Federal Judge Briefly Halts Funding Freeze Affecting Nonprofits

By Amanda L. Cole

A federal judge extended a temporary restraining order against a Trump administration funding freeze that has kept nonprofits from accessing previously awarded funds to further their missions.

U.S. District Judge Loren L. AliKhan stopped an Office of Management and Budget federal funding freeze yesterday after the agency continued to prevent nonprofits, among other recipients, from accessing up to $3 trillion in funding for open awards. The stop in payments was an attempt to ensure funding aligned with new policies President Donald Trump disseminated in a flurry of executive orders during the first week of his second term.

“The Trump administration’s [the Office of Management and Budget] grant freeze memo plunged people and communities across the country into chaos and uncertainty as they waited to see if critical programs — from childcare, to eldercare, to food services, to health programs, to community initiatives — would continue,” Skye Perryman, president and CEO of Democracy Forward, said in a statement. “This order is a lifeline that provides the breathing room needed for our clients to continue to provide services people across this country rely on. We look forward to pursuing this case on its merits in court on the behalf of our clients and the American people.”

On Jan. 27, a leaked memo (opens as a pdf) from Matthew J. Vaeth, acting director of the Office of Management and Budget, announced a government-wide temporary pause for distributing grants, loans and other financial assistance. This would allow agencies to review funding and ensure it does not conflict with Trump’s policies.

The freeze was expected to go into effect the next day — Jan. 28 — at 5 p.m. However, before that could happen, the Democracy Forward Foundation filed a motion on behalf of four nonprofits to get a temporary restraining order to allow for time to fully consider its legal options.

“This memo — made public only through journalists’ reporting, with barely 24 hours’ notice, devoid of any legal basis or the barest rationale — will have a devastating impact on hundreds of thousands of grant recipients who depend on the inflow of grant money — money already obligated and already awarded — to fulfill their missions, pay their employees, pay their rent and, indeed, improve the day-to-day lives of the many people they work so hard to serve,” the nonprofits’ lawyers wrote in the lawsuit.

AliKhan first issued the temporary restraining order during an emergency hearing — just before the funding freeze was set to take effect, according to court documents.

The Trump administration then rescinded the directive, but The White House later clarified that only meant the memo, not its intentions.

"This is not a rescission of the federal funding freeze,” Karoline Leavitt, White House press secretary, wrote in an X post last week. “It is simply a rescission of the [Office of Management and Budget] memo. Why? To end any confusion created by the court's injunction. The president's [executive orders] on federal funding remain in full force and effect, and will be rigorously implemented."

Here’s a look at Trump’s executive orders, the implications it has had on nonprofits and the judge’s rulings so far.

Trump’s Executive Orders That May Alter Future Federal Funding

The administration sought to freeze any programs, projects or activities deemed to be in violation of its new policies. The initial memo outlined that the freeze did not apply to payments made directly to individuals, such as Medicare or Social Security benefits, but did include pausing notice of new funding opportunities, which includes conducting merit review panels.

The memo reiterated some funding reviews noted in Trump’s executive orders, but with a much more sudden freeze, and listed seven executive orders that could be affected by a funding freeze and review. The reviews set to eliminate funding for abortion; climate change; diversity, equity and inclusion (DEI); select energy initiatives; foreign aid; “gender ideology;” and immigration.

1. Protecting the American People Against Invasion

Signed Jan. 20, 2025, the Protecting the American People Against Invasion executive order directs a funding pause to audit grants, contracts and other agreements with nonprofits that are supporting undocumented immigrants. The review would result in terminating funding deemed to violate the new law or be considered fraud, waste or abuse. Those organizations would be prohibited from future agreements. Meanwhile, the government would initiate “clawback or recoupment procedures” (opens as a pdf).

2. Ending Radical and Wasteful Government DEI Programs and Preferencing

On Jan. 20, Trump signed Ending Radical and Wasteful Government DEI Programs and Preferencing to eliminate all DEI programs, including training programs. Within 60 days, all agencies and departments are instructed to terminate all “equity-related” grants and contracts.

