Trump 2.0: What Happens to Federal Funding?

The Biden Administration’s signature legislative accomplishments included a suite of large-scale funding bills designed to boost Biden’s domestic priorities, including the Infrastructure Investment and Jobs Act (IIJA), which directed $1.2 trillion in authorized funding over 10 years to infrastructure improvements, the CHIPS and Science Act (CHIPS Act) which included billions in funding for research, development and commercialization of semiconductor technology, and the Inflation Reduction Act (IRA), which provides more than $400 billion in funding for clean energy initiatives, mostly through a series of tax credits. Programs funded under these laws, along with other routine government expenditures, could be significantly scaled back, or even dismantled, by the incoming Trump Administration.

As exemplified by the creation of DOGE, the incoming administration officials, as well as many congressional Republicans, have committed to aggressive cost-cutting measures designed to shrink the size of the federal government. These officials are also looking to make spending cuts to offset the cost of one of President-elect Trump’s signature campaign promises—a tax reform package that extends and expands the tax cuts enacted in 2017 during his first term in office.

The incoming Trump Administration is also expected to promote dramatically different policy objectives than those of the Biden Administration which will certainly be reflected in how the administration allocates federal funding. For example, Biden’s IRA included a $7,500 electric vehicle (EV) tax credit intended to support the domestic EV industry, boost EV sales and decrease reliance on fossil fuels. In contrast, President-elect Trump has been quoted promising that under his administration, the United States will “drill, baby, drill,” signaling a desire to increase production of fossil fuels. Such polar opposite policy objectives will likely lead to fewer federal funding opportunities for certain industries, and as explained below, could potentially jeopardize current contract, grant or Other Transaction Authority (OTA) awards.

Long-standing legacy programs are also potentially at risk. For example, the leaders of DOGE have cast doubt on funding for large Department of Defense weapon systems, such as manned fighter jets, with Elon Musk criticizing the F-35 program. The scope of cost-cutting efforts will likely be broad, exposing contractors and downstream suppliers from a host of industries to potential funding losses.

Against this backdrop, those relying on federal funds are asking, “what will happen to the money?” This question extends to funds that have been appropriated by Congress but not yet obligated by an agency for specific purposes, as well as the future of incentive funding agreements and government contracts. Many are also wondering whether the Trump Administration can terminate existing contracts and awards or claw back funds that have already been obligated to contractors or other beneficiaries. We examine these scenarios below.

Implications for Appropriated but Unobligated Funds
Based on the record of the first Trump Administration and the positions articulated by incoming second-term Trump Administration officials, it is likely that the new administration will attempt to divert appropriated funds to preferred policy priorities (even if Congress disagrees) or even refuse to spend funds appropriated by Congress to “starve” disfavored agencies or offices and further cost-cutting initiatives. This potential extends to funds appropriated in previous years as well as future spending bills enacted by the next Congress.

The Constitution grants Congress the power of the purse—the authority to levy taxes, authorize the issuance of debt, and make appropriations to fund the federal government. Congress exercises this authority by passing appropriations bills that, once enacted into law, provide specified funding to agencies who then spend those appropriated funds consistent with Congressional intent. Once an agency has committed the funds to a specific purpose—e.g., issued a contract or grant award—the funds are considered “obligated.”

Along with the amount of funding provided to an agency, appropriations laws passed by Congress outline the purpose for the funds, limitations on how the funds can be used, and the period of availability for those funds to be spent. After the defined period of availability for appropriated funds (e.g., a single fiscal year), any unspent funds expire and are no longer available for new obligations. Usually, appropriations laws provide funding for a single fiscal year, but Congress can provide appropriations for longer periods of time. The IIJA, for example, included appropriated funds for five years, through fiscal year 2026. Federal dollars appropriated during the Biden era are at particular risk in the Trump era.

Reprogramming Funds
Agencies have some, but not total, discretion to redirect or “reprogram” funds appropriated by Congress. Through appropriations laws, Congress appropriates funds to agency “accounts,” which generally cover one or more programs, projects or activities. Agencies may use discretion to reprogram funds between programs, projects and activities within a single account unless such reprogramming is restricted by statute. Agencies may not, however, use funds for reasons that are inconsistent with the purpose for which Congress provided the funds. This generally precludes agencies from conducting a wholesale “transfer” of funds—from one account to another or from one agency to another.

President-elect Trump is not a stranger to using agency reprogramming for his objectives. For example, in 2020, during the first Trump Administration, $3.8 billion dollars from the Department of Defense’s budget was reprogrammed to fund construction of the border wall, which the Trump Administration characterized as “necessary in the national interest.” The 2020 reprogrammed funds included those originally allocated for buying equipment for the National Guard and Reserve units, such as trucks, generators and spare parts, among other Pentagon expenditures.

It should be expected that the second Trump Administration will use agency discretionary powers to reprogram funds appropriated during the Biden era to Trump Administration priorities. To guard against this outcome, in the remaining days of the Biden Administration, agency officials are working to obligate funds as quickly as possible. For example, in mid-November, the Commerce Department announced major allocations of CHIPS Act funds, with continued announcements expected by all agencies in the coming weeks. Biden-led agencies, however, will not be able to spend all available funds prior to Trump’s inauguration. As of November 2024, for example, only about half of the funds made available under the IIJA have been announced as obligated projects.

