President Trump ordered a funding freeze on numerous federal programs that provided financial assistance for “foreign aid, nongovernmental organizations, DEI, woke gender ideology and the Green New Deal”, according to a memo released by the Office of Management and Budget. The order immediately impacted several nonprofit and nongovernmental organizations that receive federal funding to carry out research, programming and initiatives that support health equity, community-based social services, education, infrastructure and other important priorities. A significant portion of NCRC’s member organizations have been particularly affected. NCRC provides sub-grants as a supplement to federal funds to our members that provide housing assistance, small business support and job training services – all of which help close the wealth gap in underserved communities.
The Legality of the Federal Funding Freeze
After two federal judges blocked the order in addition to a flurry of lawsuits by nonprofits, the Trump administration rescinded the freeze. However, the lingering question on the minds of policymakers, nonprofit leaders and community advocates alike is whether the federal funding freeze is legal. The consensus has been divided among legal experts. Zachary Price, a professor at the University of California College of Law, San Francisco points to the Impoundment Control Act of 1974 (ICA) to shed light on a possible answer to this legal question.
Article I of the Constitution grants Congress “the power of the purse,” or, more simply put, the authority to set and control federal funding. When Congress appropriates funding to the executive branch, they are legally obligated to spend it. The President does not have unilateral authority to impound, or refuse to spend, the appropriated funds. However, the Impoundment Control Act of 1974 allows presidents to use their executive authority to impound federal funding under certain circumstances. Professor Price argues that the President’s impoundment efforts must fall under one of two categories, both of which require approval from Congress: rescission or deferral.
Types of Impoundment: Rescission & Deferral
The president can make a type of impoundment known as rescission, which allows the executive branch to permanently cancel spending upon sending a proposal to Congress. Congress has up to 45 days (when in session) to approve the proposal, which means that spending can be halted for that amount of time. However, the president does not have sole authority to cancel spending on his own. In President Trump’s case, he did not send a proposal to Congress to freeze federal funding. The other type of impoundment that a president can make is a deferral, or temporarily delaying committed spending of appropriated funds to “provide for contingencies, achieve savings made possible by or through changes in requirements or greater efficiency of operations, or as specifically provided by law.”
In other words, the president can impound funds if there is a practical obstacle that prevents the funds from being deployed efficiently, also known as a “programmatic delay.” The deferral must be reported to Congress, where the Senate and the House can override it using special expedited procedures. Furthermore, the deferral cannot be made to advance any particular policy objective. Some proponents of the federal funding freeze may argue that President Trump wants to halt funds in order to examine whether taxpayer dollars are being efficiently spent and to reduce any government waste, therefore qualifying as a programmatic delay in their view.
However, critics suggest that the deferral of funds constitutes a violation of the ICA as President Trump vowed to eliminate any policies or programs that advanced DEI initiatives or environmental protections during his campaign. Regardless, President Trump did not report the deferral to Congress. Ultimately, the federal courts, including the Supreme Court, will decide the fate of the federal funding freeze and the president’s executive authority to impound funds. If the federal funding freeze is ruled legal, the impact on nonprofits will be catastrophic.
The Devastating Impact on Nonprofits
The federal funding freeze disrupted the ability of nonprofits across the country to carry out their programs and services. About 10% of nonprofits in the US, or 35,000 organizations, rely on government grants for more than 50% of their operating revenue. The federal funding freeze forced some nonprofits to discontinue financial assistance to their economically vulnerable clients while other nonprofits had to lay off their staff.
Although the funding freeze was rescinded, some nonprofits are still struggling to access federal funds to support their programs and operations. NCRC members have benefitted from several federal programs that were frozen. Among those were the Department of Housing and Urban Development (HUD)’s grants for housing counseling and rental assistance and the Treasury Department’s Community Development Financial Institutions (CDFI) Fund, which financially supports CDFIs that are lending to small businesses.
Grassroots nonprofit organizations exist to meet the needs of low-to moderate-income Americans that are not being adequately addressed by the federal government. However, as the Trump administration plans to shrink the size of government and substantially reduce social services, struggling Americans will be forced to rely on financially strapped nonprofits even more for vital needs and services, such as housing, healthcare, food assistance, education, legal aid and other crucial resources.
It’s the small business owner who needs an affordable loan from a community lender so he can save his business. It’s the single mother who works multiple jobs and receives rental assistance from a housing agency so she can make ends meet. It’s the immigrant who builds the necessary skills through a workforce training program so he can obtain a decent-wage job. These are the stories of the communities that NCRC and our members serve. If President Trump’s federal funding freeze is deemed legal, it will decimate nonprofits, and, ultimately, those most vulnerable in our society will end up paying the price.
Manan Shah is a Government Affairs Associate with NCRC’s Policy team.
Photo by Sandra Seitamaa from Upsplash.
