US states tell judge Trump not fully following order blocking funding freeze

By Nate Raymond

(Reuters) - A federal judge on Thursday said he stood ready to enforce an order he issued blocking U.S. President Donald Trump's administration from freezing federal grants, loans and other financial assistance after Democratic-led states said billions of dollars in funding was still being tied up.

U.S. District Judge John McConnell in Providence, Rhode Island, during a virtual court hearing, said state agencies had a "rightful concern" that they were still not able to fully access money nearly a week after he issued his temporary restraining order.

He issued that January 31 order at the behest of Democratic attorneys generals from 22 states and the District of Columbia, determining it was necessary even after the White House's Office of Management and Budget rescinded its wide-ranging directive that had announced the funding freeze.

McConnell said the order was necessary because of evidence the policy had remained in effect despite OMB's rescission, which he said was in "name-only" and possibly done to frustrate a legal challenge.

A lawyer with Democratic New York Attorney General Letitia James' office told McConnell on Thursday that even after his ruling, state agencies were still having difficulty accessing federal funds they were entitled to.

"We've had communications from the defendants indicating that they believe there are certain funds not subject to the TRO, including the billions of dollars of infrastructure legislation and the Inflation Reduction Act," Rabia Muqaddam, a lawyer with James' office, said on behalf of the other states.

She said she believed the temporary restraining order McConnell issued on January 31 was "very clear" that no funding should be paused, yet state agencies "haven’t been able to access that money and are being told that funds are frozen."

McConnell, an appointee of Democratic former President Barack Obama, said he too believed his order was "clear" and that he stood ready to "enforce the plain language of the order."

"If you do want me to act on that concern – rightful concern I understand on behalf of your clients -- then get something before me and we will figure out how to deal with it quickly," he said.

He tentatively scheduled a February 21 hearing on whether he should issue a longer preliminary injunction.

The White House had no immediate comment.

In a court filing in a related case on Wednesday, the U.S. Justice Department said some federal agencies were still working to begin disbursing "appropriate" funding but was not aware of any ongoing implementation of the OMB memo's directives.

In a Thursday letter to EPA Administrator Lee Zeldin, four Democratic lawmakers including U.S. Senator Jeffrey Merkley expressed outrage over what they said was a continued freeze in funding from the environmental agency. The EPA immediately did not respond to a request for comment.

(Reporting by Nate Raymond in Boston; Additional reporting by Valerie Volcovici; Editing by Alexia Garamfalvi and Alistair Bell)