Trump Reverses Spending Freeze Order That Sparked Chaos

(Bloomberg) — President Donald Trump rescinded an order freezing an array of federal grants, loans and financial assistance — a dramatic reversal after days of uncertainty and anxiety rocked governments and nonprofit organizations.

The abrupt move — only two days after the freeze was first announced — quickly drew parallels to the chaotic policy roll-outs that regularly unfolded during Trump’s first administration and happened despite assurances from the president’s allies that they would be able to advance his agenda more effectively in a second term. 

The decision to reverse course also marked the most significant setback and the biggest about-face to date of the president’s 10-day-old term — a stretch that has already seen him push through a slew of sweeping executive actions in a bid to rapidly assert his control over the federal government and its workforce, reverse the policies of his predecessor Joe Biden and disorient critics.

Trump defended the move during a bill-signing event at the White House on Wednesday, casting the brief freeze as one that allowed his administration to review discretionary spending programs and “quickly look at the scams, dishonesty, waste, abuse that’s taking place in our government for too long.”

Abrupt Reversal

Wednesday’s reversal, issued by the White House Office of Management and Budget, stated that the original memo directing the funding freeze was “rescinded” and directed questions about implementation to agency and department lawyers, according to people familiar with the matter. The change came after a federal judge temporarily blocked the directive Tuesday, without ruling on the merits of a legal challenge brought by the National Council of Nonprofits.

“OMB has rescinded the memo to end any confusion on federal policy created by the court ruling and the dishonest media coverage,” White House Press Secretary Karoline Leavitt said in a statement.

“This action should effectively end the court case and allow the government to focus on enforcing the President’s orders on controlling federal spending,” she added. “In the coming weeks and months, more executive action will continue to end the egregious waste of federal funding.”

Earlier: Trump Buyouts, Spending Freezes Wreak Havoc Across Government

Still, Leavitt spurred further confusion in a subsequent post on X, where she insisted that the move was “NOT a rescission of the federal funding freeze” but simply of the OMB memo. Trump’s executive orders, which have banned the use of federal funds for diversity programs, abortion and other policy priorities opposed by the new administration, “remain in full force,” she wrote.

In a hearing hours later, the judge hearing a challenge to the memo said he would issue a restraining order blocking the funding freeze despite the updated OMB guidance. Chief US District Judge Jack McConnell of Rhode Island said Leavitt’s statement convinced him that “while the piece of paper may not exist, there’s sufficient evidence that the defendants collectively are acting consistent with that directive.” 

The blanket freeze on all federal grants sparked confusion in Washington and state capitals, with the potential to disrupt a massive segment of federal spending that is relied on by local governments, schools and police departments across the country. The federal government awarded more than $1.2 trillion in grants alone last year, and another $2 trillion in loans.

The freeze drew bipartisan criticism from lawmakers who worried it could imperil anti-poverty initiatives, medical research and other critical services, and was too broad even for some budget hawks.

“You have to pick your ‘poster child’ of waste very carefully and very intentionally,” said John Hart, CEO of American Transparency and a former Republican Senate aide. “There are no quick fixes and gimmicks. Cutting spending is an unglamorous, dirty job that requires relentless oversight and hard work.”

Impoundment Challenge

During the campaign, Trump promised to challenge a 50-year-old law that prohibits the president from impounding, or withholding, federal funds appropriated by Congress because of a policy disagreement. 

Earlier: White House Eyes Fight With Congress, Courts Over Spending Power

OMB, which plays a key role in implementing and enforcing the president’s policies throughout the federal government, has been run by Acting Director Matthew Vaeth while Trump’s nominee to head the office, Russell Vought, awaits Senate confirmation. 

Vaeth had asked agencies this week to give details on 2,571 different grant programs, with questions including whether the grants were mandatory or discretionary and whether they implemented key Biden administration priorities on climate, gender, abortion or diversity. 

The revocation of the grant freeze was first reported by the Washington Post.

–With assistance from Erik Larson and Meghashyam Mali.

(Updates with judge’s intent to issue restraining order in the ninth paragraph.)

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