Regulatory Alert: Trump Administration Releases Proposed Update to Rules Governing Federal Grants

June 4, 2026

The White House’s Office of Management and Budget (OMB) recently released a proposed rule that would make comprehensive updates to the policies and requirements that govern federal grants across the federal government. AAAE has received a number of questions regarding the potential impact of the proposed rule on grant programs administered by the U.S. Department of Transportation (DOT) and Federal Aviation Administration (FAA), including the Airport Improvement Program (AIP) and Infrastructure Investment and Jobs Act (IIJA) programs. We have conducted a thorough review of the OMB proposal and provided our analysis below.

At a high level, the OMB proposal would introduce new grant conditions and restrictions on the use of funds, change how discretionary awards are reviewed internally, and provide clarification on when a federal agency may terminate a grant award. However, the practical implications of the proposal could be minimal as many of the proposed changes simply codify existing practices or policies, and airport sponsors are already subject to many of the newly proposed requirements. Nevertheless, we encourage members to review OMB’s proposal and share feedback with us as we consider whether to file comments before the Monday, July 13 deadline.

We also note that the OMB proposal would require federal agencies to ensure that grant funds are not being used to promote diversity, equity, and inclusion (DEI), similar to a condition that has already been incorporated into FAA grant agreements. AAAE members should be aware that the Trump administration is pursuing two other anti-DEI initiatives regarding federal contracts and SAM.gov certifications, which are discussed at the end of this alert. Airport sponsors that already obtained injunctive relief from FAA’s DEI provisions should consult counsel to determine whether the order also protects them from these newest initiatives.

Background

Under 2 C.F.R. Part 200, known as Uniform Guidance, the OMB established policies and requirements that govern the management and administration of grant awards for all federal agencies. However, not all the requirements in the Uniform Guidance apply to all grant programs. In many cases, Congress and federal agencies have established requirements that are unique and specific to a grant program. For airport sponsors, Congress has established statutory requirements to govern the AIP and IIJA programs that preempt OMB’s regulations. In addition, FAA maintains the AIP Handbook (Order 5100.38D), which outlines the agency-specific policies, requirements, and rules for AIP grant awards. As a result, some of the proposed policies and requirements in the OMB proposal may not apply to airport sponsors.

There are two separate, ongoing initiatives to update the policies and procedures governing the management and administration of grant funding for airport sponsors. First, OMB released a proposal last Friday that would make comprehensive regulatory changes to the Uniform Guidance. According to OMB, the objective is to improve transparency, accountability, and oversight for federal grant awards and other financial assistance across the federal government. OMB has requested feedback on the proposed rule no later than Monday, July 13. An analysis of the OMB proposal is provided below. Second, FAA is requesting feedback on its draft AIP Handbook (Order 5100.38E), with comments due to the agency no later than Monday, August 17. Please see our May 16 Regulatory Alert for additional details.

OMB Proposal to Update Rules Governing Federal Grants (2 C.F.R. Part 200)

Grant Conditions, Limitations, and Restrictions
The OMB proposal introduces several new prohibitions, conditions, and limitations on how federal grant funds may be used. According to the OMB, the objective of the proposed changes is to ensure that grant funding is not being used for unlawful discrimination or other purposes that are inconsistent with federal law and the Trump administration’s priorities.

Prohibition on Use of Federal Funds for DEI Purposes: The OMB proposal would require federal agencies to ensure that grant funding is not used to “fund, promote, encourage, subsidize, or facilitate” any DEI or diversity, equity, inclusion, and accessibility (DEIA) policies, principles, or practices that violate federal anti-discrimination laws. However, the proposal does not specify how each agency would be required to ensure funding is not used for these purposes. If finalized, the new proposed requirement would not take effect until fiscal year 2027 (FY27). Nevertheless, a similar provision was already included as a condition in FAA grant agreements last year. Further discussion on the Trump administration’s anti-DEI initiatives is provided at the end of this alert.

