Last week, housers across the country awoke on Tuesday to the broadest potential disruption to Federal programs since the 2018/19 government shutdown.
On January 27, Matthew Vaeth, Acting Director of the Office of Management and Budget (OMB), issued a memo stating that “Financial assistance should be dedicated to advancing Administration priorities, focusing taxpayer dollars to advance a stronger and safer America, eliminating the financial burden of inflation for citizens, unleashing American energy and manufacturing, ending ‘wokeness’ and the weaponization of government, promoting efficiency in government, and Making America Healthy Again.” The memo went on to say that the “use of Federal resources to advance Marxist equity, transgenderism, and green new deal social engineering policies is a waste of taxpayer dollars that does not improve the day-to-day lives of those we serve.”
The memo noted that “2 CFR 200.1 defines Federal financial assistance to mean ‘[a]ssistance that recipients or subrecipients receive or administer’ in various forms, but this term does not include assistance provided directly to individuals.” Yet, 2 CFR 200.1 also includes a host of programs like loan guarantees and insurance, among others. That definition threatened to destabilize the entire government mortgage market. Only after lobbying by the Mortgage Bankers Association and others did Ginnie Mae, FHA, and VA finally issue guidance clarifying that their lending programs would not be impacted. For most of the day on Tuesday, no one knew and some of the largest lenders in the country were preparing to shut down loan closings and originations.
Other programs, like rental assistance delivered through landlords or public housing authorities, Meals on Wheels, and a host of other programs received no guidance information at all until the memo was ultimately rescinded. Compounding the confusion was the fact that online portals for federal assistance on a broad range of programs that serve individuals including Medicaid and rental assistance were shut down for several days.
Government employees who run them weren’t taking any chances. They had also received a spreadsheet listing 2,623 non-defense discretionary programs and tax expenditures, with 14 questions that required an answer.
- “Does this program provide funding that is implicated by the directive to end discriminatory programs, including illegal DEI and ‘diversity, equity, inclusion, and accessibility’ (DEIA) mandates, policies, programs, preferences, and activities, under whatever name they appear, or other directives in the same EO, including those related to ‘environmental justice’ programs or ‘equity-related’ grants?”
- “Does this program promote gender ideology?” though gender ideology is never defined, and
- “If not covered in the preceding columns, does this program support any activities that must not be supported based on executive orders issued on or after January 20, 2025 (including executive orders released following the dissemination of this spreadsheet)?”
The cost of getting any of this wrong or distributing money that the Administration intended to be frozen, was the only thing that seemed clear. Over the previous several days, a raft of summary firings was announced, including the entire Equal Employment Opportunity Commission, all of the Federal government Inspectors General, and a host of lawyers throughout the government. The risk was underscored when the Office of Personnel Management sent an email to 2 million Federal workers, inviting them to resign immediately with eight months’ severance – if they responded by February 5. If not, the offer would be rescinded and “we cannot give you full assurance regarding the certainty of your position or agency…” To resign, you simply have to respond to the email by putting the work Resign in the subject line. For former employees of Twitter, it was déjà vu all over again. Elon Musk sent a nearly identical email to all Twitter employees with the same subject line. Nearly a third of Twitter’s employees took the deal. A few months later, 80% of the remaining engineers were summarily fired, according to Walter Issacson’s biography of Musk.
Minutes before the OMB directive was to take effect Tuesday, U.S. District Judge Loren AliKhan blocked implementation until February 3 and OMB rescinded it. Federal funding platforms were back online by Wednesday. But no one should assume this threat is over. In a posting on the social media platform X, the White House press secretary Karoline Leavitt made clear that: “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.”
Until now, the biggest threat to housing and community development funding had received the least attention. The Impoundment Control Act was enacted in 1974 in response to President Richard Nixon’s refusal to spend money appropriated by Congress for programs he did not support. The controversial practice had been used by Presidents Harry Truman, Dwight Eisenhower, and John F. Kennedy, with significant congressional opposition. Under Nixon however, Congress was able to make the practice illegal over his veto. Under the Act, the president can only impound funds for 45 days unless Congress votes in support of his rescission. If Congress doesn’t act, the funds must be spent.
However, President Trump could declare the Act unconstitutional and impound hundreds of billions of dollars of funds for programs he opposes, including obligated funds for environmental programs like the $369 billion climate resilience and energy security grants. Community Development Block Grants and support for Community Development Financial Institutions could also be targeted.
The Impoundment Control Act wasn’t mentioned in Project 2025, which has drawn so much attention. But President Trump has spoken about it publicly at least twice. The Hill reported that former President Trump said he “will do everything I can to challenge the Impoundment Control Act in court, and if necessary, get Congress to overturn it… I will then use the president’s long-recognized impoundment power to squeeze the bloated federal bureaucracy for massive savings.” Restoring impoundment power “is the only way we will ever return to a balanced budget.” That’s pretty deep in the policy weeds for any presidential candidate.
Finding the Act unconstitutional will be a tall order, though in light of the Loper Bright decision reversing Chevron Deference, it is clearly not impossible. The Impoundment Control Act was unanimously affirmed by the Supreme Court in 1975 in Train v. City of New York (420 U.S. 35). But that court, which issued Roe v. Wade and created the Miranda warning, was nothing like today’s court.
Chapter 4 of the RNC 2024 Platform commits to “bring back the American dream and make it affordable again for families, young people, and everyone.” It commits to “reducing Housing, Education, and Healthcare costs, while lowering everyday expenses, and increasing opportunities.” Housing affordability leads this agenda, committing to “help new home buyers” by reducing mortgage interest rates, opening “limited portions of Federal Lands to allow for new home construction, [promoting] homeownership through Tax Incentives and support for first-time buyers, and [cutting] unnecessary Regulations that raise housing costs.”
These objectives are not possible without funding that Congress has appropriated. A thorough review of the priorities and recipients of this funding is customary for a new administration to undertake. However, it must be done consistent with the law and the Constitution. This will be the challenge for all of us in the months and years ahead.