Sign In or Create an Account.

By continuing, you agree to the Terms of Service and acknowledge our Privacy Policy

Politics

How Government Grants Actually Turn Into Cash

Here’s why Trump’s funding freeze created so much chaos.

•
Money disbursement.
Heatmap Illustration/Getty Images

A memo issued to federal agencies from the White House budget office on Monday landed like an atom bomb. The Trump administration ordered a pause on the obligation or disbursement of federal financial assistance. In laymen’s terms, that means an immediate freeze on payouts of federal grants — even those already awarded. The news sent a mushroom cloud of confusion and fear through state and local governments, schools, nonprofits, and companies that have set up programs and financed projects based on that funding.

Experts say the move is illegal and many groups moved quickly to sue. By Tuesday afternoon, a federal judge had temporarily blocked the funding freeze.

A 1974 law called the Impoundment Control Act prohibits the president from holding back congressionally appropriated funds indefinitely without permission from Congress. As Georgetown University law professor David Super explained in a blog post today, the law also prohibits presidents from deferring funds based on policy disagreements. The memo from the Office of Management and Budget makes Trump’s policy intent explicit — it specifically directs agency heads to pause activities that “may be implicated by the executive orders, including, but not limited to … DEI, woke gender ideology, and the green new deal.” It notes that the pause “will provide the Administration time to review agency programs and determine the best uses of the funding for those programs consistent with the law and the President’s priorities.”

Some have interpreted the memo as the first salvo in an attack on the separation of powers. But perhaps the most immediate reason the pause is so cataclysmic is because of the way federal grants work.

When an entity wins federal funds, be it $270 million to expand a copper recycling facility in Kentucky, or $1.2 billion to build a hydrogen hub on the Gulf Coast, or $149 million for the state of Wisconsin to set up home energy efficiency rebate programs, the awardee doesn’t just get the money transferred over to their bank account in a lump sum. Every federal grant program works slightly differently, but the majority of them are essentially pay-as-you-go.

The first thing that happens after an agency awards a grant to a given project is the two parties negotiate a contract, outlining the terms under which the award will be administered. What milestones does the project need to hit? What does the recipient need to report back to the agency? In the context of many Department of Energy programs, this contract is called a cooperative agreement, where federal staff continue to be involved in the project throughout its implementation.

After both parties sign the agreement, the money is considered “obligated,” which means the government has a legal duty to disburse those funds per the terms of the agreement. There might be some initial transfer of funds at this point to kickstart the project, depending on the program and contract. But the recipient may not get any money at all until they submit for reimbursement.

Yep, that’s right. If you win millions of dollars from the government, you still need to submit your receipts to get paid.

This is typically not a one-and-done process. A lot of grant programs fund years-long projects, and recipients regularly invoice the government for reimbursement throughout that time. In the case of the DOE, most programs also have a cost-share requirement, where the agency will reimburse a project developer for whatever portion of the expenses it has agreed to pay. For the Inflation Reduction Act’s Home Energy Rebates, where the funding is distributed to states to implement their own programs, the program is set up to transfer funds to state energy offices in four “tranches” as recipients hit certain benchmarks.

While some projects are fully obligated up front, meaning the grantee is entitled to the full amount, others are obligated in phases. For example, the Department of Energy has selected seven regional hydrogen hubs to receive up to $7 billion. But each of those seven hubs has only been awarded a portion of the funding for “phase 1,” which can be used to pay for “initial planning, design, and community and labor engagement activities.” When they are ready to move into phase 2, they’ll have to negotiate a new award for project development, permitting, and financing. Each advancement is subject to a go/no-go decision by the DOE.

Before Biden left office, his administration said it had obligated 85% of all grants from the Inflation Reduction Act. But as you can see, most of that money is not yet out the door.

Green
🔒

You’ve reached your free article limit

Subscribe to Heatmap News for unlimited access to daily energy and climate coverage.
To continue reading
Create a free account or sign in to unlock more free articles.
or
Please enter an email address
By continuing, you agree to the Terms of Service and acknowledge our Privacy Policy
A data center.
Heatmap Illustration/Getty Images

This is Heatmap Daily, a weekday digest written by our executive editor. Subscribe here.

My colleague Emily Pontecorvo has a fascinating story today about Net Power, an energy and power development company whose technology once seemed key to decarbonizing the country’s electricity grid.

Keep reading...Show less
Energy

Net Power Surrendered Its Clean Dreams to Data Center Demand

The zero-emission pioneer is doing the dirty work for the AI boom.

A gas plant and a data center.
Heatmap Illustration/Getty Images

All kinds of companies have refashioned themselves to exploit the AI boom. A bitcoin miner became a data center developer, a shoemaker is building GPUs, and an electric vehicle company is integrating its powertrains into server racks.

Now, a company that once aspired to build one of the lowest-emitting power plants has pivoted to building one of the dirtiest in order to meet data centers’ requirement for speed to power above all. Net Power was founded to pioneer a new form of natural gas power plant with zero emissions, but it has given up on that technology and recently acquired 10 natural gas reciprocating engines that it plans to co-locate with a data center on the site intended for its first commercial plant.

Keep reading...Show less
Yellow
Politics

The Surprisingly Exciting Race to Be California’s Next Insurance Commissioner

Ben Allen wants to reform the existing market. Jane Kim wants a revolution.

California Insurance Commissioner candidates.
Heatmap Illustration/Getty Images, Ben Allen, Jane Kim

From Crescent City to Coronado, California voters are facing decisions on a down-ballot strewn with over a dozen propositions and a series of statewide Democrat-versus-Republican races with mostly foregone conclusions.

And then there’s the insurance commissioner.

In the race to oversee California’s insurance market, a $452 billion-in-premium-volume monster imperiled by insurer defections and disaster risks, Democratic State Senator Ben Allen, whose district includes Pacific Palisades, is facing off against Jane Kim, a progressive former San Francisco supervisor.

Kim has the support of Vermont Senator Bernie Sanders — it’s the first thing you see about her when you Google her campaign. She previously served as his California political director during the 2020 presidential race, and she appeared earlier this month at an event with the senator in support of the state’s proposed billionaire wealth tax.

Allen, by contrast, won the endorsement of the state’s Democratic Party and its two incumbent senators.

There has been little public polling of the race, but one September survey showed Kim leading Allen 25% to 18%, with more than half the electorate undecided.

“My opponent and I are not even running for the same office,” Kim told me. “He’s running for what this office used to be, and I’m running for what this office could be.”

Allen wasn’t worried about Kim’s characterization in my interview with him, telling me, “I want to fix the market that we have and make it work. My opponent wants to build a new state insurer that nobody has priced.”

Keep reading...Show less