Editor’s note: This is an evolving situation, and we will continue to update this information brief as the facts change.
UPDATE: As of 1:45 p.m. on January 29, 2025, the Trump administration rescinded the federal funding freeze just one day after it was issued. As previously mentioned, this is an evolving situation and showcases that change may be coming and it is important to consider how to navigate the changing tide.
Headlines are flooded with articles concerning the Federal Government funding freeze. A memorandum issued on January 27, 2025, details the impacts of the freeze. This memorandum requires federal agencies to identify and review all federal financial assistance programs and supporting activities consistent with President Trump’s policies and directives.
2 CFR 200.1 defines federal financial assistance to mean “assistance that recipients or sub-recipients receive or administer” in various forms, but this term does not include assistance provided directly to individuals. For the purposes of this memorandum, federal financial assistance includes: (i) all forms of assistance listed in paragraphs (1) and (2) of the definition of this term at 2 CFR 200.1; and (ii) assistance received or administered by recipients or subrecipients of any type except for assistance received directly by individuals. The freeze is not intended to be across the board but is targeted to executive orders that address immigration, foreign aid, climate and energy, DEI initiatives, gender identity and abortion. Several of the large federal agencies noted the freeze does not impact all of their funding, but this may not provide the necessary information for the many organizations that receive government grant funding. For example, the Title IV aid programs operated by Colleges and Universities for the Direct Loan and Pell Grant programs may not be affected.
Effective January 28, 2025, a federal judge issued a stay just before the 5:00 p.m. scheduled start of the freeze directive for existing federally funded programs. The stay is in effect until Monday, February 3, 2025, at 5:00 p.m. and does not affect all new funding issuances. Also, as of January 28, 2025, The National Council of Nonprofits, the American Public Health Association, Main Street Alliance and SAGE filed a Motion for Temporary Restraining Orderto block the funding freeze. Their hope is for the judge to rule in their favor and put a more lasting stay in place, allowing nonprofit organizations more time and clarity on whether or not their programs are affected.
Let’s go through what has been publicly written thus far.
What We Know
- Each federal agency must complete a comprehensive analysis of all federal financial assistance programs under their direction to identify programs, projects, and activities that may be affected by any of the President's executive orders and submit a summary of programs that are not compliant with the orders by February 10, 2025.
- The federal funding freeze was set to begin at 5:00 p.m. on January 28,2025, and is expected to last until February 10; however, it is uncertain what further actions will be taken on that date. Federal drawdowns are expected to be unavailable during this period of the federal funding freeze.
- New federal grants that have not been awarded will be on pause until further notice.
- Many advocacy and membership-based organizations, in addition to the ones noted above, have filed for a stay on the executive orders and will most likely continue to challenge the orders themselves.
- The memorandum clearly states, "Nothing in this memo should be construed to impact Medicare or Social Security benefits. " Therefore, certain benefits directly to individuals are not expected to be affected. The impact on Medicaid is not clear, as this was not specifically identified within the memo.
- Certain “Contracts” (i.e. contracts that supply the government with goods and services) which are not covered under 2 CFR 200.1 should not be affected.
- The Trump administration has been clear about their desire to cut certain agencies' funding, and this is likely the first step in that direction.
- Not-for-Profit organizations and government agencies need to take strategic action now and plan for the scenarios that could occur.
What We Do Not Know
- How long the cash drawdown freeze will occur and when payments will be accessible again.
- What, if any, grants will be rescinded, or if there will be cuts for existing grants.
- Which federal agencies will be hardest hit and have significant funding withdrawn.
- If costs already incurred by grant recipients on contract and grants already awarded will be eligible for reimbursement and when the claim for those expenses can formally be made.
- Are prime vs. sub-recipient funding contracts treated differently with the review being undertaken by each federal agency.
- How this will affect employees of agencies and the overall constituents served.
What Actions Can You Consider Taking Now?
When large-scale public events like this occur, it is important to strategically discuss and gather all available information, knowing that it may be changing quickly. Here are a few actions to consider:
- Contact Your Funding Source: Each federal agency will be impacted differently, and the agencies themselves should have direct information that will benefit the organization. Given the fluidity of the situation, consider that they may not have specific information in the near term as they are also working to address it.
- Emergency Planning: Consider your cash flow budget, ability to pay payroll and other obligations, available funding and access to additional short-term funding.
- Diversify Funding Sources: To reduce reliance on federal funds, seek alternative funding from private donors, foundations, and local government grants.
- Advocacy and Lobbying: Engage in advocacy efforts to raise awareness about the freeze’s impact and lobby for exceptions or reversals of the decision.
- Collaborate with Other NFPs: During this period, partner with other nonprofits, community organizations, and local businesses to share resources and support each other.
- Communicate with Stakeholders: Keep donors, volunteers, and beneficiaries informed about the situation and how it might affect your programs. Transparency can help maintain trust and support.
- Legal and Ethical Review: Consult with legal experts to understand the freeze's implications and explore any potential legal challenges or exceptions that might apply to your organization. In addition, cash flow issues may result in challenges on payroll, and it is important to consult with legal counsel familiar with state labor laws.
- Cost and Cash Management: Implement cost-saving measures and prioritize essential services to ensure the most critical programs continue to operate.
If you have questions, please reach out to your Withum contact. We will keep you posted as further information becomes available.
Contact Us
For more information on this topic, please contact a member of Withum’s Not-for-Profit and Education Services Team.
