Congress Should Stop Russ Vought’s Latest Power Grab

It used to be fashionable to discuss federal budget politics by sagely observing that the “federal government is basically an insurance company with an army.” While the basic budget math at the heart of that quip—that social insurance and defense make up the bulk of the federal budget by far—remain true today, it elides the other big category of spending: investment.

On many issues that touch Americans’ lives, such as housing, transportation, science, education, and technology, the federal government’s main lever for implementing policy is financial assistance—primarily, grants. This makes sense: depending on the project, states, counties, cities, nonprofits, academics, researchers, or other actors might be better suited to accomplish a policy goal than federal agencies, employees, or vendors on contract. The role of executive agencies here is akin to that of an investment analyst: federal actors look for ways to spend money in furtherance of their board’s (i.e., Congress’s) goals, attempting to weigh the costs and benefits of aiding potential awardees.

Some of these programs are well known (at least among wonks): the National Science Foundation’s scientific grants, the Department of Housing and Urban Development’s Community Development Block Grant program, federal highway funding, and so on. Some work in quieter ways: a cursory glance at Grants.gov reveals funding opportunities to improve tribal court capacity, rural development, renal disease research, and promote novel methods of education. In each of these cases and thousands of others, Congress has chosen to implement its policy priorities by supporting the work of third parties, rather than having the government do that work itself. This makes the mechanism by which grants are awarded extremely important: bad process can mean mission failure.

Earlier this year, the Office of Management and Budget proposed a fundamental change to the grantmaking process. The OMB’s new regulatory scheme introduces political review into the award process and new discretionary termination clauses into grant agreements, among other changes. The proposed regulatory change represents the latest in a string of efforts led by OMB Director Russ Vought to downsize agencies, overturn congressional spending decisions, politicize the bureaucracy, and, as he wrote in Project 2025’s Mandate for Leadership, to “bend or break the bureaucracy to the presidential will.” If the proposal comes to fruition, all new grants would need to survive evaluation by “senior appointees” for alignment with administration priorities. Those awards that make it through the gauntlet would then become subject to cancellation for misalignment with that agenda on a discretionary basis—meaning grants could be terminated on a whim, for really no reason at all—at any time.

As many observers have pointed out, the OMB proposal is a yet another escalation of the administration’s broader effort to politicize federal agencies and a radical break with the practices of previous administrations. But in addition, it would have an effect that has received less attention and that my organization, the Niskanen Center, in partnership with Institute for Progress, tried to warn about in a recent public comment. In short, the OMB’s proposal would undermine federal grantmaking as a basic tool for governing by kneecapping the government’s ability to make good decisions and credible commitments. Because grants are essential to implementing policy, this procedural degradation would in turn result in worse outcomes at virtually every turn: greater uncertainty, less innovation, fewer breakthroughs, weaker international competitiveness, and higher costs to taxpayers. And while the administration defends the proposal as a step towards greater government “accountability,” it would in reality subordinate the priorities of Congress to whoever occupies the White House.

We don’t need to guess at what this mechanism looks like in practice. The Department of Energy recently admitted in court that the OMB directed the cancellation of over $7.5 billion in grants “based solely on the political identity of the grant recipient’s state, i.e., whether the recipient’s location and/or place of performance was in a Blue State or a non-Blue State.” This should give any federal grantee pause. If the OMB’s proposal comes to pass, all future presidents will inherit a grantmaking ecosystem that is subject to this kind of partisan abuse, not just a matter of administration policy but baked into the system. The result? A system that is more expensive, less effective, and just plain arbitrary.

Perhaps extreme partisans would prefer this outcome, but if the overwhelming proportion of negative comments on the proposed rule are any guide, most Americans would not. On some level, the OMB must know this: it carved out a couple of grant types, including disaster assistance—a top issue for governors of both parties where federal money cannot be in doubt, seeing as disasters don’t discriminate among partisans—from the rule’s cancellation provision. But what makes chronic kidney disease, which impacts 1 in 7 American adults and to which hundreds of millions of dollars of in research funding is dedicated, any different?

Like any good board of directors, Congress can and should take action to stop its executive from making such a bad decision.

