial assistance for foreign aid, nongovernmental organizations, DEI, woke gender ideology, and the green new deal.” Notably, the words “but not limited to” are doing a lot of heavy lifting here, and what the OMB means by the last three categories is unclear.

What is clear is that this is a massive attempted “reset” of every single federal assistance program. And it’s seeking to accomplish this by starving the recipients of already-allocated dollars. The next step is equally ominous: By February 10, the OMB has directed each federal agency to submit lists of what was affected by the pause, and the OMB will review the lists and “provide guidance” afterwards. Much of the money could and likely would be held up for months or indefinitely.

What is also certain is that this is an illegal power grab by the Executive Branch, which is supposed to disperse funds authorized by Congress, not to make independent assessments of whether they are too “woke” or are for “foreign aid.” The technical term for this is “impoundment,” and it’s been tried before by Nixon in a limited fashion, without success.

Now Trump is putting mass impoundment to the test by freezing and withholding all federal grants and financial assistance. If upheld, this will have devastating downstream effects on local and state governments as well as disrupt ongoing research, relief efforts and all manner of work by nonprofits. If taken to an extreme, it would deal a significant blow to the economy as money that individuals, communities, organizations and governments rely on suddenly dries up, causing widespread furloughs and a pull-back in consumer and organizational spending nationwide.

Democrats, states and nonprofits swing into action in response

The ranking members of the House and Senate Appropriations Committees responded quickly to the move, firing off a five-alarm letter to the Acting Director of the OMB:

The scope of what you are ordering is breathtaking, unprecedented, and will have devastating consequences across the country. We write today to urge you in the strongest possible terms to uphold the law and the Constitution and ensure all federal resources are delivered in accordance with the law.

They ended with a demand for an immediate reversal:

While we may have strong policy disagreements, we should all be united in upholding our nation’s laws and the Constitution. We will be relentless in our work with members on both sides of the aisle and in both chambers to protect Congress’s power of the purse. The law is the law—and we demand you in your role as Acting OMB Director reverse course to ensure requirements enacted into law are faithfully met and the nation’s spending laws are implemented as intended.

Lawsuits are also landing fast. As the New York Times just reported, “A coalition of states, including New York, California, Illinois, New Jersey, Rhode Island and Massachusetts, are expected to file the challenge later on Tuesday in the Southern District of New York.” New York State Attorney General Letitia James is leading the charge on this case. “My office will be taking imminent legal action against this administration’s unconstitutional pause on federal funding,” she wrote on social media. “We won’t sit idly by while this administration harms our families.”.

In addition, a group of nonprofits has already sued in federal court in D.C. for a temporary restraining order. The group comprises the National Council of Nonprofits, the American Public Health Association, the Main Street Alliance and SAGE, an advocacy organization for LGBTQ+ elders. It asks for an order “barring the OMB and all of its officers, employees, and agents from taking any steps to implement, apply, or enforce” the memo.

To get a better handle on the probability of success of this attack upon our system by Trump and his Project 2025 lackeys (yes, this is straight out of that Russell Vought / Heritage Foundation playbook), we need to review the legality of this latest move. Yet because a court battle could prove protracted, or more ominously the government may find ways to defy court orders and withhold funds anyway, we need to also understand which federal grants could be affected by the move and how big a footprint that actually is. (Spoiler alert: The range of possibilities is from bad to horrifying.) From there, we need to explore how this could impact citizens and communities in substantial ways and even set off an economic crisis.

Impoundment: The King as Controller in Chief

Our Constitution grants the power of the purse to Congress, not the President. After Congress passes a budget that the president has signed into law, the White House, largely through the OMB, is then responsible for the actual spending of funds. There is no “line item veto” or “I’ll spend this but not that” impoundment power belonging to the executive branch. Indeed, the reason we have generally never paid much attention to the OMB is simple: No one has ever tried to weaponize it the way Trump is trying to do now, i.e., through mass impoundment of federal funds already approved and allocated by Congress.

Back in 1972, President Nixon tried a mini version of this, and he got shot down by a unanimous Supreme Court in the case of Train v. City of New York. In that case, Nixon had tried to hold back $3 billion of the $5 billion allocated under the Federal Water Pollution Control Act for Fiscal Year 1973, and the City of New York, which was set to receive some of those funds for sewer system improvements, sued.

The Court held that the actions by the Administrator in that case could not be squared with the clear language of the statute, which authorized allocations of the “sums” and not just part of the sums at the discretion of the executive.

