Nonprofits watch proposed federal grant rules after 496,769 comments

A proposed overhaul of federal grant rules has drawn 496,769 public comments, putting nonprofits and other recipients on notice that the administration may seek more senior political review of competitive awards and broader authority to end some grants after they begin.

The proposal is not final. The Office of Management and Budget published it in the Federal Register on May 29, 2026, and comments closed July 13. OMB proposed that a final rule take effect by October 1, 2026, but that date is a target in the proposal, not a confirmed deadline.

What OMB proposed

The rule would revise government-wide regulations in Title 2 of the Code of Federal Regulations covering federal grants, cooperative agreements and other financial assistance.

For discretionary awards, including many competitive grants, the proposed text would require a pre-issuance review by one or more senior appointees designated by an agency head. The review would consider whether a selected proposal is consistent with applicable law, agency priorities and the national interest. The text also says discretionary awards should, where applicable, advance presidential policy priorities.

The proposal would not eliminate peer review, but it would make clear that peer-review recommendations remain advisory and do not bind senior appointees or agency decision-makers. That could matter to nonprofits, universities and research organizations that rely on competitive federal awards.

What could change after an award

The proposal would clarify that an agency or pass-through entity could suspend or terminate a discretionary award, in whole or in part, when permitted by law. One proposed basis is a determination that the award no longer advances program goals, agency priorities or the national interest as those interests exist when the decision is made.

The proposed rule would require termination provisions to be stated clearly in award terms. A termination notice would generally include a brief explanation of the decision and instructions about stopping work, avoiding new financial obligations and, when authorized, ending related subawards or contracts.

That could create more uncertainty for nonprofits planning multiyear services, research, staffing and subawards. An organization could win a competitive award under existing procedures but face more risk that funding would be reconsidered if agency priorities changed.

The proposed authority is not universal. The Federal Register says the discretionary termination provision would generally apply to discretionary awards, but not to programs where Congress establishes an entitlement to funds, including many block grants, formula-based awards and disaster-recovery grants. Statutes and program-specific rules would control when they conflict with the proposed regulation.

Why nonprofits are watching

Federal grantmaking is large and varied. The Government Accountability Office reported that the federal government awarded $1.2 trillion in grants to tribal, state, local and territorial governments in fiscal year 2024. GAO also found substantial differences in how agencies design and manage grant programs.

That variation means the effect on a nonprofit will depend on the source and structure of its funding. A competitive research or service grant could face different review questions from formula funding passed through a state, a block grant or an entitlement program. Individual award notices and authorizing statutes may also limit what an agency can change.

What the comments show

Roll Call reported that 496,769 comments were submitted during the 45-day comment period. Just over 54,000 had been posted publicly on Regulations.gov when the article was published.

Tech Policy Press, a nonprofit organization, used artificial intelligence to analyze about 51,000 posted comments and estimated that 94% opposed the proposal while 6% supported it. That is an outside analysis of a subset of publicly posted comments, not an official government tally of all submissions.

Critics cited by Roll Call and the Associated Press have objected to political review and the possibility of ending awards after work has begun. OMB has said the changes would strengthen transparency, accountability and oversight and align awards with law and administration priorities. Possible legal challenges have been discussed, but the selected reporting does not establish a filed court case or ruling on the proposal.

What happens next

OMB and participating agencies must review the comments and could revise, withdraw or finalize the proposal. If finalized, agencies may issue program-specific guidance, update notices of funding opportunities and change award terms. Litigation could follow, but any challenge would depend on the final language and the statute governing the affected program.

For now, existing awards remain governed by current rules and their individual agreements. Nonprofits that depend on federal competitive grants should watch for an OMB final rule, agency implementation guidance, new award notices and any court filings. The most important questions are whether the senior-appointee review requirement remains, how discretionary termination is defined and which programs are excluded by law.

Sources

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