Democratic-led states challenge Trump's ability to slash grant funding

By Nate Raymond

BOSTON (Reuters) -Democratic state attorneys general filed a lawsuit on Tuesday asking a judge to declare that a key tool Republican President Donald Trump's administration has relied on to cancel federal grants is being used unlawfully to slash billions of dollars in funding.

In a lawsuit filed in Boston federal court, 18 state attorneys general plus Pennsylvania's governor took aim at the administration's reliance on a regulation the White House budget office adopted during Trump's first term that strengthened the ability of agencies to cancel grant awards.

That regulation, which the White House Office of Management and Budget adopted in 2020, says federal agencies can terminate a grant if it "no longer effectuates the program goals or agency priorities."

The Trump administration has relied on that language to cancel billions of dollars in funding to states and nonprofits as part of its efforts to roll back federal backing for various projects, including those it sees as supporting diversity, equity and inclusion and climate change preparation.

It did so with the aide of the Department of Government Efficiency, a key player in Trump's drive to slash federal spending that was the brainchild of billionaire Elon Musk.

States, nonprofits and others have filed a myriad of lawsuits challenging those grant terminations.

Just last week, a judge in Boston sided with Democratic-led states by declaring that the National Institutes of Health's termination of hundreds of grants because of their perceived link to diversity-related topics was void and illegal.

The administration in court has argued it acted within its authority to freeze and cancel grant awards that did not reflect revised agency priorities following Trump's return to office in January.

But the state attorneys general argue the Trump administration cannot rely on the OMB regulation to overrule laws Congress passes appropriating grant funding.

"Congress has the power of the purse, and the president cannot cut billions of dollars of essential resources simply because he doesn’t like the programs being funded," New York Attorney General Letitia James said in a statement.

They said that under the regulation, agencies may only terminate grants where additional evidence reveals it was ineffective at achieving program goals. They asked a judge to declare the rule does not allow grants to be terminated based on new agency priorities identified after the grant is awarded.

The White House did not respond to a request for comment.

(Reporting by Nate Raymond in Boston, Editing by Alexia Garamfalvi and Aurora Ellis)