Nonprofits and other federal grant recipients have struggled through 2025, a year of fiscal tightening in federal grant programs, from the termination of numerous grants and programs the current administration perceives as unaligned with either the United States' or the administration's priorities, to a formal presidential rescission notice under the Impoundment Control Act of 1974 (ICA) affecting USAID and the Corporation for Public Broadcasting, and now a "pocket rescission" of $5 billion in foreign aid and international organization funding.
With federal fiscal year 2025 (FY25) coming to a close at the end of September, we issue this client alert to briefly explain the concept of a "pocket recission" and to address the less-discussed matter of pending grant applications with respect to which agency action remains uncertain.
"Pocket Rescissions"
A recission under the ICA is commenced through a special message requesting that Congress revoke authority to obligate yet-unobligated funds available from a current appropriation. 2 U.S.C. § 684. That message is transmitted by the president to both chambers of Congress, with a copy delivered to the comptroller general and publication of the message in the Federal Register. Id. § 685. The Senate and the House can then, through special procedures that make proposal of, and action on, a rescission bill less burdensome than other legislation, act upon the rescission request. Id. § 688. If enacted, the budget authority addressed in the special message is withdrawn; if it is not enacted, the president is to move forward with obligating the funds consistent with the original appropriation. Id. § 683. A feature of this process is that Congress has 45 days to act on the rescission request before, absent any action by Congress, the president is required to move forward with obligation. Id.
A "pocket rescission" is issuance by the president of the ICA's required special message necessary to trigger the ICA process, with an intent to withhold the covered funds for the 45-day period absent congressional action. In other words, if Congress fails to vote against a proposed rescission of a budgeted appropriation, the "pocket rescission" interpretation would mean the budgeted authority is taken away. This interpretation is controversial. In 2018, in Impoundment Control Act—Withholding of Funds through Their Date of Expiration (B-330330), the comptroller general issued a decision declaring such process improper. On August 6, 2025, the comptroller general issued a blog post reiterating its view.
The administration apparently disagrees with the comptroller general's interpretation. Whether the comptroller general will, or even can, given certain timing requirements and limitations, seek to assert its position through action in court, or whether a private party may have legal standing to do so, may be matters for forthcoming litigation.
Pending Grant Applications—Denial or Inaction
The discussion of pocket recissions, however, raises another question important to nonprofit federal grantees: What if no announcement is made that funds are to be rescinded, and they simply are not obligated?
As we approach the end of FY25, this possible outcome has received less attention. Yet, some grantees are still awaiting word on grant applications they have submitted in response to notices of funding opportunity (NOFOs) issued with an expectation that FY25 funds would fund the awards. As it is not uncommon for federal agencies managing recurring programs to issue year-to-year funding at the end of a fiscal year, nonprofit grantees with unaddressed applications may be wondering what recourse they have if their application is rejected or there is simply no action at all on their application.
Although a number of related considerations complicate the answer, the issue can be broadly understood by applying the following factors to one's particular circumstances:
- No Award versus Termination of Award—New Grant versus Annual Continuation Funding. Many grants and cooperative agreements are awarded for three-year or five-year "project periods," but are funded incrementally from year to year with annual "continuation awards." In 2018, in the context of the Department of Health and Human Services (HHS)-funded Teen Pregnancy Prevention Program (TPPP), numerous grantees were told that their current year of incremental funding under a five-year, competitively awarded grant would be their last. Several successfully challenged that action as a "termination" of their award without any valid basis. See, e.g., King County v. Azar, 320 F.Supp. 3d 1167 (W.D. Wa. 2018) (footnote 5 lists other, similar cases). The Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) promulgated at 2 C.F.R. Part 200 were subsequently updated to make withholding of continuation funding easier, but the corresponding regulations for HHS awards, 45 C.F.R. Part 75, will not be updated to include those changes until October 1, 2025. In short, challenging failure to award continuation funding is likely easier than challenging the government's failure to award a new competitive award, but, as we have seen with the various terminations of grants in the middle of current budget periods in 2025, much depends upon the funding source and grant terms.
