This week, after the Office of Management and Budget ordered a sudden pause on federal funding of a wide range of grants, loans, and other financial assistance, chaos erupted.
Agencies rushed to shut off the spigot on programs potentially affected by the various executive orders recently issued by the president. Grantees, for their part, scrambled to discern if they were among the impacted. Amid this uncertainty, the White House then hastened to clarify the directives in the order, only to rescind the order the next day.
How Do New Presidents Budget For Priorities?
Lost amid this week’s panic is the role the government’s dysfunctional budgeting process contributed to the cacophony and confusion.
It is customary — and entirely appropriate — for any incoming administration to conduct a review of current spending to determine which activities align with its agenda and which do not. Following that review, the administration is statutorily empowered to craft a proposed budget for the upcoming fiscal year consistent with its priorities. While a president may explore canceling funds that have already been provided, budget development efforts are typically forward looking.
But that’s not the case today.
The government is currently operating under a short-term continuing resolution for the fiscal year that began on October 1, 2024. That means the Trump Administration and both chambers of Congress will need to strike a deal to fund the government for the remainder of the year — before that CR expires on March 14.
Directing agencies to pause grants, loans, and other financial assistance affected by the executive orders appears to miss the fact that the funding in question will soon expire. Accordingly, even without a funding pause, the Trump Administration is in a position to work with Congress to determine which activities to fund this year.
Who Holds Budgeting Power?
While the Constitution specifies the power of the purse is vested in the Congress, the president plays a major role in budget development and execution.
In addition to his standard legislative role to sign or veto funding measures, the president holds a range of statutory powers to ensure budgets are administered efficiently. Under the Antideficiency Act, OMB has the legal responsibility to apportion funds in a manner that ensures they will last for the duration for which they were provided and are not spent in excess of authorized levels.
While OMB is afforded flexibility in the timing and structure of apportionments, it must remain mindful of the risk of agencies reneging on certain obligations if funds are paused or otherwise not provided when needed. While the notion of the full faith and credit of the U.S. government is often raised in the context of bond offerings, it also applies to the timely payment of any bills coming due.
Additional budgetary powers flow from the Congressional Budget and Impoundment Control Act of 1974. If the president decides it is in the nation’s best interest to cancel an item in the budget, he can request that Congress take legislative action to rescind funding. But if legislation is not enacted, the funds must be made available and cannot be proposed for rescission again.
Similarly, if the president determines certain spending should be temporarily deferred, he may send a special message to Congress explaining the specific rationale for the pause and when it will be lifted. (That did not occur with the recent pause.) However, unless further legislation is enacted to cancel such spending, the president must spend those funds before the end of the fiscal year.
This appears to be the legal kernel from which the Trump Administration’s actions this week sprung. But as noted by the federal judge who stayed the freeze on Tuesday, the Administration did not provide complete and specific guidance on the extent of the programs targeted by the pause.
That said, it is difficult to ding the White House for not following those procedures. The Congress doesn’t even follow its own statutory guidelines when it comes to budgeting.
A 2024 Arnold Ventures paper, which I authored, reports how the government’s budget process has become increasingly unworkable. If all went according to statute, both chambers of Congress would pass and the President would sign each of twelve appropriations bills before the new year begins on October 1st.
However, that schedule hasn’t been met since 1997. Making matters worse, for most of the 21st century the Congress hasn’t even been able to reach agreement among its own members on a spending blueprint or budget resolution. Without such design plans, budgeting has become haphazard.
Is The Pause A Step Towards Impoundment?
As mentioned above, the president can defer spending funds if done in a manner consistent with law. But it’s likely that deferral is not the endgame for President Donald Trump.
In a previous post on Forbes.com, I wrote about the notion of a president acting unilaterally to cancel (or impound) funds provided through the legislative process — an action expressly prohibited in the ’74 budget act. However, President Trump has taken the view that statutory prohibitions of impoundment are unconstitutional — a position that may result in Supreme Court consideration.
But the prospects of the president being granted impoundment authority would not appear to be strong. While working at the Justice Department in the 1960s, William H. Rehnquist wrote a memo stating: ‘‘It seems an anomalous proposition that because the Executive branch is bound to execute the laws, it is free to decline to execute them.” And in 1998, the Supreme Court ruled that the power of the president to issue a “line-item veto” — effectively the same as the power of impoundment — was unconstitutional.
What’s Next in the Fight Over Federal Funding?
Regardless of the legal merits of impoundment, for the Trump Administration, flooding the zone with chaos and confusion may be part of its budgeting strategy.
A slew of other pressing budgetary matters remain unresolved. Those include: 1) completing appropriations for the current fiscal year; 2) raising the debt ceiling to permit the government to continue to borrow; and 3) reconsidering tax cuts set to expire in 2025. But none of those steps will remedy the dire U.S. fiscal condition or fix its broken budget process.
We should not be surprised by any of this: fiscal negligence has become so embedded that previous methods of budgetary control have been rendered ineffective. Voters opted for a new approach. The funding pause appears to be the first step.
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