Federal judge limits grant cancellations based on shifting priorities

A federal judge has ruled that agencies cannot use a federal grant-termination provision to cancel already awarded grants solely because officials later adopt different program goals or agency priorities.

U.S. District Judge Indira Talwani of the U.S. District Court for the District of Massachusetts issued the decision July 17, 2026, in State of New Jersey v. U.S. Office of Management and Budget, Civil Action No. 1:25-cv-11816-IT.

The case was brought by 20 states, three governors and the District of Columbia. The opinion says the plaintiffs identified at least 1,180 active grants totaling more than $5.391 billion that could have been exposed to termination under the disputed interpretation of the federal rule.

What the court decided

The dispute centered on 2 C.F.R. § 200.340, a regulation governing when federal awards may be terminated. The provision allows an award to be terminated, “to the extent authorized by law,” if it “no longer effectuates the program goals or agency priorities.”

The states argued that the language refers to the goals and priorities communicated when a grant was awarded. Federal officials argued that agencies could rely on the provision after their priorities changed.

Talwani agreed with the states on that central question. The court declared that the 2024 version of the provision, 2 C.F.R. § 200.340(a)(4), and the comparable 2021 version, § 200.340(a)(2), do not permit agencies to terminate awards based on program goals or agency priorities identified after the grant was made.

The ruling does not prevent agencies from setting new priorities for future grant competitions. It requires that grantees be informed of the relevant program goals and agency priorities before an award is made.

Who brought the case

The states listed in the opinion are New Jersey, Massachusetts, New York, Arizona, California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maine, Maryland, Michigan, Minnesota, Nevada, New Mexico, Oregon, Rhode Island, Vermont and Wisconsin.

The three governors who sued in their official capacities were Josh Shapiro of Pennsylvania, Laura Kelly of Kansas and Andy Beshear of Kentucky. The District of Columbia also joined the case.

What funding was at stake

The opinion describes active grants involving a broad range of public programs. The states cited funding for public health, education, food assistance, scientific and medical research, clean drinking water, public safety and efforts to combat violent crime.

The court also discussed specific examples of grants that had already been terminated, including university awards, hate-crime prevention initiatives and an approximately $26 million Local Food for Schools and Child Care Cooperative Agreement award involving Illinois. Those examples were part of the case’s background, not awards automatically restored by the July 17 decision.

The more than $5.391 billion figure refers to active grants that the plaintiffs said were at risk. It is not a finding that every dollar would have been canceled or that all of the listed programs faced an immediate funding cutoff.

What the ruling does not do

The decision provides prospective legal protection, but it does not automatically restore grants that agencies already terminated. The opinion says the plaintiffs did not seek damages or other relief concerning previously terminated awards.

Those earlier cancellations may require separate administrative action or litigation. The decision also does not prohibit agencies from terminating grants for every possible reason. The regulation separately addresses situations such as a recipient’s failure to comply with award terms or a mutually agreed termination.

For an active grantee, the key change is narrower: an agency cannot rely on the challenged clause merely because officials later decide that a different set of priorities should govern an existing award.

What to watch next

The ruling is a district-court decision, not a Supreme Court judgment. The next major procedural questions are whether the federal government appeals, seeks a stay or files a motion concerning implementation. Separate disputes over individual grant cancellations also remain possible.

States, universities, schools, nonprofits, researchers and other recipients should review their award notices and agency communications. The decision may strengthen a challenge to a cancellation based only on a post-award shift in priorities, but it does not mean every federal funding dispute has been resolved.

Sources

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