OMB is making it basically impossible for the government to credibly commit to anything

A grantee who hires a team, builds a facility, secures financing, buys lab equipment, or commits a decade of their life to a hard problem does so with the expectation of a federal commitment to hold up its end of the bargain. That commitment becomes conditional, however, under a provision in the new rule which adds a clause to every agreement patterned after “termination for convenience” rules in federal contracting. In practice it means that a federal agency could terminate an award when the recipient is performing well and has done nothing wrong—simply because political priorities shift, or political disputes emerge between the administration and awardees—with little mechanism for the recipient to recover what’s lost. The predictable result is that the value of a federal grant would decay as political transitions approach. Grantees are rational actors and rational recipients respond to uncertainty by pricing in the risk, doing less work for the same dollars, or declining to participate at all. Some well-resourced grantees that can afford to finish the work regardless of cancellation will press forward, but this entrenches their advantage. A wealthy state like California that can finish a half-built bridge experiences risk differently from a lower-resourced rural county or tribal government. All of these downsides would fall hardest on ambitious, long-term research or infrastructure commitments.

To get a sense of how important long term federal commitments are to grantees, consider CHIPS and Science Act, the Biden administration’s effort to invest in the reshoring of semiconductor manufacturing. The initiative won bipartisan support in Congress. But when the administration first reached out to industry about the promised federal investment, it got an earful, according to an interview with inaugural leadership team of the CHIPS Program Office:

[W]hen we came up with our draft award documents and sent them out to market, the initial reaction was very negative. Not on the policy stuff, but on, “What is the core legal relationship between the United States government and these companies?”…

They would say, “We’re nervous. This agreement is going to last for 10-plus years. Who’s going to be at the CHIPS Program Office in 10 years?” They were making decisions on billions of dollars of investment, based on how much money they were getting. They wanted certainty that, “If we hold up our end of the bargain, we’re going to get that money.” It was a very real and fair discussion.

This, mind you, was before the Trump administration floated its new rule making federal grantmaking more provisional. If the federal government cannot reasonably commit to doing what it says it’s going to do, rational actors in the private or nonprofit sector may decide that it is not possible to price the risk at all and simply pull out entirely or decline to engage in the first place.

The OMB, again, clearly understands this problem because CHIPS is almost uniquely excluded from the termination for convenience provision in the proposed rule. If commitment credibility matters when the counterparty is a semiconductor manufacturer deciding to invest, the same should hold true when the grantee is a large research university, a local transit agency, or a state housing finance authority. The OMB has not explained what makes those cases different, perhaps because nothing does.

You don’t have to take my word for it. The White House Office of Science and Technology Policy recently released a report on “A New Golden Age” for American science, in which it points out that “[r]esearch shows that when investigators receive longer-horizon support with tolerance for early failure, they produce portfolios with both more hits and more misses, the signature of genuine exploration.” The OMB’s proposal would mean less of the risk-taking and “long-horizon” grantmaking that the OSTP clearly favors. If the OSTP thinks it’s bad when “our scientist feels pushed toward safer, more ‘fundable’ territories” today, it’s hard to imagine this condition getting any better under the OMB’s new rules.

This is not the reform you’re looking for

There is plenty that could be done to improve the current federal financial assistance system—especially by relieving administrative burdens on grantees, states, and agencies alike. By some estimates, researchers spend 44 percent of their time on administrivia. A study by the Department of Health and Human Services found that the average length in a random sample of 200 grants was nearly 36,000 words. Requirements under the Build America Buy America Act (BABA), a 2021 law mandating that federally funded projects use materials produced in the United States, have spawned a cottage industry of lawyers and consultants, happy to advise grantees on compliance and waivers for a fee. Administrative hurdles within grant processes inflate the cost of doing business, make it hard for grantees who need the money most to access it, and pull talented researchers away from the things they do best. Not all burden is necessarily bad—plenty of stakeholders are comfortable that the juice is worth the squeeze with BABA—but sorting out the optimal burden requires rigorous attention to principles of good cost-benefit analysis.