Prohibition on Use of Federal Funds to Support Theories of Disparate-Impact Liability: The OMB proposal would prohibit grant recipients from adopting, issuing, or enforcing disparate-impact liability standards when administering programs or activities supported by a federal grant, except in limited circumstances. Disparate-impact liability would be defined as a theory under which a “facially neutral policy or practice” gives rise to a presumption of unlawful discrimination on the basis of federally protected characteristics (e.g., sex, race) where “there are any differences or disparities in outcomes” among different races, sexes, or similar groups. Simply stated, the proposal would prevent grant recipients from punishing or penalizing policies that result in accidental discrimination, unless there is proof of intent.

Prohibition on Discriminatory Event Services: The OMB proposal would prohibit public entities that are grant recipients from discriminating on the basis of the viewpoint, content, or subject matter of speech when providing services for events, meetings, or other expressive activities. The prohibition would apply to any event sponsored, hosted, or permitted by the grant recipient on property or facilities it owns, leases, or otherwise controls (even if the event is not funded by a grant). Because airport sponsors are already subject to the First Amendment, it is unclear what new obligations, if any, this provision would impose on sponsors. Nevertheless, any violation of the provision could threaten a sponsor’s grant funding in addition to subjecting the sponsor to a lawsuit for violating First Amendment rights.

Prohibition on Use of Federal Funds to Collaborate with Certain Foreign Countries and Entities: The OMB proposal would prohibit grant funding from being used to support a bilateral or multilateral collaboration, agreement, program, or activity with a “covered foreign country or covered foreign entity,” which includes foreign adversaries such as China. The proposal would allow for exceptions, including when a federal agency head determines it would not pose a risk to national security and is in the interest of the United States.

Prohibition of Procurement and Operation of Prohibited Unmanned Aircraft Systems (UAS): The OMB proposal would prohibit grant funding from being used (a) to procure a UAS prohibited by the Federal Acquisition Security Council (FASC) or (b) in connection with the operation of such a FASC-prohibited UAS. This provision would implement an existing statutory requirement—passed by Congress in 2023—that prohibits federal agencies from issuing grants for the procurement of FASC-prohibited UAS, which include drones primarily produced by companies in China, Russia, Iran, and North Korea. A similar prohibition already applies to airport sponsors pursuant to section 936 of the 2024 FAA reauthorization law.

Allowable Costs
Under the current framework, the OMB has established a set of principles for determining which costs are allowable, unallowable, or reasonable when spending federal grant funds. The proposal would expand the scope of unallowable costs and prohibit grant funding from being used by a grant recipient for lobbying; voter registration campaigns; advocacy or public messaging campaigns; selling and marketing products or services; subscriptions or memberships in organizations whose primary purpose is lobbying or issue advocacy; and advertising and public relations; among other things. The proposal would also limit the circumstances when grant funding may be used to cover costs to attend conferences. OMB proposed no changes to the circumstances when grant funding can be used for indirect cost recovery (e.g., overhead expenses and support services).

Keep in mind that under existing grant assurances, FAA only requires airport sponsors to use OMB’s cost principles (for determining allowable or unallowable costs) as “guidelines.” Indeed, under 49 U.S.C. § 47110, Congress has specified the criteria that airport sponsors must satisfy in order for AIP funds to be used for certain types of costs. The standard outlined in § 47110 is generally stricter than the OMB’s cost principles. As a result, in practice, OMB’s proposed updates to the cost principles in 2 C.F.R. Part 200 should not have any material impact on airport sponsors.

Internal Controls
The OMB proposal would implement two notable provisions aimed at improving internal controls of grant recipients. First, grant recipients would have to participate in DHS’s E-verify program to confirm the employment eligibility of employees and contractors hired in or performing work in the United States under a federal grant. However, many commercial service airports already have access to and are utilizing the E-verify program. Second, grant recipients would have to take reasonable cybersecurity and other measures to safeguard “confidential business information.”

