The First Circuit Court of Appeals ruled on August 7, 2026, that several federal agencies cannot freeze billions of dollars in federal financial assistance meant for nonprofits. This decision affects various organizations that rely on funding from the Infrastructure Investment and Jobs Act (IIJA) and the Inflation Reduction Act (IRA), which are crucial for their operations and projects.
The case, titled Woonasquatucket River Watershed Council v. USDA (Docket No. 25-1428), arose after a group of nonprofits filed a lawsuit against multiple federal agencies, including the U.S. Department of Agriculture and the Environmental Protection Agency. These organizations argued that a directive from the Trump administration to pause funding disbursements violated their rights and harmed their ability to operate.
The plaintiffs in the case include the Woonasquatucket River Watershed Council, Eastern Rhode Island Conservation District, and several others. They claimed that the freeze on funds, initiated by an executive order, had led to significant operational challenges, including layoffs and project cancellations. The nonprofits sought a preliminary injunction to lift the freeze, which the lower court granted.
The case reached the First Circuit after the federal government appealed the lower court's decision. The appeal focused on whether the nonprofits had the standing to sue and whether the actions taken by the federal agencies constituted final agency actions under the Administrative Procedure Act (APA).
The court's ruling affirmed the lower court's decision to grant the preliminary injunction. It stated, "The Nonprofits have shown that they are likely to succeed on the merits of their claims, and the balance of hardships favors them." The judges on the panel included Chief Judge Barron, Circuit Judge Lipez, and Circuit Judge Rikelman.
The court's opinion highlighted that the nonprofits demonstrated a substantial likelihood of success in showing that the federal agencies' actions were arbitrary and capricious, violating the APA. The ruling emphasized that the agencies had not followed proper procedures in implementing the funding freeze, which had significant implications for the nonprofits.
Going forward, this ruling means that the federal government must resume disbursement of funds appropriated under the IIJA and IRA. This decision is significant as it reaffirms the rights of nonprofits to receive federal assistance without undue interference from executive actions. It also sets a precedent for how federal agencies must handle funding disbursements in the future, ensuring that they adhere to established legal procedures.
The ruling may also have implications for similar cases involving federal funding and nonprofit organizations. It underscores the importance of transparency and accountability in government actions that affect public funding.
The federal government has the option to appeal this decision to the U.S. Supreme Court, but details on whether they will pursue this route were not available in the court filing. Additionally, there are no related cases pending that would directly impact this ruling.