OMB Proposal Overhauls Federal Grant Rules

The Office of Management and Budget has issued a proposed rule that would revamp the federal grant system governing nearly $1 trillion in funding across 42 agencies and 1,183 programs. The draft would make OMB guidance directly binding on all agencies, replace agency flexibility, and shift grant‑making authority to political appointees.

Key changes include restricting the use of funds for certain diversity, equity and inclusion or outreach activities, easing mid‑year grant termination when projects no longer align with “agency priorities” or the “national interest,” and adding extensive compliance requirements such as mandatory E‑Verify, expanded conflict‑of‑interest disclosures, and tighter reporting on sub‑awards. The rule also limits allowable costs for professional memberships, journal subscriptions and conference attendance, requiring prior agency approval.

If finalized, the rule could destabilize multi‑year funding for programs such as Centers for Independent Living and Statewide Independent Living Councils, increase administrative burdens for nonprofits and businesses, and reduce the role of peer review in award decisions. Public comments are accepted until July 13 2026, with an effective date of October 1 2026.