Solicitations for Discretionary Grant Award Applications
The OMB proposal would make several changes to simplify notices of funding opportunity (NOFOs), which are used to solicit applications for discretionary grant awards. For several reasons, however, we do not believe the changes would materially impact how FAA administers NOFOs for airport projects. First, FAA has a statutory exemption from having to issue a NOFO for AIP discretionary grants. Second, the only program that would require FAA to issue a NOFO for airport sponsors is the FAA Contract Tower Competitive Grant Program. Under the program, FAA already received approval to use a specific application for interested entities to submit their proposal. In addition, the requirements for evaluating applications and the scope of eligible entities that may apply are already clearly defined in the statute. Third, many of the proposed revisions are already being implemented by FAA, such as ensuring the application period is open for at least 30 days.

Review of Discretionary Grant Awards
The OMB proposal would require a designated senior political appointee to conduct a pre-issuance review of all discretionary grant awards to ensure that proposed awards, among other things, (a) demonstrably advance the President’s policy priorities, where applicable, and (b) do not fund, promote, encourage, subsidize, or facilitate racial discrimination, illegal immigration, certain gender ideology viewpoints, or other initiatives that compromise public safety or promote anti-American values. This proposed requirement would codify an August 2025 executive order from President Trump (Executive Order 14332) that required designated political appointees to review grant awards. Based on our conversations with FAA, the agency has already designated an appointee to conduct these reviews, which began in fall 2025.

Termination of Federal Grant Awards
Under OMB’s current framework, a federal agency may terminate a grant award for several reasons, including if the agency determines that “an award no longer effectuates the program goals or agency priorities.” This is known as the discretionary termination provision. Along these same lines, last year, DOT and FAA incorporated new conditions in their grant agreements that allowed FAA to terminate an agreement if (a) “[c]ircumstances cause changes to the Project that the FAA determines are inconsistent with the FAA’s basis for selecting the Project to receive a grant”; or (b) the “FAA determines that termination of this agreement is in the public interest.”

The OMB proposal would clarify application of the discretionary termination provision in several regards. First, a federal agency would have the authority to terminate a grant award if the agency determines the award “does not effectuate program goals, Federal agency priorities, or the national interest as they exist at the time of the termination.” Second, this provision would have to be included in all future grant agreements. Third, the termination authority would only generally apply to discretionary grants (e.g., Airport Terminal Program) and not entitlement grants (e.g., AIP entitlement). Finally, the proposal outlines a process for an agency to exercise this authority, requiring advance notification and an opportunity for the recipient to respond to the termination.

In practice, it is unclear whether the OMB proposal would ultimately expand FAA’s authority to terminate grant awards given that FAA already implemented a similar provision in its grant agreements and maintains broad discretion to terminate awards. Instead, the proposal appears aimed at improving the consistency of how and when the discretionary termination provision will be applied across agencies. As a practical benefit, the clarification that the discretionary termination provision only applies to discretionary grant awards could be helpful in protecting entitlement grant awards from being terminated.

Suspension of Federal Grant Awards
The OMB proposal would allow a federal agency to temporarily suspend a federal grant award (up to 90 days) if the agency determined the suspension was in the agency’s interest. This authority would be new for grant awards, although it resembles authority that currently exists for a federal agency to temporarily suspend an agreement with a federal contractor. The OMB clarified that the suspension provision would only generally apply to discretionary grants and not entitlement grants.

Other Noteworthy Proposed Changes
In addition to the changes discussed above, OMB included several other proposed revisions regarding procurement, disclosure of conflicts of interest, and the reduction of regulatory burdens across federal grant programs.

Discouraging Cost-Reimbursement Contracts: The OMB proposal would strongly discourage the use of cost-reimbursement contracts. In addition, any grant recipient using such a contract would have to notify the awarding federal agency of its use and maintain a written justification in its records. The proposal would also provide federal agencies with more discretion to require prior approval for these types of contracts.

Conflict of Interest Disclosure: The OMB proposal would require each grant recipient to disclose in writing any potential conflict of interest to the federal agency. This would include disclosing any of the recipient’s employees who (a) worked on an application or proposal in support of a grant award, or are anticipated to work on activities under the award, and (b) were employed by the awarding agency during the preceding two years prior to submitting the grant application. The disclosure would be for “informational purposes only.”