Alarmed by what Nixon had tried to do, Congress passed a law to prevent this kind of end-run in the future. It’s called the Impoundment Control Act (ICA), and it’s been in place since 1974. The ICA was the piece of legislation that actually established the OMB, as well as the House and Senate budget subcommittees. Title X of the Act, entitled "Impoundment Control," sets out procedures to prevent the President and other executive officials from substituting their own funding decisions for those of Congress. If the President wants to delay or cancel funding authorized by Congress, he must follow specific legal processes.

Two parts of that process will wind up mattering here.

If the president wants to defer spending that’s already been allocated by Congress, there are three narrow exceptions in the ICA for when that’s permitted: (1) providing for contingencies; (2) achieving budgetary savings made possible through improved operational efficiency; and (3) as specifically provided by law.

The Trump White House will likely lean on exception number (2), perhaps under the guise of the so-called “Department of Government Efficiency” run by Elon Musk. But even then, under the ICA, Trump must communicate to Congress the amount and duration of the proposed deferral. And he can’t just keep it going forever. Under the ICA, the deferral can’t extend beyond the end of the fiscal year where he first communicates the amount to Congress.

As Prof. Steve Vladek noted in his newsletter today, if the President ultimately wants to rescind allocated money, under the ICA Congress needs to pass a new law authorizing that recission within 45 days of receiving notice from the White House. He can’t do it unilaterally. Trump may turn eventually to the Republican-controlled Congress to rescind funds authorized by the prior Congress, but good luck getting it through the closely divided House

Trump’s OMB is already out of compliance with the ICA. The impoundment of funds, under a presumed claim of deferred spending, was not communicated in advance to Congress. Indeed, the OMB doesn’t even know how much it is trying to withhold and for how long, and that puts it backward from what is required right out of the gate.

As the Center for American Progress noted, the incoming Director of the OMB, Russell Vought, who is a Project 2025 author, views the ICA with disdain. Vought supports “restoring the President’s authority to impound funds, a necessary remedy to our fiscal brokeness [sic],” and has declared that the Impoundment Control Act is “unworkable” and impermissibly micromanages how the president implements laws.

Yet beyond a challenge under the ICA, there is a clear constitutional violation here. If the White House simply had the power to refuse to spend money on programs it disagreed with, that would reduce Congress’s Article 1 power of the purse to nothing overnight.

Indeed, the White House Office of Legal Counsel even concluded in an opinion in 1988 that such a move would be extra-constitutional:

There is no textual source in the Constitution for any inherent authority to impound. It has been argued that the President has such authority because the specific decision whether or not to spend appropriated funds constitutes the execution of the laws, and Article II, Section 1 of the Constitution vests the “executive Power” in the President alone. The execution of any law, however, is by definition an executive function, and it seems an “anomalous proposition” that because the President is charged with the execution of the laws he may also disregard the direction of Congress and decline to execute them.

But perhaps that is the point. Project 2025 wants the current radical Supreme Court supermajority to approve the notion of an all-powerful executive who ultimately controls the expenditure of federal funds, even against the express wishes of Congress.

Given these considerations, it seems likely that the first court challenges that have sprung up in response will prevail and that the OMB will be enjoined in some way from freezing these funds. That in turn will wind its way up to the appellate courts, likely on a fast track to the Supreme Court.

And while we should never assume that this particular Supreme Court will do the right thing, it does seem unlikely that such a massive overreach by the Executive against Congress will withstand scrutiny, especially by the Chief Justice, Justice Barrett, and the three liberal Justices Kagan, Sotomayor and Jackson. Trump may have been able to get away with impounding some amount of money based on an ambiguity in some statute. Getting away with impounding all of the federal grant and assistance money, without differentiation, is unlikely to win over five justices, or even more than two based on prior rulings.

The broad impact of the funding freeze

It’s difficult to describe how potentially broad the freeze on government disbursements of assistance and grants is under the OMB memo. As Politico put it,

President Donald Trump’s budget office Monday ordered a total freeze on “all federal financial assistance” that could be targeted under his previous executive orders pausing funding for a wide range of priorities — from domestic infrastructure and energy projects to diversity-related programs and foreign aid.

Congressional watchers view this funding pause as wide-ranging on its face, from Medicaid to federal-aid highway programs, tenant assistance, child nutrition programs, and grants for colleges and universities. Politico has now posted a 52-page long spreadsheet of the programs purportedly affected by the freeze, and they include some doozies: Head Start, veterans nursing home care, and state medical assistance programs, just to name a few. Even a quick scroll through that document is chilling when you consider the consequences of a freeze.

