The Trump administration, known for its deregulatory push, is now targeting a different kind of red tape: the often-unrelated policy strings that federal agencies attach to grants for state and local governments. The White House Office of Management and Budget (OMB) has proposed a rule that would sharply limit the conditions agencies can impose on federal financial assistance, a move that could reshape how states manage billions in federal dollars.
In May, OMB unveiled its Regulation for Federal Financial Assistance, which would bar agencies from requiring states to comply with mandates that go beyond the scope of what Congress originally authorized. For example, states would no longer be forced to apply “disparate impact” liability theories—a legal standard that can hold states liable for policies that unintentionally discriminate—unless explicitly required by statute. Such requirements, critics argue, divert limited resources away from the citizens the grants are meant to serve.
Jonathan Wolfson, a senior fellow at the State Policy Network’s Center for Practical Federalism, has long tracked these “green tape” conditions. His organization annually publishes a Federalism Scorecard, which evaluates state policies that protect against federal overreach. A key criterion is whether state legislatures have a say in accepting federal grants and their attached conditions. Currently, only 17 states require legislative approval before accepting such funds, and Wolfson’s group is pushing more states to adopt that safeguard.
The problem, Wolfson argues, is that agencies have used guidance documents and “notices of funding opportunity” to sneak in unrelated requirements. Recent examples illustrate the trend: the Department of Housing and Urban Development’s 2023 homelessness services grant required applicants to advance “climate resilience,” not just provide shelter. The Department of Education gave competitive preference to schools implementing “culturally informed discipline policies” and “energy-efficient spaces,” and the Department of Agriculture’s composting and food waste reduction program prioritized applicants that advanced the department’s climate and equity goals—even though the program’s core mission was simply reducing food waste.
While some of these conditions may seem benign on their own, they represent a significant expansion of federal authority. “It is difficult to argue that Congress intended for the grants to include entirely unrelated policy strings,” Wolfson said. “And it is equally difficult to assume state legislators and governors would expect these kinds of strings to come along with federal grant dollars.”
The proposed rule would still allow agencies to require basic reporting to ensure funds are spent properly and not used for fraud, political campaigning, or discrimination. But it would refocus grants on their original congressional purpose, which Wolfson says has the added benefit of reducing project costs and speeding up the delivery of funds to their intended targets.
For states, the financial stakes are high. The James Madison Institute estimates that Florida, for example, currently spends an additional 40 cents of its own revenue for every federal grant dollar it accepts, largely to meet compliance requirements. Cutting these strings could free up significant state resources.
Wolfson praised the OMB proposal as “great news for the states and for citizens everywhere.” It would, he said, prevent agencies from forcing states to adopt particular political ideologies or engage in unlawful activities just to access federal money. “Federal grants support state programs that citizens rely on each day,” he added. “By cutting the green tape, the Trump administration is making sure those grants can actually do their job—instead of getting tangled in strings that please Washington bureaucrats but do nothing for the people the money was meant to help.”
The move is part of a broader effort by the administration to reduce federal overreach, and it has drawn attention from both fiscal conservatives and state officials who have long complained about unfunded mandates. As OMB moves forward with the rule, states and federal agencies alike will be watching to see how much of the “green tape” actually gets cut.
