Why It Matters

The Office of Management and Budget (OMB) and 41 federal grantmaking agencies have proposed a sweeping overhaul to how roughly $1 trillion in federal financial assistance flows to state and local governments, universities, and nonprofits.

On May 29, a proposed joint interagency rule published in the Federal Register would replace the 13-year-old Uniform Guidance with a new Uniform Grants Regulation (UGR), fundamentally shifting who controls grant policy and how quickly changes take effect. The UGR is proposed to be finalized by October 1.

The proposed change centralizes authority in ways that could bypass Congress's traditional oversight role. Under current law, OMB issues guidance through a non-binding document, and individual agencies must conduct separate rulemakings to apply those requirements to grant recipients.

Under the current system, any OMB update requires approximately 27 or more separate agency rulemakings to take effect. The UGR would flip this model: once agencies adopt the new regulation, any future OMB amendment would automatically bind both federal agencies and nonfederal recipients without requiring new agency rulemakings.

The Big Picture

The proposed UGR would codify certain existing Uniform Guidance provisions while amending, eliminating, or adding others. Senior agency appointees would be required to use independent judgment when evaluating award proposals rather than deferring to peer review processes.

The rule would prohibit fixed-amount awards, expand agencies' authority to suspend and terminate grants, and explicitly integrate policy priorities into award selection, administration, and termination.

The proposed UGR would impose new restrictions on DEI-related activities and gender-identity-related programs, tighten requirements governing international research collaborations, and significantly revise longstanding cost allowability rules.

The automatic incorporation mechanism represents the most consequential shift. Under the current system, OMB affects grants policy through amendments to its guidance document, which must be implemented by grantmaking agencies through rulemaking.

The proposed approach would allow OMB to issue a regulation, and grantmaking agencies would automatically incorporate subsequent changes, making them applicable to nonfederal entities without further rulemaking.

The Bottom Line

The proposal's legal foundation remains uncertain. The Congressional Research Service (CRS) report, updated September 4, flags that courts might apply the major questions doctrine to limit OMB's authority, given the scope of federal financial assistance awards and potential effects on nonfederal entities.

No federal court appears to have construed Section 503(a)(2) in the context of requirements extending to entities outside the executive branch. The report also notes that in the post-Loper Light era, courts no longer defer to agency interpretations of ambiguous statutes, meaning OMB cannot rely on judicial deference if a court finds the statute ambiguous.

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