On July 17, 2026, the U.S. District Court for the District of Massachusetts ruled that the termination clause under the Office of Management and Budget’s (OMB) existing federal financial assistance regulations did not permit terminations based on agency priorities that have changed after an agency has granted an award. The termination clause at 2 CFR 200.340(a)(4) provides that federal awards may be terminated “pursuant to the terms and conditions of the Federal award, including to the extent authorized by law, if an award no longer effectuates the program goals or agency priorities.” OMB interpreted this provision to allow it to terminate grants on the basis that they did not align with the executive branch’s present policy positions, which did not exist at the time of the award. These terminations affected grants for universities, initiatives to combat violent crime and hate crimes, and school lunch programs, among others.

However, the court found that OMB’s interpretation is not supported by the text of the regulatory provision, is contrary to both the regulatory scheme and rulemaking history, and would violate the Spending Clause’s requirement that conditions be imposed unambiguously. The court made it clear that while nothing limits the president and agencies from setting program goals and agency priorities before awarding new grants, the regulation requires that grantees be apprised of those goals and priorities before grants are awarded.

It remains to be seen to what extent this court ruling could affect OMB as it engages in ongoing rulemaking to amend its federal financial assistance regulations. In particular, OMB proposed to provide agencies with much more discretion to terminate discretionary federal awards, including if the federal award does not effectuate program goals, federal agency priorities, or the national interest “as they exist at the time of termination.” LeadingAge recently submitted comments expressing concerns about how the uncertainty resulting from the proposed termination provision would destabilize the programs supported by federal financial assistance and put recipients in an untenable situation.