- Agency Action or Inaction—Whether Your Application Is Rejected or No Applicant's Application Is Acted Upon. Generally, rejection of a nonprofit's federal grant application can be challenged under the Administrative Procedure Act's (APA) judicial review provisions as a "final agency action." See 5 U.S.C. 701 et seq. It is easier to demonstrate that a final agency action has occurred if one's grant application has been expressly denied. If an agency has simply declined to act on anyone's application, the matter will prove more difficult for a host of reasons. Again, such issues warrant careful review.
- Challenging Agency Action—Whether a Program Is Disestablished or Simply a Single Grant or a Handful of Grants Are Affected. In grant termination litigation to date, grantees have had more success on jurisdictional arguments when the agency's action has been the effective disestablishment of a federal program and not viewed as challenging the termination of a particular grant. See, e.g., Child Trends, Inc. v. United States Dep't of Educ., No. 25-cv-1154, 2025 WL 2379688, at *9 (D. Md. Aug. 15, 2025) (taking jurisdiction over a challenge to an agency's "decision to suspend the … programs because, "[t]hough Plaintiffs unquestionably did receive individual grants or contracts through the two programs, they do not rest any component of their Program Claims on those agreements"); Nat'l Institutes of Health v. Am. Pub. Health Ass'n, 606 U.S. ___ (2025) (granting government stay of injunction vacating grant terminations, but denying stay as to challenges to guidance prohibiting funding). When bringing a viable action in federal district court, grantees are able to access preliminary injunctive relief (i.e., pausing or stopping government action). Although still a matter of active litigation, when an action is viewed as a breach of contract action, district courts have been more likely to find that the lawsuit belongs before the Court of Federal Claims, where preliminary injunctive relief is not generally available.
- Challenging Agency Inaction—Funding Statute and Grantee Position Can Matter. In addition to empowering district courts to set aside "final agency action" that is "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law,” the APA provides that district courts may "compel agency action unlawfully withheld or unreasonably delayed." 5 U.S.C. § 706(a)(1). Where delay is egregious, it may also become possible to seek relief under a mandamus cause of action. AHA v. Burwell, 812 F.3d 183, 189 (D.C. Cir. 2016). To challenge delay, a grantee awaiting funding will be in the strongest possible position if it is listed, by name, in an authorizing or appropriations statute as a mandated recipient. See, e.g., RFE/RL, Inc. v. Lake, 2025 U.S. Dist. LEXIS 138057 (D.D.C., Jul. 18, 2025). While most nonprofit grantees are not named by Congress, some are. Although a more challenging case, a grantee that is the sole applicant for funding or sole possible applicant for funding, may also be well situated to challenge agency inaction. Finally, whether a program is a formula grant program or a discretionary grant program may make a difference—a formula grant may be the functional equivalent of naming the grantee (especially a state or local government) and carries with it the benefit that, per the comptroller general, the funds are considered obligated upon enactment of the appropriation by Congress. See U.S. Department of Transportation, Federal Highway Administration—Application of the Impoundment Control Act to Memorandum Suspending Approval of State Electric Vehicle Infrastructure Deployment Plans, B-337137 (May 22, 2025).
- Timing Matters. If the funds at issue in a particular grantee's circumstance are available for obligation only within a single fiscal year, the grantee must generally bring any challenge before the end of the fiscal year. See City of Houston v. Dept. of Housing and Urban Dev., 24 F.3d 1421 (D.C. Cir. 1994). Furthermore, any grantee bringing such a challenge should consider requesting preliminary injunctive relief in the form of suspension of the lapse provision in the pertinent appropriation. Id. at 1426-27.
While we attempt to lay out some of the key considerations when considering your organization s options upon denial of an award or if no announcement is made concerning an award of interest to your organization, we emphasize that the law is continuing to evolve in this space. Each grantee's circumstance is different, and the above-described considerations are highly fact dependent. Still, as we approach the end of FY25, grantees should be aware of these legal issues and possible means to navigate the risk they face, even if they are unable to entirely eliminate it.
For additional information on the above matter or other federal program matters, please contact Scott S. Sheffler, Dismas Locaria, or Christopher Griesedieck of Venable LLP's Government Contracts Practice.