The sledgehammer nature of the funding pause is matched only by its gross politicization in the authorizing memo:

The use of Federal resources to advance Marxist equity, transgenderism, and green new deal social engineering policies is a waste of taxpayer dollars that does not improve the day-to-day lives of those we serve.

As the Trump campaign did in the period leading up to the election, the memo leads with these political attacks as a kind of smokescreen for its larger agenda of seizing control of the levers of government, specifically in this instance the power of the purse.

So how much is potentially at stake? The memo itself throws out the figure of $3 trillion dollars in federal grants and loans out of $10 trillion supposedly spent by the federal government in 2024. It bears noting that the second figure is a wild inflation of reality. The federal budget was actually around $6.752 trillion, according to the nonpartisan Congressional Budget Office.

These casually-off-by-$3.25 trillion numbers by the OMB are not inspiring confidence.

A quick look at the “grants” list by the federal government, as maintained at USAspending.gov, reveals that to get anywhere near the trillions of dollars in federal assistance the OMB memo seeks to impound, Medicaid payments to the states would have to be included. They are among the largest that could be directly affected by this OMB directive.

Earlier today, Medicaid portals went down, even as the OMB issued a second memo asserting in response to questions that Medicaid would not be impacted. It remains highly uncertain how far the OMB will go.

As I’ll discuss below, a sudden loss of tens or hundreds of billions of expended dollars would cause the system and our economy to seize up.

“The American people will pay an awful price.”

Senate Minority Leader Chuck Schumer (D-NY) issued a statement after the memo came out condemning this further “lawlessness and chaos” as Trump’s administration holds up “virtually all vital funds that support programs in every community across the country.”

He warned, “If this continues, the American people will pay an awful price.” Sen. Schumer added, ”It will mean missed payrolls and rent payments and everything in between: chaos for everything from universities to non-profit charities.”

We got a taste of how a funding freeze would impact vital services just a few days ago when Trump specifically froze all foreign aid spending including global health funding. The impact of this freeze on AIDS epidemic testing and treatments in Africa in particular is devastating. As NPR reported,

With its $6.5 billion annual budget, PEPFAR — the President's Emergency Plan for AIDS Relief — provides HIV/AIDS medications for over 20.6 million people, keeping patients alive and preventing them from transmitting the virus. It also offers testing and education on HIV/AIDS. According to a State Department fact sheet, PEPFAR has saved the lives of an estimated 26 million people since its inception.

Tragically, by ending access to life-saving PREP medication for millions, it likely means hundreds of thousands of otherwise preventable cases of HIV.

The funding freeze was felt immediately. As Dr. Jeremy Faust explained in his Inside Medicine newsletter, a funding freeze leads to "stop work orders," meaning clinicians can’t go to work because there’s no money to pay them going forward.

The lack of personnel means that “someone who was supposed to get a refill on their medication(s) would not be able to get it,” warned Dr. Atul Gawande, the lead for global health for USAID. “So this is very real. It is not hypothetical.”

A freeze in disbursements of federal funds in the U.S. for Medicaid, schools and universities, research facilities, nonprofits and local governments would similarly result in stop work orders and furloughs. It could also produce an immediate backlog of unpaid federal assistance, including Section 8 rental assistance, school breakfast and lunch programs, and nutritional and food assistance for poor families.

Those programs cover millions of Americans, whose spending on necessities in turn supports millions of businesses. The ripple effect from the loss of these funds would mean immediate hits to communities and states already reeling from sudden spikes in egg and poultry prices and the looming inflation threat on basic goods like gas and groceries due to Trump’s threatened tariffs.

Even if the OMB was unintentionally overbroad in its stated scope, the resulting uncertainty and chaos are enough to cause major disruptions to planning, inventory, disbursements and personnel in nearly every community in America.

Whether such resulting fear and disruption was part of the memo drafters’ intent is unknown, but “shock and awe” is an express and core part of the plan for the Trump administration. We can only hope that the mass impoundment of federal funds gets quickly blocked nationwide by a federal court injunction. But even that won’t be the end of it, as the Trump administration inevitably devises new ways to restrict and control the flow of federal dollars.

The White House’s plans could also be thwarted by a few members of the GOP House and Senate who don’t appreciate being made into potted plants with the power of the purse forcibly yanked from them. But we shouldn’t hold our breaths waiting for any of them to grow a spine and stand up to Trump, even when power in their own branch of government is being brutally undermined.

On the other hand, a good swath of the American public may soon experience first-hand what it’s like to have all federal money for services, grants and assistance dry up overnight. Perhaps that will finally alert many to the true danger and cost of handing over the reins of government to radicals who want to remake our society entirely.