Normally then, questions about reforming grantmaking processes are somewhat technical—sleepy, even: squabbles about changes to discount rates, direction to simplify Notices of Funding Opportunity (or NOFOs, pronounced “Noh-Foh” in bureaucrat-ese), or ensuring that agencies have purpose-fit systems to manage grants. More high-profile fights are present, of course, but they’re usually about things like the appropriate amount of paperwork to require of researchers or where to peg indirect cost recovery rates. Despite space for reasonable differences of opinion about how best to accomplish their goals, each of these discussions proceeds from a desire to improve decision-making and process efficiency.

And indeed, the OMB itself identified “reducing recipient burden” as one of its goals in this rulemaking. But we have to judge them not on what they intended but what the rule actually does. By that measure the OMB has failed. While it’s included some things that could merit consideration on their own—further streamlining of NOFOs using plain language, for example, is a good idea that the OMB should not abandon—the major changes introduce more administrative burden into the process. Agencies will be forced to set up new procedures for political review, potentially bottlenecking awards. It also forces grantees to become prediction-market analysts, pricing in the likelihood of political change during the duration of an award and charging the government a premium for that uncertainty. This outweighs any good movement on the margins by many multiples.

There are other paths the OMB could take that would doubtless accomplish more good with less bad. In general, the government should aspire to a policy regime that governs financial assistance through more purpose-fit, low-procedure guidelines rather than a “one-size fits all” set of mandates. Agencies need the flexibility to implement the massive variation in authorizing statutes that Congress has crafted to implement the massive diversity of missions grants serve to implement. For some awards, sensible reform would entail making even more firm commitments than are currently permitted, as the CHIPS Program Office found during implementation of the landmark law. If the OMB sought to include Congress, grantees, agencies, and civil society in a reform discussion, they would certainly find some willing participants.

Congress is politically accountable leadership, too

At the core of the OMB’s mistake is a faulty definition of political accountability. Throughout the proposal, the OMB equates accountability to alignment with executive branch priorities. The proposed text, for example, justifies layering new administrative procedure onto agencies and grantees by asserting that “program goals or Federal agency priorities may change in response to new direction from politically accountable leadership.” But accountability and legitimacy are derived not only from alignment with the executive branch but also from faithful execution of priorities set forth by Congress. In aligning federal grantmaking to the president’s priorities, the resulting growth in administrative procedure the OMB is proposing would interfere with the system’s democratic accountability to the legislative branch by grinding the process to a halt.

This creeping proceduralism makes it harder for Congress, or even the administration itself, to achieve its political goals, because adding friction inherently slows implementation. Agencies, programs, and grantees adopt procedures in an effort to avoid running afoul of requirements, binding themselves in red tape to avoid doing the wrong thing and robbing staff capacity, resources, and time from their efforts to do the right thing. Such mechanisms can themselves degrade responsiveness and accountability: When laws get passed and outcomes fail to materialize, as Jennifer Pahlka and Andrew Greenway put it in 2024, “[i]t can feel to lawmakers like the steering wheel they are supposed to have their hands on isn’t properly connected to the wheels.”

Americans can’t afford a government that goes bust

In sum, the OMB’s rulemaking cuts against the very things that make federal financial assistance work. By underweighting the value of reliable commitments, expert judgment, and procedures in reasonable proportion to risk, the proposed rule would destabilize one of the core mechanisms in the government’s toolkit, distorting its congressionally defined purpose.

Fortunately, the OMB is not the only politically relevant actor here. Congress can stop implementation of the regulation change via statute, and the Senate has recently taken a step in that direction. Congress should go further and ban any changes to Uniform Guidance that include political review in the award process or mandatory discretionary termination clauses. Grant policy that swings wildly from administration to administration, buffeted by political winds and mercurial leaders, benefits only special interest groups who seek to use administrative means to kill that which they can’t politically.

No serious investor (nor an army or an insurance company, for that matter) would proceed like this, increasing the likelihood that it makes bad decisions while also giving partners reason to distrust their word. Those that did would quickly find themselves deemed too risky—perhaps even out of business. It isn’t a coincidence that a Moody’s analyst warned of potential credit risk from implementation of this rule.

This might be a normal part of the business cycle for a private company, but Americans can’t afford a government that goes bust.

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