3. Defending Women from Gender Ideology Extremism and Restoring Biological Truth to the Federal Government

Defending Women from Gender Ideology Extremism and Restoring Biological Truth to the Federal Government, which was signed on Jan. 20, limits the government’s recognition of gender to male and female, and seeks to restrict any grants that “promote gender ideology.”

4. Enforcing the Hyde Amendment

Enforcing the Hyde Amendment, an executive order signed on Jan. 24, ends “the forced use of Federal taxpayer dollars to fund or promote elective abortion.”

Additionally, the policy reverses two Biden-era executive orders signed after the overturning of Roe v. Wade:

5. Reevaluating and Realigning United States Foreign Aid

Reevaluating and Realigning United States Foreign Aid, an executive order also signed on Jan. 20, has paused foreign development assistance, including that to nonprofits, to ensure aid aligns with Trump’s policies. The secretary of state and director of the OMB will head the effort to determine whether to continue, modify or cease funding.

6. Putting America First in International Environmental Agreements

The Inauguration Day executive order, Putting America First in International Environmental Agreements, ordered the United States’ withdrawal from the Paris Agreement, a treaty that aims to reduce greenhouse gas emissions. Further, the U.S. International Climate Finance Plan — a funding initiative of former President Joe Biden that reached $11 billion in fiscal year 2024 — has been revoked.

7. Unleashing American Energy

Trump signed Unleashing American Energy also on Jan. 20 to terminate the Green New Deal, among other energy initiatives. The executive order also forbids federal funding to be distributed that goes against the new policy. Some other examples include:

Energy exploration and production on federal lands and waters.
Production of non-fuel minerals, such as rare-earth minerals.
Elimination of the electric vehicle mandate.

When it comes to the Green New Deal, the order has paused grants, loans, contracts and other financial disbursements tied to the Inflation Reduction Act of 2022 or the Infrastructure Investment and Jobs Act, including the National Electric Vehicle Infrastructure Formula Program and the Charging and Fueling Infrastructure Discretionary Grant Program.

The executive order also revoked a dozen of his predecessor’s policies, including Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis; Strengthening American Leadership in Clean Cars and Trucks; and Implementation of the Energy and Infrastructure Provisions of the Inflation Reduction Act of 2022. The executive order also terminated the American Climate Corps and disbanded the Interagency Working Group on the Social Cost of Greenhouse Gases, including withdrawing any of its documents or recommendations as official policy.

The Impact of a Federal Funding Freeze and Policy Change on Nonprofits

In a spreadsheet sent to federal agencies and obtained by Politico (opens as a pdf), the Trump administration asked each agency to indicate if each program had any pending funding announcements and/or disbursements through March 15, as well as whether their programs support any of the policy changes via executive actions since Jan. 20.

The four co-defendants — National Council of Nonprofits and American Public Health Association, both of Washington, D.C.; Main Street Alliance, North Bethesda, Maryland; and SAGE, New York — shared how the freeze and potential revocation of funds would harm each of them in the court filing.

Organizations like the National Council of Nonprofits, a nonprofit itself that advocates on behalf of the nonprofit sector, notes many of its members rely on federal funding to further their missions. Co-plaintiff SAGE, which runs the National Resource Center on LGBTQ+ Aging, depends on federal funding for 74% of its budget. The program, established in 2010 through a Department of Health and Human Services Administration for Community Living Grant, supports LGBTQ+ older adults and their caregivers.

On behalf of the nonprofits, Democracy Forward lawyers deemed the government’s funding freeze to be in violation of the Administrative Procedure Act, which governs how federal agencies make rules and judicial review of its actions.

“The memo fails to explain the source of [the Office of Management and Budget’s] purported legal authority to gut every grant program in the federal government; it fails to consider the reliance interest of the many grant recipients, including those to whom money had already been promised; and it announces a policy of targeting grant recipients based in part on those recipients’ First Amendment rights and with no bearing on the recipients’ eligibility to receive federal funds,” Democracy Forward Foundation lawyers wrote in their original complaint.

