On August 7 the White House issued an executive order intended to provide nonprofits looking for government support with a clear picture of how federal agencies plan to award grants.
When he came into office in January, President Trump made it clear through a series of executive orders that nonprofits that receive federal grants would have to adhere to his administration’s priorities on contested issues like diversity, equity, and inclusion; definitions of gender; and efforts to respond to climate change. The most recent directive seems designed to codify new rules while those orders are tied up on court cases around the country.
“This executive order is an effort to change the playing field,” said Lisa Stone, a lawyer who specializes in helping companies and nonprofits navigate the federal grant making process. “Plan B is to move the fight to regulations.”
According to the order, past federal grants have supported “propagating absurd ideologies” that are out of favor with the current administration, including drag shows in Ecuador, training doctoral candidates in critical race theory, and developing transgender sexual-education programs.
The order is an attempt by the administration to take a tighter grip on the grant-making process and place spending controls on the public purse. It is intended to govern discretionary grants, excluding spending earmarked by Congress and mandatory spending like Medicaid and Medicare.
The order directs agencies to freeze grants for 30 days as they work to comply with the new order. Then to have the binding force of a set of regulations, the agencies would have to offer a public comment period on any changes to rules they propose that stem from the order.
Here’s a look at some of the most important changes ushered in by the order.
Political appointees call the shots.
Each federal agency will have a politically appointed designee to ensure that the grants “demonstrably advance the president’s policy priorities.”
Grants, the order said, shall not be used to fund, promote, or encourage any racial preferences, or proxies for racial preferences, a belief that “sex is a chosen or mutable characteristic,” illegal immigration, or any initiatives that “promote anti-American values.”
While there’s never going to be a grant process that is “free and clear” of politics, the current system enables subject-matter experts to determine grant recipients rather than people who happen to be in President Trump’s orbit, said Rachel Werner, a consultant who is the principal at MyFedTrainer, which trains organizations on grant compliance.
“What we have seen with this administration is that they are focused on finding people who adhere to the administration’s priorities,” she said.
There will be no automatic withdrawals of federal grants.
The order prohibits grantees from drawing down general grant funds for specific projects unless they get permission. To get the go-ahead, grantees would have to provide detailed written explanations for each draw-down request. The result, Werner said, is likely to make an already bureaucratic process even more cumbersome.
Agencies get carte blanche to terminate grants.
The order would change the Uniform Guidance for Federal Awards, a set of grant-making rules, on the termination of grants. Under current regulations, agencies can terminate grants in any of three ways: with the consent of the grantee, if the grantee fails to comply with the terms and conditions of the grant agreement, or if the grant no longer advances the agency’s goals.
In a pending class action lawsuit led by the Vera Institute of Justice, the plaintiffs argue that by rescinding $820 million in grants to a broad swath of justice organizations, the administration was arguing that it had “unfettered” discretion to cancel grants on a whim.
While that case is being argued, the administration’s executive order is an attempt to clarify the Uniform Guidance to allow for “termination by convenience,” meaning all existing grants and all future grants are subject to termination if the agency deems it necessary.
Speak in plain English.
The order directs applicants to avoid jargon and insider language. The idea is that in the past, federal grants were out of reach for many organizations. According to the order: “Writing effective grant applications is notoriously complex, and grant applicants that can afford legal and technical experts are more likely to receive funds.”
This component of the order is not necessarily new, although the order may direct agencies to pay closer attention to how grant notices are communicated. In 2024, the Uniform Guidance was revised to require notices to be communicated in plain language.
Big research organizations beware.
Federal grants to nonprofits often include money for indirect costs, like salaries and other overhead, that is capped at 15 percent of the grant. But large research institutions and laboratories that need a big physical plant and expensive equipment, like a university laboratory, often separately negotiate higher indirect cost limits.
The administration said it would direct agencies to limit such “facilities and administration” costs but did not provide specifics.
“This will very likely be the source of litigation if they change those rules because there is a lot of money at stake,” Stone said.
Difficult Decisions
A big potential pitfall for nonprofits is failing to recognize that revenue they receive through a state contract may actually be a federal sub-grant, said Patrice Davis, founder of Grants Works, a firm that manages federal grants and grant applications. As such, money from the state may still be subject to the rules of the executive order, if finalized, she said, adding that it could have a chilling effect.
“It will discourage nonprofits from seeking federal grants,” she predicted.
The new guidance will be a “values test” for nonprofits whose work advances causes verboten by the administration, said Werner, the grants consultant. It could get tricky for nonprofits that apply for state grants with applications that specify support for race or gender programs and then change their language for federal applications.
Werner said that nonprofits “are very scared” that any inconsistencies between federal and state applications could get them ensnared in the False Claims Act, which penalizes fraudulent or inaccurate attempts to secure government support.
Nonprofits should fully understand the terms and conditions of all of their government awards, Werner said. There will be further changes going forward, she predicted, and nonprofits shouldn’t be scared off by the announcement. Nor should they “twist themselves into a pretzel to adapt” and get a government grant.
Said Werner: “Nonprofits should stay aware of all the changes, but they should remain true to their mission.”
