The Office of Management and Budget (OMB) and dozens of federal agencies announced a sweeping proposed rule on May 29, 2026, aimed at fundamentally reshaping the landscape of federal financial assistance. Published in the Federal Register, the proposal seeks to revise existing guidance in 2 Code of Federal Regulations (CFR) and introduce new policies across numerous departments. This initiative is presented as a critical move to enhance transparency, accountability, and oversight in the management of grants and cooperative agreements, driven by concerns over past federal spending practices. The proposed changes also address alleged misuse of taxpayer dollars and a perceived misalignment of federal award activities with statutory objectives and "American principles."
Background to the Proposed Reforms
The OMB identifies an exponential growth in federal financial assistance spending, asserting that corresponding policies for transparency and accountability have not kept pace. The proposed rule cites a period between 2021 and 2024 when federal awards were allegedly used to promote a "woke" policy agenda that did not reflect the values of the American public. Specifically, the document references federal programs and funding designed to advance "unlawful identity-based 'Diversity, Equity, and Inclusion' (DEI) policies and preferences." These are characterized as inconsistent with civil rights laws and the equal protection principles of the U.S. Constitution, and misaligned with underlying public purposes.
White House Fact Sheets and Executive Orders attributed to President Donald J. Trump form the bedrock of this reform effort. Executive Order 14332, "Improving Oversight of Federal Grantmaking," is central to the drive for greater oversight. Other referenced executive actions, such as E.O. 14151, "Ending Radical and Wasteful Government DEI Programs and Preferencing," and E.O. 14173, "Ending Illegal Discrimination and Restoring Merit-Based Opportunity," underpin the rejection of certain identity-based policies. The administration has highlighted examples of what it deems wasteful spending, including funding for unlawful DEI practices, anti-American ideologies in education, non-replicable studies, gain-of-function research, and AI-powered social media censorship tools. The White House also noted a "rampant and pervasive problem of fraud," citing examples within assistance programs.
Key Pillars of the Proposed Rule
The extensive proposed revisions are structured around several core objectives.
Enhanced Transparency, Accountability, and Oversight
A primary goal is to improve how federal taxpayer dollars are used in grantmaking. This involves preventing wasteful spending and the misuse or mismanagement of federal funds. The OMB aims to ensure that activities performed under federal awards consistently adhere to law and policy, holding recipients accountable for failing to meet established standards. This is a direct response to the perceived deficiencies of previous policies, which the OMB states allowed for misaligned spending.
Upholding American Principles and Combating Discrimination
The proposed rule explicitly states an aim to ensure that "basic American principles of equality and equal opportunity are upheld throughout all stages of the award making process and that unlawful discrimination is no longer permitted." This objective is framed against the backdrop of the administration's stated opposition to certain DEI policies, which it characterizes as discriminatory and contrary to constitutional principles. The implication is a re-evaluation of how federal funds may be used to support or prohibit specific programmatic approaches.
Streamlining and Clarifying Regulations
Beyond policy shifts, the OMB also proposes changes intended to reduce the administrative burden on recipients. Simultaneously, the rule seeks to clarify the regulatory status of the OMB's guidance in 2 CFR and establish a clear process for future updates to these government-wide requirements. This aims to provide greater predictability and consistency in the management of federal financial assistance.
Implications for Federal Grant-Making
The sheer number of federal agencies proposing conforming changes underscores the broad impact of this initiative. Departments ranging from Health and Human Services to Defense, Energy, and Education, along with numerous independent agencies, are aligning their respective regulations with the OMB's proposed revisions. This signifies a government-wide effort to standardize and enforce the new policy directives. Recipients of federal grants and cooperative agreements across all sectors can anticipate a renewed emphasis on compliance with specified "American principles," stricter oversight, and a potential shift in what constitutes permissible uses of federal funds. The focus on eliminating "wasteful spending" and ensuring adherence to law and policy will likely lead to enhanced scrutiny of program design and outcomes.
Public Comment Period
The proposed rule opens a critical window for public engagement. Comments are due on or before July 13, 2026, and must be submitted electronically via regulations.gov. The OMB has provided specific instructions for formatting comments, requiring section numbers for clarity. All comments will become part of the public record, emphasizing the transparency of the rulemaking process.
