What Proposed Federal Grant Rule Changes Mean for Nonprofits

The Office of Management and Budget (OMB) on May 29 proposed significantly changing how nonprofits win and manage grants.

The proposed revisions are aimed at implementing the Trump administration’s priorities, particularly his July 2025 Executive Order 14332, Improving Oversight of Federal Grantmaking. If the proposal becomes final, federal funding will be more explicitly tied to the administration’s priorities, and groups that receive grants will be subject to more intense scrutiny. These rules would make it easier for the administration to suspend or cancel grants.

Soon after the executive order was issued, OMB notified the grants community that it would be revising its overall guidance that has provided requirements for federal financial assistance, known as the “uniform guidance,” since 2014. The proposed reframing, Uniform Grants Regulation, is a single set of rules that all federal grantmaking agencies would be required to adopt and follow.

“The overarching goal of OMB's proposed revisions is to improve transparency, accountability, and oversight for how Federal taxpayer dollars are used in the context of Federal grantmaking,” OMB wrote in its proposed revisions. “Deficiencies currently exist throughout the lifecycle of grants — from program design to award selection to project delivery and oversight — that impact the ability of the federal government to prevent wasteful spending and efficiently implement assistance programs in a manner consistent with law and the needs of the American public.” 

Stakeholders have until July 13 to comment on the proposed rule. As of press time, there were nearly 15,000 comments on the proposal. OMB seeks to make these revisions effective Oct. 1 for federal fiscal year 2027 awards. 

The National Council of Nonprofits has noted the proposed changes would result in financial instability for both nonprofits that partner with the federal government and those organizations’ constituents. 

“The proposal opens the door to government abuse and overreach, by allowing federal agencies to withhold, terminate, or suspend federal grants without cause, add new, onerous terms and conditions mid-performance, disqualify any grantee it disfavors, and threaten federal programs that address racial, social, and other inequities,” Diane Yentel, president and CEO of the National Council of Nonprofits, said in a statement. “By undermining this effective public-private partnership, the proposal jeopardizes essential services, including housing, health, education, food, shelter, disaster recovery, and more, in communities nationwide.”

For nonprofits whose work depends partly on federal funding, here’s what to expect if the proposal is finalized.

Before You Get the Grant

These changes would affect what kinds of projects get solicited and who actually gets selected for funding.

Funding Notices Must Reflect Administration Priorities

Nonprofits would see program goals structured around administration policies and priorities, rather than traditional program-oriented objectives. Future notices of funding opportunities would be written in more explicitly political terms.

If the changes become final, OMB would be able to deny awards to certain types of nonprofits, such as 501(c)(3) or 501(c)(4), where they may have been previously eligible.

OMB also has proposed requiring program planning and announcements for funding opportunities to align with the president’s policies and priorities — not just the authorizing statute or the agency’s mission. In explaining this shift, OMB leans on existing language in law that says federal funds must be used to “carry out a public purpose of support or stimulation authorized by law,” to advance the administration’s political agenda, rather than for other activities or initiatives that recipient organizations might like to pursue.

“Federal law makes clear that the executive branch does not have the authority to add new programmatic requirements beyond what Congress has authorized,” the National Council of Nonprofits wrote in its overview of proposed changes (opens as a pdf). “In this case, the Trump administration is attempting to use this proposed regulation to impose programmatic changes that it cannot lawfully impose and that have been blocked by federal judges.” 

Senior Political Appointees Review Awards

When applying for a grant, nonprofits whose work touches on sensitive topics (such as gender; immigration; diversity, equity, and inclusion; and climate change) would face higher risk that their projects will be screened out during a “pre-issuance review” at the political review stage. 

This means that award decisions would hinge on alignment with administration priorities. The criteria for political review would include whether a proposed award is consistent with the president’s policies and whether it involves topics identified in recent executive orders, such as gender ideology, illegal immigration or activities characterized as demonstrating “anti-American values.” Under the proposal, traditional peer review would remain advisory rather than binding, with final award decisions explicitly tied to this political review and alignment with administration priorities.

