Trump sparks lasting panic with funding ban that ended in two days

The memo dropped late on Monday evening after a weeklong flurry of executive orders from President Donald Trump, and was rescinded less than 48 hours later. But the mandate to pause all federal loans and grants has reverberated across the country, from tiny nonprofits to sprawling health agencies. 

Providers of community services struggled to access government funds and now question what they can rely on going forward. Medical researchers are unclear how grants will be affected. States are grappling with how to plan their budgets.

The directive from the Office of Management and Budget, calling for a freeze on all federal grants, was temporarily blocked by a federal judge and raised questions about the limits of the president’s power. Yet the chaos it unleashed previews the types of fights to come in an administration that has made clear that it plans to reshape the U.S. government and eliminate what it considers to be wasteful spending and policies at odds with its conservative agenda.

“It’s hard for people to plan for the future and maintain current program services if they don’t think there’s going to be funding for those services going forward,” said Susanne Byrne, executive director of the York Street Project in Jersey City, New Jersey. 

Her organization, which offers rental assistance and operates a homeless shelter and a childhood development center, was set to make rent payments coming due on apartments for 45 different families using federal funds from the Department of Housing and Urban Development on Tuesday. The staff found themselves locked out of HUD’s payment portal.

Byrne spent Tuesday on numerous calls with other housing groups and with local representatives of HUD. Not only were the families she works with at risk of eviction if landlords didn’t receive payments by early February, but she worried how her own staffers might fare if the organization had to pare back its activity or lay off workers. 

“If people lose their jobs, how do they support their families themselves? They’re going to end up being people who need the services they used to provide to others,” she said. The group eventually regained access to the portal.

The White House abruptly rescinded the funding freeze memo on Wednesday, a move Press Secretary Karoline Leavitt immediately muddied with a social media post that said the rescission of the memo doesn’t end the pause on government money flows. Judges overseeing two pending legal challenges could rule in the coming days providing more clarity on what — if any — funds could continue to be held up. 

The confusion added to turmoil among federal workers who were already grappling with an executive order last week that banned diversity, equity and inclusion policies from the federal government. The order said the administration would cut off funding for programs that support those efforts, though the exact impact is still unclear.

The Department of Government Efficiency, led by Elon Musk, is trying to find ways to slash more expenses. Trump is offering buyouts to federal employees who were warned that he’s seeking a “more streamlined and flexible workforce.”

Agency anxiety

Already, the planned cutbacks to DEI have raised concerns about funding for medical research programs. The Trump administration sent a memo this week to organizations that have received funding from the Centers for Disease Control and Prevention and ordered them to end “all programs, personnel, activities, or contracts promoting” DEI, according to the document seen by Bloomberg News. 

Georges Benjamin, executive director of the American Public Health Association, said multiple health departments received the memo, and it wasn’t immediately clear how far-reaching the impact could be. He said it could affect the future of a wide range of public health projects, including research into the racial disparities of heart disease and cancer or programs for the disabled or elderly.

“The challenge is we’re allowing people to redefine DEI as not being merit-based when that’s not what it’s about,” Benjamin said. “It targets services to people who are more in need than others.”

The prospect of cuts has led to confusion and anxiety at the National Institute of Health, which invests most of its nearly $48 billion budget in medical research. Almost 83% of that goes toward grants awarded to outside scientists, institutions and medical schools across the US, according to the agency.

Employees have been advised to refrain from promoting certain funding opportunities related to disadvantaged populations so as not to draw attention to them, according to a person familiar with the matter, who asked not to be named speaking about internal discussions. NIH staffers have been warned against making social media posts that could put a target on their offices, the person said.

The NIH said in a statement that the Health and Human Services Department has issued a pause on mass communications and public appearances that aren’t related to emergencies to allow the new team “to set up a process for review and prioritization.” Clinical trials are continuing, though no new studies are being launched.

Within the Commerce Department, officials in charge of a $700 million effort to remake economically depleted cities into hubs of technological innovation scrambled in the wake of this week’s funding freeze announcement. The so-called Tech Hubs project was on a spreadsheet circulated by OMB that listed grants under scrutiny, instigating confusion among recipients of the grant funding, as well as former and current officials who helped to put the plan together.

The Tech Hubs initiative, funded by the Chips Act and a subsequent defense spending bill, poured hundreds of millions of dollars into technological projects in more than a dozen states, including red states like Indiana, Montana, South Carolina, Georgia and Ohio. Many of the projects focus on industries that the Trump administration has identified as key national security priorities, such as semiconductor manufacturing, quantum computing and critical mineral processing. 

But some of the hubs have programs aimed at including more women and minorities in the workforce, while others include “equity” or “climate resilience” in their missions.

So far, the tech hubs haven’t received any guidance from the Commerce Department, said spokespeople for six of the hubs. People within the hubs are setting up meetings with their lawmakers and trading texts with staffers on Capitol Hill, seeking a full-throated commitment that they won’t lose funding. The Commerce Department didn’t immediately return a request for comment.

‘Unnecessary disruption’

At the local government level, the questions over federal aid introduce new uncertainty at a time many states are preparing their budgets for fiscal 2026, said Lucy Dadayan, principal research associate with the Urban-Brookings Tax Policy Center at the Urban Institute.

This has “caused unnecessary disruption and confusion, as well as considerable anxiety regarding the amount of federal funds that will be allocated to the states,” she said.

Local organizations are preparing for more shocks. The childcare industry, for one, is bracing for potential changes that could upend businesses already on the brink of collapse. Federal dollars are states’ main funding source for subsidies that help low-income families afford child care. Some 1.8 million children receive them each year, according to the U.S. Government Accountability Office.

Easterseals, a 106-year-old nonprofit that provides services to people with disabilities, senior citizens, veterans and their families, was concerned about funding troubles when its payment system portal shut off hours before the OMB memo was released, said Kendra Davenport, CEO of its national office. The group’s affiliates use this portal to access federal grants to cover operational costs and payroll. 

“It really was foreboding not knowing how quickly we were going to have to shut down programs that are 100% funded with federal funds and how quickly we would have to determine how many people we were going to lay off,” Davenport said.

After hearing about the freeze, Easterseals assessed whether it could maintain programs without federal funding but knew that most nonprofits, including its own, operate on tight margins. Most affiliates are so focused on programmatic work that they don’t have time to raise private funding that would fill gaps, Davenport said.

As the national office looks at future revenue, staff are scrutinizing nonessential expenses that can be taken out of the budget and put into reserves. 

“We now know we are operating in a very different federal funding climate,” Davenport said. “So we have been very careful.”