Dive Brief:

• The Trump administration has paused federal financial assistance programs starting Jan. 28, setting up a legal challenge on the scope of a president’s authority to refuse disbursing funds Congress has appropriated. The memo Monday from the acting director of the Office of Management and Budget, Matthew Vaeth, excludes direct government aid to individuals, including Medicare and Social Security payments.
• A federal judge on Tuesday temporarily halted the spending pause in response to a lawsuit brought by four nonprofits. The OMB spending freeze affects a variety of government funding — including foreign aid, educational grants, and medical research — and sets up a conflict with Congress over the 1974 Impoundment Control Act, which specifies the narrow procedures by which the executive branch can withhold appropriated funds.
• Twenty-two states and the District of Columbia sued the administration Tuesday over the frozen funds, which coincided with a Medicaid payments outage reported by several states. Russell (Russ) Vought, Trump’s choice to lead OMB, has argued that the impoundment law is unconstitutional. Courts and the Justice Department have upheld the law.

Dive Insight:

The OMB memo to agency and department heads said that the freeze of grants and loans, effective Jan. 28, is designed to review expenditures to ensure they align with the administration’s priorities. That “comprehensive analysis” is designed to check compliance of the financial assistance with Trump’s recent executive orders.

“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,” according to the Vaeth memo.

“The president ran on the notion that the Impoundment Control Act is unconstitutional. I agree with that,” Vought said when Sen. Patty Murray, D-Wash., asked at his Jan. 15 confirmation hearing if the administration would follow that law.

The aid freeze is an unconstitutional exercise that will disrupt families and U.S. national security, the ranking Democratic members of the House and Senate appropriations committees wrote in a letter to Vaeth, demanding he reverse course on the aid freeze.

“This Administration’s actions will have far-reaching consequences for nearly all federal programs and activities, putting the financial security of our families, our national security, and the success of our country at risk,” Rep. Rosa DeLauro, D-Conn., and Sen. Murray wrote Monday.

“Congress approved these investments and they are not optional, they are the law,” Chuck Schumer, the Senate minority leader, wrote Monday night on Facebook. “These grants help communities in red states and blue states and support families, help parents raise kids, and lead to stronger communities.”

Trump used impoundment during his first term and the administration argues that it may be used to limit funding for certain programs that don’t align with the administration’s goals, Crowell & Moring wrote in a client alert.

“If the Trump Administration does attempt to impound funds, parties affected by the impoundment are likely to contest the Administration’s authority to do so in the courts, which will lead to further uncertainty for infrastructure projects impacted by the issue,” the firm wrote.

Steve Vladeck, a professor at Georgetown University Law Center, predicts that an impoundment case may be the first action of Trump’s second term to reach the Supreme Court within the next few weeks if the administration doesn’t rescind the memo. “If presidents can impound appropriated funds at any time and for any reason, then there’s not much point to having a legislature,” he wrote Monday on his One First newsletter.

To play this out, there will be literally dozens of lawsuits challenging what OMB is doing on the ground that it violates the Impoundment Control Act of 1974. Trump’s DOJ will argue that the Act is unconstitutional. And this will quickly get to #SCOTUS, where it will be the biggest case of the term.

— Steve Vladeck (@stevevladeck.bsky.social) January 27, 2025 at 8:53 PM

The 1974 law created a procedure for the president to request Congress consider the administration’s reason for not spending funds for as long as 45 days after such a request is made. The law exempts certain funds from the impoundment procedure, and Trump has not made any rescission request, Vladeck noted. 

Unilateral impoundment authority as part of the executive branch’s Article III powers has been a central tenet of Vought’s efforts to reshape the federal government under Trump. 

Vought, who wrote the policy outline on the executive branch for the conservative Project 2025 document, served in the same OMB role during Trump’s first term. “Making Impoundment Great Again!” Vought posted on the X social media platform in June 2023.

“The great challenge confronting a conservative President is the existential need for aggressive use of the vast powers of the executive branch to return power — including power currently held by the executive branch — to the American people,” Vought wrote in the Project 2025 policy blueprint. “Success in meeting that challenge will require a rare combination of boldness and self-denial: boldness to bend or break the bureaucracy to the presidential will and self-denial to use the bureaucratic machine to send power away from Washington and back to America’s families, faith communities, local governments, and states.”

In a 1988 opinion, the Justice Department Office of Legal Counsel concluded that “arguments in favor of an inherent impoundment power, carried to their logical conclusion, would render congressional directions to spend merely advisory.”

That reading of presidential impoundment authority would also supersede legislative veto power and constitute an effective “superveto” of all appropriations measures, according to the opinion, written by Charles Cooper, a former assistant attorney general now in private practice. “The inconsistency between such an impoundment power and the textual limits on the veto power further suggests that no inherent impoundment power can be discovered in the Constitution.”