Additionally, risk review would be broadened so that federal agencies could deny awards based on an applicant’s membership in or affiliation with organizations deemed to violate federal law, endanger public safety, or threaten national security. So, an organization’s affiliations with certain advocacy groups or coalitions could be treated as a negative risk factor, even if the specific project receiving funding were compliant and lawful.

Along the same lines, OMB would add a new provision prohibiting the use of federal funds for covered foreign collaborations. This restriction could impact travel, joint research, technical assistance, and any allocable indirect costs associated with such collaboration. For organizations who have an international partnership involving countries on sanctions or with entities that federal agencies consider “of particular concern,” that partnership presumptively would be unallowable; even benign collaborations may need screening and approvals.

“The proposal purports to bar any federal funding from being used to promote 'unlawful’ diversity, equity, and inclusion (DEI) efforts or illegal immigration,” the National Council of Nonprofits wrote in a letter to OMB (opens as a pdf). “However, many DEI-related practices and policies that the administration claims are unlawful have been upheld by courts as permissible under the law or can be administered lawfully. Grantees lawfully provide immigration legal services, humanitarian assistance to asylum seekers, or emergency shelter to migrants.”

After You Get the Grant

These changes affect how funded projects are monitored, how awards can be cut short and which costs nonprofits can charge to their grants. 

Fixed‑Amount Awards End, Allowable Costs Get Stricter

The proposal would eliminate fixed-amount awards and subawards, which some nonprofits use to support complete projects with simpler documentation and less detailed cost tracking. The National Council of Nonprofits notes this will particularly affect smaller nonprofits.

“Under fixed amount awards there is no expected routine monitoring of actual costs incurred by the recipient or subrecipient, and no financial reporting is required,” OMB wrote in the proposal. “This proposed change further ensures that federal agencies exercise an appropriate level of oversight on how tax dollars are spent under all types of awards.”

Several other proposed changes would shift the use of federal grant money away from communications and professional development. Nonprofits would no longer receive funding for public-facing or media campaigns unless clearly required by the program statute. Conference travel and training, professional memberships, and fundraising and investment management costs could still be charged, but only when they are clearly tied to the award and receive prior written approval from the federal agency.

In addition, OMB also wants to end what it calls “discriminatory event services.” Public entities receiving federal funds would be barred from discriminating on the basis of the viewpoint, content or subject matter of speech — including on the basis of political, ideological or religious affiliation or perspective — in providing services for events, meetings or other expressive activities. Therefore, nonprofits hosting such events must ensure that any fees, security costs or other charges imposed in connection with the events are applied in a viewpoint-neutral and consistent manner.

Grants Are Easier to Suspend or Terminate

OMB is aiming to give federal agencies more flexibility to stop ongoing projects already in progress if the administration’s priorities change, even if the grant recipient is not at fault. The office would amend current language to allow agencies and pass‑through entities to terminate an award whenever they decide it is in their interest — including when they conclude a project no longer serves program goals, federal agency priorities, or the national interest.

There would also be a temporary suspension provision, allowing an agency to temporarily suspend part or all of a federal award for up to 90 days. If the sides agreed, the pause could be longer.

As a result, multi-year projects could be ended midstream for policy reasons, so risk management and contingency planning become more important, especially when it comes to hiring and entering into long-term commitments.

“If implemented, the OMB proposal would create significant financial risk and instability for federal grantees, making it more difficult to provide vital services to communities,” the National Council of Nonprofits wrote in a letter to OMB. “If implemented, grantees will be faced with unpredictable financial, legal, and reputational risks that increase the costs of accepting federal awards while decreasing the benefits. Many effective and qualified grantees may be unable to accept those risks.”

How to Comment on the Uniform Grants Regulation

Nonprofits that that rely on federal grants — or may in the future — can weigh in by the July 13 comment deadline in their own words or by joining sectorwide efforts:

• Submit comments directly to OMB through the federal rulemaking portal, describing how specific provisions would affect your organization’s programs, staffing and ability to serve your community.
• Add your organization’s name to the National Council of Nonprofits’ letter to OMB.
• Contact your members of Congress using this campaign from the National Council of Nonprofits so they understand how the proposal could affect nonprofits and the people you serve..

For deeper analysis and ongoing updates on federal grants compliance, visit our sister publication Thompson Grants.