Judge Limits Use of Grant Clause After Policy Priorities Change
A federal judge in Boston has barred the administration from relying on a disputed grant-termination clause to end awards because agency priorities changed after the grants were issued.
U.S. District Judge Indira Talwani ruled July 17, 2026, for 23 states challenging that interpretation. She granted the states’ motion for summary judgment and rejected the federal government’s motion to dismiss.
The decision matters to nonprofits, research institutions and state, local and tribal grant recipients that depend on federal awards for public safety, food security, disaster preparedness, scientific research, clean water and other services. It limits one method of terminating awards, but it does not automatically restore every grant that may already have been canceled.
What the judge decided
The challenged regulation says a federal award may be terminated when it “no longer effectuates the program goals or agency priorities.” The administration argued that the language allowed agencies to end awards when projects no longer advanced the government’s current priorities.
Talwani rejected that reading. As reported by The Associated Press, her opinion said the interpretation was not clearly supported by the regulatory text, conflicted with the broader grant-management structure and raised concerns under the Constitution’s Spending Clause. That legal framework generally requires conditions attached to federal funding to be stated clearly enough for recipients to understand them.
The ruling therefore limits the administration’s use of this particular interpretation of the clause. It does not decide every possible grant-termination question, including disputes governed by a specific program statute, award terms or another termination provision.
The states’ lawsuit and the government’s arguments
The lawsuit was brought by 23 states. The grants at issue covered a wide range of public services, including crime prevention, food security, disaster preparedness, scientific research and clean water.
The federal government argued that the case was unusually broad and that the states’ claimed injuries were too speculative. Government lawyers also said some grants had already been terminated and that the states had not identified a specific award requiring restoration through the lawsuit.
The Massachusetts attorney general’s office, one of the states involved, described the ruling as protecting billions of dollars in critical federal funding. That is the litigating states’ characterization of the decision’s practical reach, not a finding that every affected grant has been preserved or restored.
OMB is considering a separate rule
A separate Office of Management and Budget proposal could provide agencies and pass-through entities with clearer discretionary authority to terminate some awards in the future. The proposed regulation would allow termination, to the extent permitted by law, when the federal agency or pass-through entity determines that ending an award is in its interest. The proposal specifically includes situations in which an award no longer advances program goals, federal agency priorities or the national interest as those priorities exist at the time of termination.
The proposal is not final and is not the same legal action as Talwani’s ruling. It would require termination provisions to be stated clearly and unambiguously in award terms. It also calls for written notice and a basic explanation of why the award no longer serves the relevant goals, priorities or national interest.
The proposed language would reach pass-through arrangements in which federal money moves through a state, local or other intermediary before reaching a nonprofit or other subrecipient. The proposal says pass-through terminations should remain consistent with the interests and priorities of the federal agency responsible for the program.
The proposal has drawn substantial attention from the nonprofit and research sectors. The Chronicle of Philanthropy reported that nearly 100,000 comments had been submitted during the comment period, many of them critical. That response reflects public reaction to the proposal; it does not determine whether the rule will be finalized or what its final language will be.
Why nonprofits should care
Federal grants support programs carried out by state, local and tribal governments as well as nonprofit organizations. The Government Accountability Office reported that the federal government obligated approximately $1.2 trillion in grants to tribal, state, local and territorial governments in fiscal year 2024, underscoring the scale and administrative complexity of the system.
For nonprofits and subrecipients, the practical questions are likely to be grant-specific. Organizations should review their award agreements, termination provisions, notice requirements and records showing program performance. Groups that receive federal money through a state or local intermediary should also confirm how pass-through terms could affect funding, staffing and cash flow.
The next developments could include agency-specific notices, grant-by-grant litigation, any appellate proceedings and OMB action on the proposed regulation. For now, the district-court decision narrows one method of canceling already-awarded grants, but it does not guarantee future funding or eliminate uncertainty for recipients.
Sources
- Associated Press via WTOP
- Office of Management and Budget proposed rule
- Government Accountability Office grants report
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