Trump's Funding Freeze Raises a New Question: Is the Government's Word Good?

New York Times

14-02-2025

As the Trump administration continues to withhold billions of dollars for climate and clean energy spending — despite two federal judges ordering the money released — concerns are growing that the United States government could skip out on its legal commitments.
Typically, when the federal government spends money through a grant or a loan program approved by Congress, it signs a legally binding agreement, known as an obligation, to deliver the money. Companies, states and other recipients often spend millions of dollars to buy equipment, hire workers, build facilities and more, fully expecting that the federal government will make good on its promise to reimburse the funds.
That expectation has been upended by the new administration.
Following an order by President Trump, federal agencies, including the Energy Department, Environmental Protection Agency and the Agriculture Department, have paused funding for a wide range of obligated grants related to the 2022 Inflation Reduction Act and 2021 bipartisan infrastructure law, sweeping laws that provided billions for climate and energy programs.
In just a few weeks, the consequences have begun to be felt nationwide. School districts that planned to use promised federal dollars to buy electric school buses have seen their accounts frozen. Farmers and store owners that spent hundreds of thousands of dollars of their own money to replace old refrigeration systems or install solar panels are finding their requests for reimbursements delayed.
Two federal judges have explicitly ordered the Trump administration to end its freeze and let the money flow again. On Monday, one of those judges, Judge John J. McConnell Jr. in Rhode Island federal court, said the White House was defying his order by withholding funds.
Jessica Tillipman, associate dean for government procurement law at the George Washington University Law School, said the administration's actions had jeopardized the integrity of federal contracting.
'They've taken a process that is longstanding, stable and reliable and turned the government into an unreliable business partner,' Ms. Tillipman said. 'Who wants to do business with an individual or entity that doesn't pay its bills, that doesn't pay for work already performed and, in some instances, completely ceases communications?'
Lawsuits filed in recent days have challenged the Trump administration's actions, with companies arguing that the government freeze has hurt their businesses.
On Monday, the sustainable development company Chemonics International sued the federal government alongside other plaintiffs for freezing its work with the U.S. Agency for International Development. The company said in a court filing that the agency owed roughly $103.6 million in outstanding invoices for work performed last year. In a statement, Chemonics said it had been forced to furlough more than 600 staffers in the United States and reduce the hours of 300 employees.
The White House did not respond to a request for comment.
While some agencies have said that the pause is temporary and that they are reviewing funds approved by the Biden administration to make sure they comply with the law, others have gone further.
On Wednesday, Lee Zeldin, the E.P.A. administrator, said in a video posted on X that $20 billion in agency funding meant to help reduce greenhouse gas emissions in low-income communities were a 'rush job with reduced oversight' under the Biden administration. Mr. Zeldin suggested he would try to claw back money that had already gone out the door.
Mr. Zeldin appeared to be referring to the Greenhouse Gas Reduction Fund, a program established by Congress in 2022. Under the program, the Biden administration had awarded $20 billion to eight organizations and deposited the money in Citibank accounts, with legal limits on how it could be used. In the video, Mr. Zeldin said, 'The financial agent agreement with the bank needs to be instantly terminated.'
'The days of irresponsibly shoveling boatloads of cash to far-left activist groups in the name of environmental justice and climate equity are over,' Mr. Zeldin said.
Zealan Hoover, who directed the implementation of Inflation Reduction Act programs at the E.P.A. under the Biden administration, said that the arrangement with Citi had been thoroughly vetted by the agency's inspector general at the time, and that the federal government has been using private banks as financial agents since the 1800s.
If either E.P.A. or Citi cuts off access to the funds, that could trigger further lawsuits. Some of the program's recipients have already made their own agreements to lend money to other organizations for clean energy and energy efficiency projects.
Mr. Hoover said that the fact that agencies were defying courts on the spending freeze — and threatening to claw back obligated funding — was a 'major area of concern.'
'It really calls into question the full faith and credit of the U.S. government as a counterparty to financial agreements,' he said.
