The Office of Management and Budget (OMB), together with multiple agencies, published
a joint proposed rule in the Federal Register on May 29, 2026, to update regulations governing federal financial assistance. The proposal would revise OMB’s government-wide requirements in Title 2 of the Code of Federal Regulations (CFR), with agencies making corresponding changes to their own rules. Federal financial assistance includes funding such as grants, cooperative agreements, and direct appropriations—for example, housing assistance payments from HUD or reimbursements through Medicare and Medicaid. Entities that instead provide goods or services to the federal government are classified as federal contractors and are subject to procurement requirements rather than assistance rules.
OMB’s reasons for the proposed regulatory changes are to: (1) improve transparency, accountability, and oversight for use of federal taxpayer dollars; (2) clarify the status of OMB’s policies and requirements set forth in the 2 CFR regulatory text as an OMB regulation; and (3) reduce recipient burden.
The proposed rule attempts to incorporate the administration’s policy priorities in the federal awards process by restricting the use of funds: to fund, promote, encourage, subsidize, or facilitate DEI, gender ideology, and gender transition; and to promote or support the use of disparate-impact liability. Recipients would also be prohibited from using federal funds to: pay for any voter registration campaigns, drives, or related activities; engage in issue advocacy or public messaging that promotes or opposes a particular social, political, or public policy position unrelated to the statutory objectives or performance requirements of the federal award; and influence the executive branch of any state government on matters unrelated to the objectives or performance requirements of the federal award.
The rule also would increase the vetting of proposals and applicants at the front end and grant broad discretion for agencies to terminate assistance at the back end, which may result in greater uncertainty for applicants and recipients of federal assistance. For example, agencies would need to conduct a pre-issuance review to ensure that the selection of the federal award would be consistent with applicable law, federal agency priorities, and the national interest. Principles governing this review include ensuring that these awards advance the President’s policy priorities and will not be used to fund, promote, encourage, subsidize, or facilitate racial preferences or other forms of racial discrimination, denial of the sex binary in humans, illegal immigration, and other initiatives that compromise public safety or promote anti-American values. Additionally, agencies would also be required to conduct risk assessments of applicants that would allow for the consideration of their membership and affiliations with organizations “engaged in activities that violate Federal law, undermine public safety or national security, or advocate for the overthrow of the United States Government,” as well as their history of “questionable practices” that include engaging in activities or initiatives that are inconsistent with federal civil rights laws or religious liberty laws. Recipients would also need to disclose whether any employees who worked on the proposal or will support the resulting federal award were employed by the awarding agency within the preceding two years prior to application submission.
The proposed rule would authorize an agency to suspend or terminate a discretionary federal award based on a determination that the federal award does not effectuate program goals, federal agency priorities, or the national interest as they exist at the time of the termination. However, this termination authority would not apply to federal awards made under programs where legislation establishes an entitlement to the funds on the part of the recipient, such as block grants, those awarded based on a statutory formula, or disaster recovery grants. OMB acknowledges that certain other statutory requirements imposed on Federal agencies related to obligation or use of Federal funds may also impose limits on the application of this provision in some circumstances. In proposing this provision, OMB intended to address situations where federal agency priorities change in response to new direction from political leadership.
Other proposed provisions could potentially limit funding opportunities, such as eliminating the use of fixed amount awards and subawards on the basis that they limit transparency and hinder effective oversight and prohibiting federal funds to support certain foreign collaborations. OMB also proposes to allow federal agencies, to the extent permitted by law, to restrict eligibility among different types of nonprofit organizations on the basis that it promotes transparency by ensuring applicants can determine eligibility without guessing or interpreting agency intent.
While some proposed changes attempt to streamline and introduce consistency in the federal financial assistance process, such as by encouraging the use of multi-year awards and centralizing both the posting of, and applications for, funding opportunities on Grants.gov, the rule would impose new requirements on recipients that are more aligned with federal contracting. For example, recipients would be required participate in the Department of Homeland Security’s E-verify program to confirm the employment eligibility of all employees and contractors hired in or performing work in the United States under a federal award.
OMB stated that it intends to issue a final rule that is effective by October 1, 2026. Comments on the proposed rule are due by July 13, 2026.
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