In the administrative stay ruling, the government did not persuade the judge with its arguments that the nonprofits lacked standing and the case was moot since the memo was rescinded. Instead she weighed whether the freeze is a final agency action and if the nonprofits are likely to succeed in at least one of their three claims in the original lawsuit.

1. Final Agency Action

The judge ruled since the Office of Management and Budget froze all funds rather than leaving it up to each agency’s discretion, it meets the criteria of final agency action.

“That is not merely a guidance,” AliKhan wrote of the memo in her decision. “It is a directive that immediately produced legal consequences across the entire federal funding system.”

2. Arbitrary and Capricious

The nonprofits’ lawyers argued the move is “arbitrary and capricious” because the government did not consider the “catastrophic practical consequences” the freeze would produce. On the other hand, the government argued it’s not irrational to pause funding to ensure funding aligns with the new administration's policies.

“But furthering the president’s wishes cannot be a blank check for [the Office of Management and Budget] to do as it pleases,” the judge wrote.

AliKhan cited the Constitution’s Appropriations Clause giving Congress “exclusive power” over federal spending, as well as related laws that further dictate spending. Therefore, she ruled the nonprofits were likely to succeed on this claim as well.

“Defendants’ actions in this case potentially run roughshod over a ‘bulwark of the Constitution’ by interfering with Congress’s appropriation of federal funds,” she wrote in her decision. “[The Office of Management and Budget] ordered a nationwide freeze on pre-existing financial commitments without considering any of the specifics of the individual loans, grants or funds. It did not indicate when that freeze would end (if it was to end at all). And it attempted to wrest the power of the purse away from the only branch of government entitled to wield it.”

3. Contrary to the First Amendment

The nonprofits claim this freeze will cause “irreparable injury” to nonprofits. Based on nonprofit accounts provided to the court, the judge concluded that some programs will cease to exist without funding and employees living paycheck to paycheck will be unable to pay rent or buy groceries as nonprofit rely on funding to pay employees biweekly.

For example, one nonprofit laid off two employees on Jan. 28 when it couldn’t access its federal grant funding that same day, according to court documents. Another nonprofit suspended two programs to avoid any layoffs.

“Each day that the pause continues to ripple across the country is an additional day that Americans are being denied access to programs that heal them, house them and feed them,” the judge wrote in her decision. “Because the funding freeze threatens the lifeline that keeps countless organizations operational, Plaintiffs have met their burden of showing irreparable harm.”

Additionally, the American Public Health Association, which receives federal grants for its own mission and to regrant to community programs, such as the CDC-supported National Council for Environmental Health and Equity, cites the effects of the funding freeze go beyond funding.

“The memo also harms [American Public Health Association] by seeking to force it to abandon, as a condition of federal funding, its viewpoints and beliefs that working to achieve equity in health status is essential not only to APHA’s own mission but to the discipline of public health itself,” the nonprofit’s lawyers wrote in the original complaint. “The memo therefore chills [American Public Health Association’s] research, work, expression and speech.”

4. In Excess of Statutory Authority

To determine if the nonprofits met the prejudice and public interest tests, the judge cited how organizations of every mission type were shut out of the funding portal on Jan. 28 — and some even prior to the 5 p.m. deadline on Jan. 28. And after the original administrative stay went into effect, some nonprofits still could not access their funding

“The directors of the recipient organizations were forced to take drastic measures,” the judge said as she ruled in favor of the nonprofits. “Some tried desperately for hours to log into their grant accounts, while others prepared for the worst by laying off employees. Many of the organizations rely on federal funding to pay their workers, meaning that the freeze forced them to send staff home or close their doors.”

With the temporary pause in place, the National Council of Nonprofits praised the decision as it continues to work on a more permanent solution to federal funding for nonprofits.

“Nonprofits across the country have been left in limbo by the Trump administration’s callous actions, Diane Yentel, CEO of the National Council of Nonprofits, said in a statement. “Now, they finally have some needed clarity and can continue to do their essential work. We are determined to continue to do all we can to prevent this administration’s reckless attempt to halt funding that would put people’s lives and safety at risk, from pausing research on cures for childhood cancer to halting food assistance, safety from domestic violence and closing suicide hotlines.”