by Dick Hall-Sizemore

Last week, the James River froze over and folks were walking across the river on the ice. This week, Virginians were confronted with another freeze. The Trump administration ordered federal agencies on Monday to “temporarily pause all activities related to obligation or disbursement of all Federal financial assistance….” The purpose of the “temporary pause” was to “give the Administration time to review agency programs and determine the best uses of the funding for those programs consistent with the law and the President’s priorities.”

The memo specifically exempted Social Security and Medicare funds. It also generally exempted “assistance received directly by individuals.”

The memo resulted in widespread consternation and confusion over what was covered. Predictably, a group of nonprofit organizations filed suit in federal court to block the order. On Tuesday, a federal judge issued a temporary injunction against implementation of the order and scheduled a hearing on February 3. Trump’s Office of Management and Budget (OMB) issued a second directive declaring that it sought only to bring spending in line with the president’s recent executive orders, including those that clamp down on foreign aid and funding for diversity, equity and inclusion, or DEI.

On Wednesday, OMB rescinded the specific memorandum ordering the temporary freeze, OMB memorandum M-25-13. However, the administration made it clear that the freeze was still in effect. On X, Karoline Leavitt, the administration’s press secretary said, “This is NOT a rescission of the federal funding freeze. It is simply a rescission of the OMB memo. Why? To end any confusion created by the court’s injunction. The President’s EO’s on federal funding remain in full force and effect, and will be rigorously implemented.” In court, the Washington Post reports she said, “The only thing that has changed since we’ve filed our papers is whether or not there’s a paper called OMB 25-13.”

Obviously, the administration wanted to stave off a court hearing on the order. However, in another suit filed by a group of state attorneys general, another judge said he was likely to grant the injunction, but he was not sure what it should cover. To give the judge some guidance, the attorneys general will draft proposed language for a new restraining order.

The budget for the Commonwealth of Virginia is heavily dependent on federal grants. In FY 2024, state agencies spent $20 billion in federal grant funds, which accounted for 23 percent of all state spending that year. More than 50 state agencies included federal funds in their expenditures in the last fiscal year. As would be expected, Medicaid accounted for the bulk of the expenditures, $14.6 billion. Direct aid to local schools was the next highest use of federal funds at $1.4 billion.

In addition to the federal funds flowing through the state budget, counties, cities, towns, and nonprofit organizations also get direct federal grants.

Unlike many governors, Governor Glenn Youngkin is not worried about the proposed freeze. In fact, he was a cheerleader for it. According to the Washington Post, Youngkin declared, ““The steps that President Trump is taking are steps … that he told everyone he was going to do and received a massive, massive vote of confidence by the American people to do.” He assured Virginians, “I’ve spoken to senior officials at the White House and confirmed the temporary pause by (the Office of Management and Budget) does not impact individual assistance and will not interrupt disaster recovery efforts, school and child care funding, health care for seniors or low-income families, funding for our roads, meals and lunches, or any of the other misinformation that has spread.”

But that is not what the order said. It said “all activities related to obligation or disbursement of all Federal financial assistance.” It did exempt funds going directly to individuals, but most of the federal funding in the state budget does not go directly to individuals. Medicaid funds, for example, go to doctors and hospitals to reimburse them for services provided to eligible individuals. The federal funding for education goes to school districts to support various educational programs.

Shortly after Youngkin strongly supported the OMB directive, it was rescinded.

It is highly likely that the federal OMB would conclude that most, if not all, of the federal funding received by the state is not in conflict with the president’s priorities. However, such a massive review could take a long time and the longer the funds were frozen, the more agencies and individuals would be stressed. Doctors and hospitals already complain about the lag between the time they treat Medicaid patients and when they receive payment from Medicaid. A freeze on Medicaid funds would just add to their cash flow issues.

So far this fiscal year, two of the veterans care centers operated by the state have spent $22.6 million in federal funds. Federal funds account for about two-thirds of their total expenditures. They do not receive any general fund appropriation and an extended freeze on their federal funds could affect the care they provide for veterans. (The other two state veterans care centers have just started operations and are being supported by general fund appropriations for their start-up expenditures. Beginning in FY 2026, they will be relying on federal funding rather than state general fund appropriations.)

The Department for Aging and Rehabilitative Services has an appropriation of $35.2 million in federal funding this fiscal year for distribution to local Area Agencies on Aging. So far, the agency has distributed $22.1 million of this appropriation. The local agencies are heavily dependent on federal funds to provide services, including meals, to their aged clients. A prolonged freeze on these funds could seriously affect their operations.

These are just a few examples of the potential effects of a freeze on federal grants. Perhaps the federal court will provide some clarity next week as to what is or is not subject to a freeze.