Federal Judge Blocks Trump Administration’s Use of Obscure Clause for Funding Cuts
A federal judge in Boston has barred the Trump administration from using an obscure regulatory clause to make sweeping cuts to billions of dollars in federal grants, delivering a significant legal setback to the White House’s efforts to bypass Congress and reshape federal spending.
U.S. District Judge Indira Talwani granted summary judgment on Friday in favor of 23 states that filed suit in June 2025, accusing the administration of illegally invoking a little-known “Termination Clause” in Office of Management and Budget (OMB) regulations to justify what they described as a “nationwide slash-and-burn campaign” against federal grants. The ruling, reported by AP News, also denied the government’s motion to dismiss the case.
What Is the Termination Clause?
At the heart of the dispute is a provision in OMB regulations that allows federal agencies to terminate a grant if the award “no longer effectuates the program goals or agency priorities.” First introduced in 2020 and revised in 2024, the clause had rarely been used to cancel grants until the Trump administration began invoking it after taking office in January 2025.
The states argued that the administration was using the clause for the first time to retroactively cancel grants already awarded by Congress, effectively giving the executive branch unilateral power to override legislative spending decisions.
The Judge’s Reasoning
In a sharply worded opinion, Judge Talwani — nominated by President Barack Obama — rejected the administration’s interpretation of the clause, writing that it “is not clearly supported by the text of the provision, runs counter to the regulatory scheme, receives no support in the rulemaking history, and would violate the Spending Clause’s requirement that conditions be imposed unambiguously.”
Talwani also clarified the limits of her ruling, stating that “nothing in this interpretation of the Termination Clause limits the president or agencies from setting program goals and agency priorities before awarding new grants.” The regulation, she wrote, “demands only that grantees be apprised of those goals and priorities before grants are awarded.”
States Hail the Decision
The coalition of 23 states — all with Democratic attorneys general or governors — celebrated the ruling as a victory for the rule of law and congressional authority over federal spending.
New Jersey Attorney General Jennifer Davenport said in a statement that the Trump administration had “recklessly and illegally gutted federal funding for public safety, disaster preparedness, scientific research, clean water, and more.” She added: “The President and his allies cannot hold critical programs hostage to their personal whims and political ideologies, destabilizing the country by yanking essential federal funding that was already awarded to the states.”
The Government’s Defense
Federal lawyers had argued the case was an “extraordinarily unusual lawsuit” that should be dismissed because some grants had already been terminated and the states’ concerns about future grants were speculative. They accused the states of “raising blanket, undifferentiated objections” to the termination of thousands of grants without seeking relief that would “restore a single grant.”
“That mismatch between the allegedly unlawful agency ‘decision’ on one hand, and the amorphous relief requested in this suit, on the other, creates a set of jurisdiction and justiciability defects that doom this lawsuit at the threshold,” government lawyers wrote in their motion to dismiss.
A spokesperson for the OMB did not respond to a request for comment on the ruling, as Fortune reported.
Broader Context: A $1 Trillion Battle
The ruling comes amid a broader Trump administration effort to overhaul the entire federal grant-making system. In May 2026, OMB quietly proposed a more than 400-page overhaul that would put nearly $1 trillion in grant-making authority into the hands of political appointees. The proposal would ban DEI programs, prohibit undefined “anti-American values,” discourage international scientific collaboration, and allow cancellation of awards no longer in the federal government’s “interest.”
According to The Guardian, the proposal has attracted nearly half a million public comments, with analyses showing as much as 95% in opposition. It has drawn bipartisan criticism and opposition from 22 state attorneys general.
California Attorney General Rob Bonta warned that “the Trump administration is once again attempting to weaponize essential federal funding to advance its policy priorities. Except this time, it’s not just one agency, it’s almost all of them.”
Impact on Scientific Research
The funding fights have already disrupted clinical trials, long-term research, and laboratories, and cut short the careers of young scientists. Harvard professor Nancy Krieger’s nearly $1 million NIH grant to study how discrimination affects population health was canceled, and $2.2 billion in grants to Harvard were frozen. The NIH, at $47 billion, is the world’s largest public funder of biomedical and behavioral research.
Senator Tammy Baldwin (D-WI) said: “President Trump and [OMB director] Russell Vought are not only breaking the law, but they are also once again endangering the health and safety of Americans.”
What’s Next
The administration may appeal Judge Talwani’s ruling to the First Circuit Court of Appeals. Meanwhile, the OMB’s broader grant-making proposal is expected to be finalized, which legal experts predict will trigger immediate lawsuits from state attorneys general. Challenges to the OMB rule could ultimately reach the Supreme Court, where the outcome remains uncertain given the conservative majority.
As Lawrence Gostin, a professor of global public health at Georgetown Law, told the Guardian: “It’s not a 100% slam-dunk, although I do think there will be some trial judges, district court judges who will enjoin it. But as it goes through highly conservative courts of appeal and the conservative supreme court, the outcome is less certain.”