Written by Jena Shoaf Acos, Theodore Ellington, Douglas J. Friednash, Rashad Johnson, John S. LaLime, John Menges, Paige Samblanet, Greg Sileo and Alice Lugo From Brownstein Hyatt Farber Schreck LLP on March 3, 2025
In the first several weeks of his second term, President Trump has issued a series of executive orders that have far-reaching implications for cities across the country. These directives impact federal funding; immigration policies; and diversity, equity, and inclusion (DEI) programs. The enforcement and legal status of these orders remain in flux as litigation progresses, making it crucial for cities to assess potential risks and prepare accordingly. This alert provides an overview of four key areas of concern: sanctuary city policies, DEI initiatives, federal grant freezes and federal workforce reduction.
Sanctuary City Policies
President Trump has reaffirmed a hardline stance on immigration enforcement, particularly targeting jurisdictions that do not fully cooperate with federal authorities. A recent memorandum from the U.S. Office of the Attorney General states that sanctuary jurisdictions should be denied access to federal grants administered by the Department of Justice (DOJ). This has already led to lawsuits from several cities challenging the administration’s authority to withhold funding. The House Committee on Oversight and Government Reform is also investigating policies of sanctuary jurisdictions and their impact on public safety. The mayors of Boston, Chicago, Denver and New York City will testify at a public hearing on March 5.
Current Status:
- Litigation is ongoing, with multiple federal courts reviewing the legality of withholding funds from sanctuary jurisdictions.
- The administration has yet to provide clear guidance on how sanctuary status will be defined and enforced.
Risks to Localities:
- Cities identified as sanctuary jurisdictions could face cuts to federal funding streams, including public safety and emergency management grants. Already, the Trump administration has targeted the states of Illinois and New York in enforcement suits.
- The uncertainty surrounding the legal challenges makes it difficult to assess long-term impacts, requiring cities to closely monitor developments.
DEI Programming Restrictions
The Trump administration has issued executive orders that effectively bar federal funds from going to organizations that promote DEI initiatives. These orders apply not only to federally funded programs but also to entities that receive federal grants, regardless of whether DEI programs are specifically funded by the federal government.
Current Status:
- These restrictions have been temporarily halted by federal court orders, but the administration continues to push for enforcement. The cases remain ongoing.
- The City of Baltimore has filed a lawsuit against the administration arguing that the order unlawfully withholds critical financial support and violates constitutional protections, disproportionately harming local programs designed to foster diversity and inclusion.
- Future funding agreements and federal contracts are expected to include new certification requirements stating that recipients do not engage in DEI-related activities deemed noncompliant with federal anti-discrimination laws.
- Trump’s DOJ has also issued a policy memo directing prosecutors to investigate DEI programs in the private sector, while a group of Democratic state attorneys general has issued public guidance pushing back on the policy shift.
Risks to Localities:
- Cities that operate DEI programs may become ineligible for federal grants and contracts.
- Officials responsible for grant certifications could face liability under the False Claims Act if found to be in violation of the new requirements.
- The chilling effect of these restrictions could lead to voluntary rollbacks of DEI initiatives to maintain access to federal funding.
Federal Grant Freeze
Several of President Trump’s executive orders initially froze federal funds, including those allocated for infrastructure, environmental programs, and public services. On Jan. 27, the Office of Management and Budget (OMB) released the OMB memo (now rescinded) purporting to “temporarily pause all . . . Federal financial assistance.” OMB clarified that the memo did not intend to pause all federal funding—only funding directly implicated in early executive orders. The Trump administration later rescinded the OMB memo but insisted that the funding freezes embedded in the following executive orders remains in effect:
- Protecting the American People Against Invasion (Executive Order 14159, 90 FR 8443);
- Reevaluating and Realigning United States Foreign Aid (Executive Order 14169, 90 FR 8619);
- Putting America First in International Environmental Agreements (Executive Order 14162, 90 FR 8455);
- Unleashing American Energy (Executive Order 14162, 90 FR 8455);
- Ending Radical and Wasteful Government DEI Programs and Preferencing (Executive Order 14151, 90 FR 8339)
- Defending Women from Gender Ideology Extremism and Restoring Biological Truth to the Federal Government (Executive Order 14168, 90 FR 8615); and
- Enforcing the Hyde Amendment (Executive Order 14182, 90 FR 8751).
Current Status:
- Federal courts have issued temporary restraining orders preventing the administration from implementing funding freezes both in the OMB memo and the above executive orders.
- Despite these rulings, reports indicate that certain agencies continue to delay or withhold funds, prompting further legal scrutiny. Several states continue to report being locked out of funding portals.
- The administration has appealed the restraining orders, and additional court decisions are expected in the coming weeks.
Risks to Localities:
- Programs reliant on federal grants—such as public transportation, housing assistance and climate initiatives—may experience disruptions.
- Cities must prepare for potential delays in federal funding, requiring contingency plans for critical services.
- Agencies responsible for grant administration should document funding commitments and maintain compliance with all court rulings to safeguard financial support.
Reduction of the Federal Workforce
President Trump has also issued directives aimed at reducing the size of the federal workforce, requiring agencies to operate with fewer employees and imposing hiring restrictions. The administration has signaled its intent to streamline government operations, which could have significant effects on cities that rely on federal agencies for funding, approvals and technical assistance.
Current Status:
- Judge George O’Toole, a Clinton appointee to the U.S. District Court for the District of Massachusetts, ruled that the unions that filed suit over the offer lacked the legal standing required to proceed with their case.
- President Trump’s mass resignation offer expired on Feb. 12, 2025. According to the Office of Personnel Management, 75,000 federal employees accepted the resignation offer. This number falls short of the 5-10% goal to reduce the 2 million employee workforce (or 100,000-200,000 employees).
- Federal agencies have been instructed to limit hiring and reduce staff, with exceptions for national security and law enforcement roles.
- Some agencies have already implemented layoffs, and further reductions are expected in the coming months.
Risks to Localities:
- Reductions could cause delays in federal contracting and funding approvals. With fewer federal employees handling contracts, grants and project approvals, cities may experience longer wait times for essential funding and agreements.
- Agencies that provide technical assistance, regulatory approvals and compliance oversight may be less responsive, making it harder for cities to execute federally supported projects.
- Cities with a large number of federal employees, many of which are concentrated in D.C.-adjacent states like Maryland and Virginia, could see job losses that affect local economies, reducing consumer spending and tax revenues.
The evolving nature of these executive orders presents significant challenges for U.S. cities. The legal battles over sanctuary city funding, DEI restrictions, federal grant freezes and workforce reductions introduce uncertainty into budget planning and program administration. While court rulings have temporarily blocked some of these measures, the administration’s ongoing efforts to enforce its policies signal continued risks. Cities should remain vigilant, seek legal guidance as necessary and prepare for potential shifts in federal funding requirements.
