As nonprofits continue to face growing demand for services from the communities who rely on them, a new proposed rule from the Office of Management and Budget (OMB) could drastically reshape how they receive federal funding. On May 29th, OMB published a proposed rule titled “Regulation for Federal Financial Assistance,” which would change the uniform guidance—the government-wide framework governing federal grants, cooperative agreements, and other awards to nonprofits, state and local governments, and other grantees.
While periodic updates to OMB’s guidance are not uncommon, several of the proposed changes would drastically expand the authority of executive agencies and political appointees in the federal grantmaking process. Overall, these changes would make federal funding less transparent, more unpredictable, and susceptible to shifting political priorities from administration to administration, creating a slew of challenges for nonprofits to navigate as they work to serve their communities.
Within OMB’s proposal, some of the most concerning provisions would require federal agencies to administer grant programs in a manner that is not only consistent with congressionally authorized legislation, but also ensure that it is “aligned with administration policies and priorities”. While this may appear sensible, the executive branch does not have the legal authority to inject additional requirements that call for grantees to advance the current administration’s agenda through federal programs. Additionally, federal programs may support long-term projects that extend beyond a presidential term, and drastic shifts to program structure every four to eight years would put grantees on ever-shifting ground. When nonprofits and other grantees hire staff and establish community partnerships to fulfill the needs of these programs, they need consistency, not constantly changing priorities. In addition to the burden this imposes on nonprofits, it also erodes public trust in the belief that the executive branch will administer federal programs in a manner consistent with congressional intent.
These concerns are exacerbated by another provision which would give political appointees expanded power to approve or reject discretionary grant awards after they have been selected through the agency review process, but before funding has been formally awarded, to ensure that projects advance the “national interest”. This term is undefined in the proposal and would give political appointees broad and unchecked discretion to reject applications based on political preferences, rather than the merits of an applicant’s proposal.
Additional changes would drastically increase executive agencies’ authority, allowing them to modify grant conditions after awards have already been issued or to even terminate existing grants altogether. As described above, the conditions for which an agency could change a grant’s terms or terminate it mid-award can be made if an agency determines that a grant no longer advances their objectives, or the “national interest”, at the time of termination. This would allow future administrations to cancel ongoing grants that extend from one president to the next, simply due to policy differences. With additional authority to change grant terms mid-award, federal agencies could put fully compliant grantees at risk of no longer being able to carry out the terms of their award. For example, an agency could impose additional oversight and burdensome reporting requirements on grantees in the middle of their award which were not stipulated at the beginning of the grant’s term. Additionally, agencies could change grant terms so that nonprofits only get funding after delivering services, rather than before. Not only do these changes undermine Congress’ authority on federal spending issues, but this uncertainty would put smaller and financially vulnerable nonprofits at risk if they cannot rely on the terms of their grant to stay consistent for the duration of the award.
Several provisions also raise serious concerns regarding restrictions to diversity, equity, and inclusion (DEI) initiatives. One change specifically would outright prohibit federal grant dollars from being used to support any “illegal” DEI or gender-identity related activities. Many of the DEI-related activities characterized by the current administration as “unlawful” have ultimately been found by courts to follow federal law. Despite Congress’ intent to support historically underrepresented populations, nonprofits serving these communities could find themselves facing even more uncertainty of exactly which activities are allowable.
It’s important to note that not every aspect of this proposal would harm nonprofits. By turning the uniform guidance into formal OMB regulation, this rule would establish a consistent government-wide standard, reduce agency-specific compliance burdens, and streamline the grant application process by requiring all Notices of Funding Opportunities to be posted centrally on Grants.gov. These changes would improve transparency and make federal funding more accessible to organizations with fewer resources or less experience navigating the grant system.
When viewed wholistically, however, this proposal would create a more politicized, volatile, and uncertain funding environment for nonprofit organizations. At a time when reductions in federal assistance programs are increasing reliance on nonprofits to serve vulnerable communities, these changes would undermine the sector’s ability to meet growing needs.
We encourage you to join Independent Sector and our partners in opposing this harmful proposal.
- Submit a customized comment via the Independent Sector Action Center by July 13, 2026.
- Sign the National Council of Nonprofits’ (NCN) letter opposing this rule.
- Review NCN’s comment guide.
- Email your member of Congress.
Tyler Hinkle is a Government Relations Manager at Independent Sector
