OMB proposes major change to federal grant administration

Key Takeaways

Counties have roughly one month to make their opinions heard about a proposed rule that would drastically alter federal grant management. 

The Office of Management and Budget’s (OMB) is proposing sweeping changes to the Uniform Guidance — 2 Code of Federal Regulations Part 200 — which covers all direct federal disbursements, representing its largest revision since 2013. 

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Understanding the Proposed Rewrite of 2 CFR: What the OMB Uniform Guidance Proposed Rule Means for Local Governments

June 17, 2 p.m.

The proposed rule would apply to all federal grant, cooperative agreement and pass-through awards counties receive, a portion of $1 trillion in annual federal grant funding. Counties that often serve and operate as pass-through entities, which administer federal funds to subrecipients, are also subject to additional requirements under the proposed rule. These changes could put counties at risk of grant termination if they run afoul of policies articulated by executive orders. 

“The rule changes [Uniform Guidance] from guidance to regulation,” said Emily Brock, director of the Federal Liaison Center at the Government Finance Officers Association. “It hits the financial administration of counties really hard.

“If [the federal government] get[s] what they want, then there will be fewer federal funds to administer.”

OMB is accepting comments through July 13, and NACo is holding a June 15 webinar, which will be recorded, to discuss details relating to the rule.

“This affects any county that receives any federal funds whatsoever,” Brock said. “We could be talking about housing, we could be talking about education, we can be talking about energy. Most importantly for counties, what we’re talking about is the social safety net, and that means Medicaid.” 

Once a relatively obscure facet of federal government, uniform guidance became relevant to every county that accepted American Rescue Plan Act funding in 2021.

Among the changes proposed in the rule, all grants would be subject to approval by a political appointee, giving the federal government discretionary termination authority subject to shifting federal priorities.

“You’ve got counties that budget very carefully and deliberately, yearlong budgets that depend on federal funds to provide specific social services inside of their communities,” Brock said. “You can’t run the risk of that whipsaw sitting in the middle of your budget. There are going be a lot of questions from counties about whether they can protect themselves against the risk of termination before they even apply for a grant.”

A developing NACo analysis indicates that events held on county property could imperil grant eligibility if an event sponsor violates an executive order prohibiting the facilitation of prohibited content, including matters of diversity, equity and inclusion.

“OMB is proposing revisions that would improve transparency, accountability and oversight for Federal awards across the Federal Government,” the rule said. “This includes ensuring that American tax dollars are not wasted or misused, activities performed under Federal awards are consistent with law and policy, and recipients are held accountable when they fail to meet relevant standards. The revisions also 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.”

Brock said the rule may be partially in service of easing the burden on compliance officers.

“I think they really tightened up the screw a little too hard that there’s going to be a lot of considerations from counties now and they try to figure out outside a federal fund assistance,” she said. “How else might they be able to achieve organizational missions of delivery of services that were otherwise partially funded or always funded by federal funds?”

County management and financial personnel are still reviewing the proposed rule, which spans more than 400 pages, and are still comprehending what these changes would mean for county administration.

“Aside from ARPA, and maybe the occasional transportation project, we don’t usually do a lot of direct involvement with the feds,” said Fayette County Assistant Administrator Jason Tinsley. “Normally, we normally have our state as an intermediary, and it’s mostly transportation stuff. We’re kind of an affluent community, so we don’t do any housing-type stuff or anything like that. Our money is spoken for and reported on and gone, but we’re going to do our due diligence to try to figure out how it affects us.”

Brock noted that the rule could provide a potential upside for counties. With more deliberation to the grantmaking process, smaller counties could find themselves becoming players for grants that they were previously boxed out of.

“So that federal funds are a little bit broader in scope and can reach those entities that haven’t always been considered,” she said. “I think that is a terrific objective.”

As counties consider their input to comments to OMB, Brock recommends looking at three elements:

• Agency and administration. “Many counties feel like they have polished strong policies and procedures in place that are responsive to the federal government.  They need to tell the government what it is that they do. 
  I think the perspective of the federal government is that counties just don’t care and they’re throwing papers up in the air and nobody’s tracking any spending. And that's patently false.” 
• The notion of pre-award. “The federal government needs to know the extent that this risk assessment, pre-award, makes the county think twice about applying for a grant. They need to know why and what federal awards will they defer, right? So, to the extent that you’re saying that it’s going to be a $120,000 to administer a $1 million grant. The cost benefit isn’t there and we’re not going to apply for it. I think it’s worth it, saying the cost benefit is definitely not there.” 
• Grant administration. “How much more difficult do the articulated regulations make it for you to just report back on those funds?” 

Most importantly, Brock said counties must illustrate the value of the intergovernmental system.

“It’s important that a county articulates how especially meaningful policies and procedures are in their administration,” she said. “‘You don't need to make these regulations —  we are taking this all very seriously.’”