Aram Gavoor, a law professor at George Washington University, said many of the questions being argued in the courts aren't clear-cut.
'There isn't an immediate Supreme Court case or series of circuit cases that are recent that make it very clear what the outcome of litigation will be,' he said, adding that the administration's actions and resulting lawsuits had 'injected a strong degree of regulatory uncertainty' into federal contracting.
At the Energy Department, officials have ordered an internal review of potentially billions of dollars worth of climate and infrastructure spending that was awarded by the Biden administration after the Nov. 5 presidential election, according to a memo sent to agency staff.
The memo, dated Feb. 7, says that all Energy Department actions during the 'transition period' before President Trump's inauguration would be reviewed, and that financial transactions that used funds from the Inflation Reduction Act or bipartisan infrastructure law would have to be 'reviewed and approved' by senior political appointees.
Christopher S. Johns, the agency's deputy chief financial officer, wrote in the memo that this review process followed recent district court orders on federal funding. But the document, which was first reported by E&E News, did not say what would happen if political appointees reviewed certain transactions and did not approve of them.
It is not uncommon for a new administration to review existing programs, experts said. But it is unusual for agencies to halt a wide swath of obligated grants.
In the months after Mr. Trump's election, the Biden administration raced to commit billions of dollars in climate and clean energy spending, thinking that would make it hard for Mr. Trump to block the money. In January, the Energy Department's Loan Programs Office closed a $6.6 billion loan to help Rivian build an electric car factory in Georgia, and offered $22.9 billion in conditional loan guarantees to help eight electric utilities around the country modernize their power grids.
Republicans criticized those moves at the time. Vivek Ramaswamy called the Rivian loan a 'shot across the bow' to Tesla, a rival electric carmaker owned by Elon Musk. In December, three House Republicans sent a letter urging the Energy Department to 'cease its campaign to quickly distribute federal funding before the incoming administration takes office.'
Experts said it wouldn't be easy for a new administration to revoke loans that have been closed. Under the Biden administration, the Energy Department's loan office closed roughly $60.6 billion in loans and financial guarantees, while another $47 billion were conditional commitments that still need final approval.
Kennedy Nickerson, a former policy adviser to the loan office and now a vice president for energy at Capstone, a research firm, said it would be 'legally challenging and time-consuming' for the Trump administration to try to cancel final loan agreements.
Attempts to go after finalized loans could deter companies from doing business with the federal government, former agency officials said. Companies typically spend millions of dollars to go through an exhaustive vetting process by the loan program office.
'If we get to conditional commitment with a loan program recipient, that's the government's credibility,' David Turk, the deputy secretary of energy during the Biden administration, said in a statement. 'That's the American people's credibility on the line to follow through and make sure that we are providing that certainty for investment.'
Mr. Trump's energy secretary, Chris Wright, has said that he wants to use the hundreds of billions of dollars in remaining loan authority to advance the president's agenda of affordable, reliable electricity.
In an interview with Bloomberg on Tuesday, Mr. Wright was asked whether he might cancel loans that were already in place. 'We will follow the law,' he replied.
At least one project was exempted from the administration's freeze.
Montana Renewables had secured a $1.67 billion loan guarantee from the Biden administration to expand a plant in Great Falls, Mont., that converted vegetable oils and fats into diesel and jet fuel. Initially, the Trump administration had blocked the first scheduled $782 million payment while it reviewed the loan.
But Senator Steve Daines, Republican of Montana and an ally of President Trump, said in a statement that he had pressed the White House to approve the payment because the project would 'provide high-paying jobs, boost our economy and provide efficient biofuel production.'
Energy Department officials didn't explain why they allowed the Montana Renewables loan to go forward. Montana Renewables also declined to comment.
'The Department of Energy is continuing to conduct a departmentwide review of all funding, including grants and loans, to ensure all activities are consistent with the law and in accordance with President Trump's executive orders and priorities,' said Andrea Woods, an agency spokeswoman. 'As part of this review process, the Department approved the scheduled disbursement of a loan for the expansion of a biofuels facility in Great Falls, Montana.'