Refusal to Expend Funds
In a recent Wall Street Journal op-ed, DOGE’s leaders stated that they will aim to cut $500 billion in annual spending that Congress has allocated, largely by targeting spending in discretionary accounts. This editorial acknowledged that the executive branch declining to spend congressionally appropriated money may be an illegal impoundment of funds under the Impoundment Control Act of 1974. These leaders, however, expressed their belief that the Impoundment Control Act is unconstitutional and signaled a willingness to act contrary to this law. Likewise, in a recorded statement provided on his campaign platform, the President-elect stated that he intends to use the recognized power of impoundment to “squeeze the bloated federal bureaucracy for massive savings.”

This position, which would certainly face legal challenges, would effectively negate Congressional intent in the direction of federal dollars, which could impact not only past appropriations but also future Congressional efforts.

Risk of Award and Contract Termination
Agencies obligate federal funds through contracts, grant and OTA awards. While obligated funds may not be in danger of immediate reprogramming, the mere existence of a contract or grant award will not automatically entitle a contractor or grant recipient to receive funds. This is because the government has wide latitude to change or terminate grants and contracts.

Specifically, the government can terminate grant awards and cooperative agreements when the awardee fails to meet its contractual obligations and also when the government determines that “an award no longer effectuates the program goals or agency priorities.” 2 C.F.R. § 200.340. The new Trump Administration could conceivably determine that awards made under some of the Biden Administration’s signature programs would not accomplish agency priorities—such as bringing about a transition to clean energy—and terminate the agreements. This possibility places existing awards at risk.

Government contracts likewise contain termination clauses that grant the government both the ability to terminate for default as well as wide latitude to terminate a contract at any time for its convenience (along with changes clauses that often allow for certain unilateral changes to contracts). Although there are some meaningful limitations on the government’s discretion, this termination authority is broad. The Federal Acquisition Regulation (FAR) does not provide guidance on what factors the contracting officer should consider or must not consider when deciding whether to terminate a contract for convenience. Provided the contracting officer is not acting in bad faith, courts and boards frequently give contracting officers wide discretion to decide to terminate for convenience and overturn such a decision only where there has been a clear abuse of discretion. Thus, the new administration could terminate a contract for a myriad of reasons, leaving contractors with an uphill battle if they challenge the action in court.

Claw-Back Risks
Contractors and grant recipients may also be concerned about funds that they have already received and spent. While the grant regulations state a preference for grant recipients and subrecipients to be paid in advance, in practice, the government typically pays on a cost reimbursement basis. A “claw back” of reimbursed funds is generally limited to those instances where recipients are non-compliant with the award obligations. As such, to the extent grant recipients and subrecipients are paid based upon costs already incurred and these costs were properly allowable and allocable to the award, the funds would not be subject to recoupment.

Nevertheless, grant recipients should be mindful that the Trump Administration and Congress are likely to intensify scrutiny of grant awards disbursed during the Biden Administration. This is especially true for awards issued under programs that the Trump White House and Congress would like to cut going forward, as any evidence of “misspent” funds would support pushes to repeal disfavored programs. Enhanced oversight measures further raise the risk for awardees that certain costs will be deemed ineligible going forward.

Government contractors face a somewhat different landscape. Contractors may want to review their contracts and understand the extent to which payments they have received have been made as contract financing payments (e.g., those made to a contractor before the government’s acceptance of goods or services). Contractors are sometimes surprised to learn that their performance-based payments or progress payments were technically financing payments, which the government may seek to recoup. In the event of a termination for default (or for “cause” in commercial item or service contracts), the government may recall the entire amount financed. Contractors facing a termination for convenience may fare better but should still understand their risk and amount of exposure.

Meanwhile, contractors who are currently negotiating contracts with the government may seek to ensure that their payments are not construed as financing payments. Linking payment to acceptance and completion of a milestone can be helpful in this regard. This is especially so for OTAs, where the clauses may be less clear than those found in the FAR. Similarly, contractors performing un-definitized letter contracts may seek to definitize those agreements as soon as practicable, because provisional delivery payments under un-definitized agreements are a form of contract financing that may be recouped.

Understanding this system will be critical in light of anticipated policy changes touted by the next administration. Nevertheless, all federal contractors and grant recipients should continually ensure compliance with federal regulations to avoid any cause for termination of an award or claw back of funding.

Looking Ahead
Once the Trump Administration takes office, federal government appropriations and funding will likely undergo much change. To prepare for potential funding disruptions, contractors and grant recipients should consider the following:

For those interested in appropriated but not yet obligated funds, focus on encouraging obligation as soon as possible. This includes grant applicants who are in the final stages of award negotiation.

For those who have received federal awards and contracts, extra care should be given to ensure compliance with federal regulations and contract requirements to avoid termination and/or claw backs.

For contractors who are at risk of having their awards terminated for convenience, it is critical to understand how to recover costs from the government in the event of such a termination. Most termination-for-convenience clauses allow for payment of completed and accepted work as well as for the costs of the contractor to prepare the termination settlement proposal and to negotiate the termination settlement agreement (including costs for legal and accounting professionals).