Federal agencies cannot terminate grants simply because a new administration decides the money no longer matches its priorities, a federal judge ruled Friday.

U.S. District Judge Indira Talwani of the District of Massachusetts granted summary judgment to a coalition of 20 states, the District of Columbia, and the governors of Kansas, Kentucky, and Pennsylvania in their lawsuit against the Office of Management and Budget, Director Russell Vought, and eleven grant-making agencies, including the Departments of Justice, Agriculture, and Homeland Security, the EPA, FEMA, the National Science Foundation, and the National Endowment for the Humanities.

The case turned on the “Termination Clause” in 2 C.F.R. § 200.340, an OMB regulation that allows an agency to end a federal award that “no longer effectuates the program goals or agency priorities.” Since January 2025, agencies have cited that language to cancel billions of dollars in funding, often with termination letters stating only that the work no longer aligned with agency priorities.

What The Court Ruled

Judge Talwani declared that the clause “does not allow terminations of awards based on new program goals or agency priorities that an agency identifies after granting the award.” The goals and priorities that count are the ones disclosed when the funding opportunity was announced, not ones adopted later.

The court pointed to the broader regulatory scheme, which requires agencies to publish program goals and funding priorities before grantees apply, and to the Constitution’s Spending Clause, which requires that conditions on federal money be stated unambiguously so states can make an informed choice before accepting it. The court also noted that when OMB adopted the clause in 2020, it told commenters that “agencies are not able to terminate grants arbitrarily.”

Why It Matters

States accept hundreds of billions of dollars in federal grants each year. The plaintiffs documented terminations of grants hitting university research at schools like the University of Wisconsin-Madison, Department of Justice awards under the Matthew Shepard and James Byrd hate crimes program, and a roughly $26 million USDA award to the Illinois State Board of Education for the Local Food for Schools program.

The plaintiff states say they currently hold at least 1,180 active grants worth more than $5.39 billion from the defendant agencies, all subject to the clause the court just narrowed. The ruling removes the legal basis agencies had been using for priority-based cancellations, though it does not undo terminations that already happened, and the states did not seek damages in this count.

How This Connects

Two alternative counts in the case remain pending, and the administration can appeal to the First Circuit. Agencies can still terminate grants for noncompliance, by mutual consent, or where an award cannot meet the goals set when it was issued.

The decision lands amid a wave of litigation over federal education and research funding. We recently covered a lawsuit by teachers unions and education groups accusing the administration of blocking $2 billion Congress approved for education research, and an earlier suit over Department of Education cuts. For grant-dependent universities and state education agencies, this ruling is the clearest statement yet that awarded money can’t be pulled back over a policy shift alone.

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