A federal judge Monday kept the path open for federal payments to a wide swath of contractors, including nonprofits, by continuing to block a payments freeze that was put into effect by an Office of Management and Budget memo last week and then rescinded.
U.S. District Judge Loren AliKhan ruled in a case brought on by Democracy Forward, a coalition of business and nonprofit groups, including the National Council of Nonprofits, that the Trump administration may not resuscitate the memo or take actions similar to those laid out in the memo under a different name.
The order to immediately freeze federal payments failed to take into account that federal grants are a “lifeline” to many organizations that do crucial work to help society, she wrote in her 30-page ruling. “Rather than taking a measured approach to identify purportedly wasteful spending, Defendants cut the fuel supply to a vast, complicated, nationwide machine — seemingly without any consideration for the consequences of that decision.”
Even though the Trump administration last Tuesday rescinded the payment stoppage, many nonprofits have since reported problems getting their payments, prompting AliKhan to proceed with the hearing.
“The declarations and evidence presented by Plaintiffs paint a stark picture of nationwide panic in the wake of the funding freeze. Organizations with every conceivable mission — healthcare, scientific research, emergency shelters, and more — were shut out of funding portals or denied critical resources beginning on January 28,” AliKhan wrote in her decision.
AliKhan further noted that statements from the White House press office suggested that the payment freeze was still on, even though the memo had been rescinded, which made the case a live issue.
The judge’s order follows a week during which nonprofits dependent on federal grants scrambled through a cascade of mixed signals from the White House about the planned freeze in payments.
Nonprofit government contractors were given conflicting information about which payments were being put on hold, whether the OMB directive applied to both new grants and reimbursements for work already done, or whether the directive applied only to programs pushing diversity, equity, and inclusion work, certain environmental programs, and policies related to gender, which are each ideological targets of the new administration.
Ultimately, the memo was rescinded, but the White House said it was sticking with its intention to shrink the size of the federal government and shut down federally supported programs that run counter to its policy agenda.
Has the Fight Just Begun?
As the fate of their funding ping-ponged across Washington, many nonprofits called banks for lines of credit, while also closely examining their cash reserves and turning to philanthropy to fill the gaps. Grant makers are poised to offer help, but philanthropy leaders warn that the support they can provide pales in comparison to government payments to charities.
Despite AliKhan’s order, some nonprofit leaders said the fight to keep federal payments rolling in has just begun.
“Trump came at us with an elephant gun. He’s coming back with a scalpel,” said Robert Hayes, president of the Community Healthcare Network, a system of 14 federally qualified health centers in New York City serving more than 65,000 low-income patients.
The clinics offer a bevy of low-cost health services regardless of patients’ income or immigration status, including gender-affirming treatment, which has been targeted for cuts by the Trump administration.
The prospect of cuts extends far beyond the five boroughs of New York to health centers throughout the country “in every red state, in every red congressional district,” Hayes said.
In 2019, the network was one of hundreds of nonprofits to turn down certain family planning funding during the first Trump administration rather than accept restrictions on abortion referral services.
At the time, a bump in state funding and some private philanthropy helped avert the need for services or staffing cuts. Hayes hopes to see a similar response in the potentially chaotic years to come.
Like Community Healthcare Network, Veterans Legal Services in Boston hopes for more private grants to help it stay afloat if its $700,000 in federal support — about one third of its annual budget — is put on ice.
When the federal funding freeze first hit, staff at Veterans Legal Services rushed to revise a fundraising appeal to supporters three times in an afternoon as conflicting messages emerged from Washington.
Last week, before the order was rescinded, Sarah Roxburgh, the group’s co-executive director, told her staff to submit January invoices to federal agencies as soon as possible to help ensure the nonprofit would get paid.
While the organization has built up about six months of operating reserves, Roxburgh notes that this cushion “could disappear very quickly” if $700,000 in federal funding falls through. Already, she has begun slowing plans for a new legal clinic.
A significant chunk of the nonprofit world was rocked by the suddenness of the aborted payment freeze — almost one-third of nonprofits receive federal support, according to the Urban Institute. But some nonprofit leaders found positives coming from the volley of White House executive orders.
The breadth of the original memo and the way it was announced was “deeply concerning” to Enterprise Community Partners and the nonprofits it works with, said Pat Cave, senior vice president of policy at the housing and community development organization.
Cave said a lot of attention over the past two weeks has focused on Trump’s DEI order, which sought to stamp out diversity programs in federal agencies and investigate such efforts among corporations and grant makers. That’s understandable, Cave said, but if the chaos of the first two weeks of the administration has shown him anything, it’s that nonprofits need to focus all of their attention on their mission.
In Enterprise’s case, that mission is housing. And in another executive order, “Delivering Emergency Price Relief for American Families and Defeating the Cost of Living Crisis,” Trump made it clear that his administration would seek to build new homes.
Said Cave: “We’re thrilled that this White House is committed to ask all departments and agencies to focus on the precise question that animates us every day.”
Many nonprofit leaders were less sanguine.
About 200 nonprofit leaders attended a Thursday video call hosted by Maryland Nonprofits, a statewide membership organization, to share stories and press for the government payments to be predictable and timely.
Several leaders told the group about services that would be lost to their communities if federal grants stopped and about the decisions they’d have to make about laying off staff and seeking bank loans.
Perhaps the most frustrating things about the original memo, said Heather Iliff, the group’s president, were that it caught nonprofits by surprise, sending them into a tailspin, and punished them for including language in their grant applications related to equity, which were requirements under the previous administration.
“We are not asking for special treatment,” she said. “We are simply asking that existing grants and contracts be honored, that guidance be clear, and that organizations be given reasonable time to update their programs to meet new expectations for future grants.”
Iliff said she hopes grant makers are ready to respond to any pauses in federal grants by automatically renewing existing grants instead of requiring new applications, and by providing more general operating support on a multi-year basis.
That advice was shared by Grantmakers for Effective Organizations, which after the OMB memo came out published a guide for grant makers looking to help nonprofits in the face of federal challenges.
Kristina Wertz, vice president for external affairs at Grantmakers for Effective Organizations, says she believes many foundations can play an important role helping nonprofits in the event of lost federal support, having changed their grant-making practices during the pandemic and racial justice protests of 2020,
“We are in a time right now that is similar to that,” she said. “There is a similar level of crisis in the nonprofit sector.”
