Judge mulls federal funding freeze as states challenge Trump OMB memo

ALBANY, N.Y. (NEXSTAR) — After President Donald Trump's Office of Management and Budget (OMB) released a memo telling state agencies to freeze disbursements of federal funds on January 27, New York Attorney General Letitia James and a coalition of 22 states and the District of Columbia sued. Although that OMB rescinded that memo, the lawsuit endured, and the judge in the case has yet to decide whether the complaints have been rendered moot.

Still at issue: "This is NOT a rescission of the federal funding freeze. It is simply a rescission of the OMB memo," White House Press Secretary Karoline Leavitt tweeted on January 29. "President Trump’s executive orders on federal funding remain in effect."

"This is just more confusion and chaos," James said in a retweet. "We will be in court this afternoon."

The rescission of the memo, M-25-13, followed a federal judge temporarily blocking its enforcement. A coalition had sued, arguing that freezing the funds would immediately harm its clients and businesses, that OMB’s order failed to consider the real-world impact of an across-the-board funding halt, and that it violated the First Amendment by targeting groups based on political beliefs associated with gender-related issues and diversity, equity, and inclusion (DEI).

On January 28, OMB tried to clarify the order, saying the pause only applied to specific programs related to immigration, foreign aid, environmental agreements, energy policy, and DEI. The agency also said that programs like Social Security, Medicare, Medicaid, and food assistance were exempt.

Still, the coalition of nonprofits and business groups filed an emergency motion for a temporary restraining order, asking a federal court to block the pause before it could take effect. The plaintiffs argued the freeze was arbitrary, capricious, unconstitutional, and beyond OMB’s authority.

Judge Loren AliKhan granted the temporary restraining order, preventing OMB from enforcing the funding freeze while the court reviews the case. So, as Leavitt explained, OMB rescinded the order to alleviate confusion based on that restraining order.

But James was already leading a separate multistate legal effort against the OMB order. The complaint in that lawsuit, "New York et al. vs. Trump," is available to read at the bottom of this page. It requested that the court declare the OMB directive unconstitutional and either vacate or postpone it.

Representatives from several Attorney General Offices argued "New York et al. vs. Trump," against attorney Daniel Schwei, representing the Department of Justice (DOJ), in federal court in Rhode Island. The chief judge of the U.S. District Court for the District of Rhode Island, John McConnell, Jr. presided over the hearing on Zoom, which you can watch on YouTube.

The lawsuit focused primarily on the rescinded memo, so according to Schwei, the case is now moot. But "The scope of the policy articulated in the memo has not been changed," said Sarah Rice, representing the Attorney General's Office in Rhode Island, another state leading the lawsuit.

Given that the litigants and the judge dissected Leavitt's tweet, McConnell asked Schwei to justify the semantics and explain the distinction. "Miss Rice, I think, has convinced me that, while the [memo] may not exist, there's sufficient evidence that the defendants collectively are acting consistent with that [memo]," the judge said. "While much of the verbiage of the states' submission revolved around the OMB [memo], that the effect of it is the same, and therefore is not moot."

You can watch the entire 20-minute exchange the concluded the court proceedings at the top of this story. Ultimately, given the murkiness of the semantics, the breadth of the executive orders, and the nature of the complaints from the multistate coalition, McConnell issued no ruling. "There is no order of the court yet, except that [DOJ] shall respond to a proposed order from the states within 24 hours," he said.

McConnell directed the states who filed the complaint to draft a temporary restraining order. That proposal, which you can read at the bottom of this story, was filed on January 30. He signaled plainly that he was likely to side with the states against the Trump Administration.

Trump's DOJ had not yet filed a response as of press time.

Here's the complaint in "New York et al. vs. Trump":

And you can take a look at the proposed temporary restraining order here: