Why It Matters

The Office of Management and Budget (OMB) wants to remake how the federal government distributes over $1 trillion in annual grants and financial assistance.

A proposed joint interagency rule published on May 29 by OMB and 41 executive branch grantmaking agencies would replace the existing Uniform Guidance with a new Uniform Grants Regulation (UGR) under which OMB's future amendments would automatically become binding on both agencies and nonfederal entities without requiring separate agency rulemakings. But a Congressional Research Service (CRS) report published on July 30 raises fundamental questions about whether OMB has the legal authority to make this move.

The central tension stems from OMB's reliance on a statute from 1990 that gives it authority over financial management within the executive branch. But that same statute does not expressly authorize OMB to impose requirements on entities outside government, such as universities or nonprofits receiving federal dollars. No federal court has ever decided whether it can.

The Big Picture

Under the current system, when OMB issues guidance on how federal grants should work, individual grantmaking agencies must go through their own rulemaking processes to implement those policies before they apply to outside entities. This creates what OMB characterizes as a "redundant" and resource-draining system.

The proposed UGR would eliminate this middleman. OMB's future amendments would automatically become binding on both agencies and nonfederal entities without any secondary rulemaking.

OMB's primary justification rests on 31 U.S.C. § 503(a)(2), enacted as part of the Chief Financial Officers Act of 1990. That statute directs OMB's Deputy Director for Management (DDM) to provide "overall direction and leadership to the executive branch on financial management matters by establishing financial management policies and requirements." Under the proposed UGR, OMB's future amendments would automatically become binding on both agencies and nonfederal entities without requiring separate agency rulemakings.

The CRS report, authored by legislative attorney Sean Stiff, dissects this claim. The statute does not define "financial management policies and requirements," so courts would apply the plain meaning of those terms. "Management" entails conducting or supervising an undertaking, and the undertaking here is financial matters. A "requirement" is something obligatory, and a "policy" sets a course of action. But the statute does not expressly authorize requirements that extend to entities outside the executive branch. No federal court appears to have construed Section 503(a)(2) in the context of whether it authorizes requirements extending to entities outside the executive branch.

The CRS report cites nine statutes total as authority for the proposed rule. One federal district court has already held that OMB's directives bind entities outside government only insofar as they are given effect through other authority, such as a grantmaking agency's own rulemaking power.

Political Stakes

The UGR would explicitly integrate administration policy priorities, including restrictions on so-called DEI activities, gender identity-related programs, and foreign research collaborations, into award selection, administration, and termination decisions. The UGR also explicitly integrates administration policies into grant decisions, including restrictions on so-called diversity, equity, and inclusion (DEI) activities, gender identity-related programs, and foreign research collaborations.

The rule also proposes that senior political appointees use "independent judgment" when evaluating grant proposals, rather than deferring to peer review processes. It would give agencies authority to terminate or suspend active grants at any time if the agency concludes the grant no longer serves program goals, federal agency priorities, or "the national interest." The proposed UGR would govern over $1 trillion in annual federal grants and financial assistance and would require a pre-issuance review process involving senior political appointees in both the front-end award selection and the back-end review of grants.

For Congress, the proposal represents a significant shift in the balance of power. For Democrats and the public, the concern is that future administrations could weaponize grant authority to enforce ideological priorities. For Republicans, the proposal offers a tool to implement policy quickly without bureaucratic delay. The CRS report does not take sides on these questions but flags that the legal authority question remains unresolved.

The Bottom Line

The core problem OMB seeks to solve is real: the current system is fragmented and slow. But the proposed solution rests on a legal theory that has never been tested in court and that the CRS report suggests is vulnerable to challenge. The outcome will hinge on how a court interprets a 1990 statute written long before the current debate over executive power. The proposed UGR would govern over $1 trillion in annual federal grants and financial assistance.

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