Reducing Regulatory Burdens: The OMB proposal would require federal agencies to periodically review the programmatic and administrative requirements associated with their grant programs to determine whether they are unnecessary and not required by the OMB’s regulations. This could be helpful in putting pressure on FAA to regularly reassess their processes and requirements for administering grants under the AIP.

Limits on Audits: The OMB proposal would clarify that a federal agency, GAO, or an Inspector General may only impose additional audits on a grant recipient when authorized by statute. The intent of the change is to reduce audit burden for recipients. The proposal also suggested that the OMB is conducting a broader review of audit requirements and may propose changes in the future.

Effective Date
OMB provided a 45-day period for the public and stakeholders to review and provide feedback on the proposal, which means comments must be submitted on or before Monday, July 13. OMB indicated that the office plans to adjudicate the comments and issue a final rule in the coming months that would go into effect on October 1, 2026. The purpose of the effective date would be to ensure that all grants issued in FY27 reflect the new requirements.

Federal Initiatives Focused on Ending DEI Programs

AAAE is aware of concerns from some of our members regarding the Trump administration’s efforts to eliminate or end DEI-related programs and policies. Last year, FAA released an updated grant agreement that included controversial new provisions, including a requirement for airport sponsors to certify that they do not have any DEI program in violation of federal anti-discrimination laws. In two separate lawsuits, nearly 30 airport sponsors obtained preliminary injunctions against DOT and FAA, precluding the agencies from enforcing the DEI certification provision. Those decisions have been appealed, and the matter is being considered in the U.S. Court of Appeals for the Ninth Circuit.

As explained above, the OMB proposal seeks to similarly require federal agencies, including FAA, to ensure that no grant funds are being used to promote DEI policies and programs. However, airport sponsors should be aware that the Trump administration is pursuing two other similar initiatives aimed at ending DEI policies and programs. These are described below.

DEI Activity Prohibition Applicable to Federal Contractors

In March, President Trump issued an executive order, “Addressing DEI Discrimination by Federal Contractors” (Executive Order 14398), directing federal agencies to ensure contracts and contract-like instruments contain a provision relating to discriminatory DEI activities. Specifically, the provision requires federal contractors to agree to, among other things, “not engage in any racially discriminatory DEI activities.” The executive order and contract provision more clearly define racially discriminatory DEI activities than prior orders and guidance. In addition, the order requires that the provision be incorporated into federal contractors’ subcontracts and subcontractors’ lower-tier subcontracts.

Federal agencies have been directed to include the DEI-related provision in existing contracts by Friday, July 24. To review the text of the new DEI provision, you can find it here (on page 8 of the memo). If your airport is protected by an existing court order from having to comply with the DEI provision in the current FAA grant agreement, consult legal counsel to determine whether the order protects your organization from the DEI provision that will be included in federal contracts. The preliminary injunction may only cover grants (not contracts) and/or only enjoin DOT and FAA, not the Transportation Security Administration or another federal agency.

Certification Requirements for Grant Recipients and Federal Contractors
The System for Award Management (SAM) is the federal government’s centralized database where entities must register to bid on federal contracts or apply for grant funds. Earlier this year, the General Services Administration (GSA) proposed an update to the representations and certifications that prospective contractors and grant recipients must make to maintain their registration. The proposed update would require airport sponsors to certify that they will comply with the “U.S. Constitution, all Federal laws, and relevant executive orders prohibiting unlawful discrimination.” The statement also provides that federal anti-discrimination laws apply to programs or initiatives that involve discriminatory practices, including DEI or DEIA programs.

GSA has not provided a timeframe for when airport sponsors and other entities will have to agree to the updated representations and certifications (which may be viewed in a document found here). However, the update could go into effect soon, and airport sponsors should be aware of these changes. Similar as above, if your airport is protected by an existing court order from having to comply with the DEI provision in the current FAA grant agreement, consult legal counsel to determine whether the order protects your organization from complying with the updated representations and certifications.