Trump’s New Grant Rule Could Put Kentucky Programs Under Political Review

A proposed OMB rule would give senior federal appointees more control over discretionary grants that help fund Kentucky universities, research, nonprofits, public agencies, and local programs.

Jun 01, 2026

Federal grant rules help determine how research, public programs, and local services are funded in Kentucky. Photo: Daderot, Wikimedia Commons. The image is dedicated to the public domain under CC0 1.0.

The Office of Management and Budget published a proposed rule on May 29, 2026, that would rewrite government-wide rules for federal financial assistance. The proposal appears in the Federal Register as a 108-page proposed rule covering 2 CFR Part 200, the federal rules that guide grants, cooperative agreements, subawards, and related federal assistance programs. Comments are due July 13, 2026.

The rule would require federal agencies to use pre-issuance review before awarding discretionary grants. That review would be conducted by senior appointees and would evaluate whether proposed awards align with federal law, agency priorities, and the national interest. The proposed language also says discretionary awards must, where applicable, “demonstrably advance the President’s policy priorities.”

For Kentucky, this proposal could affect the everyday work of universities, state agencies, local governments, nonprofits, and public programs. Federal grants help pay for university research, public health work, local government projects, education programs, nonprofit services, infrastructure planning, workforce development, and community programs.

When the rules for federal grants change, Kentucky does not stand by and watch.

Kentucky agencies, universities, local governments, and nonprofits have to decide how to apply, comply, document, appeal, and survive funding decisions.

The rule change is buried inside federal grant language

The proposed rule was issued by OMB along with a long list of federal agencies, including the Department of Health and Human Services, Department of Agriculture, Department of Transportation, Department of Commerce, Department of Education, Environmental Protection Agency, National Science Foundation, Department of Justice, Department of Homeland Security, National Endowment for the Arts, National Endowment for the Humanities, and others.

The rule would revise the federal financial assistance regulations that apply across much of the federal grantmaking process. OMB says the proposal is intended to improve oversight, transparency, accountability, and consistency in federal awards. The official document also connects the rule to President Trump’s Executive Order 14332, titled Improving Oversight of Federal Grantmaking, signed on August 7, 2025.

The practical change is the role of senior appointees. Under the proposed rule, federal agencies would have to perform pre-issuance reviews before selected discretionary awards are issued. Those reviews would examine whether awards fit applicable law, agency priorities, and the national interest.

The rule also says senior appointees may not simply approve recommendations from peer reviewers, grant panels, or program offices. They must use independent judgment. That means scientific, academic, or programmatic review could still matter, but it would not be the final shield between a grant applicant and political review.

Where political review enters the grant process

Federal grants do not all operate the same way. Some federal funds are distributed by formula, entitlement, block grant, or disaster recovery rules. The executive order defines the affected category as discretionary grants, generally meaning awards in which a federal agency exercises judgment in selecting recipients. It specifically says the definition does not include entitlement programs, statutory formula grants, block grants, or disaster recovery grants.

Medicaid funding, for example, should not be described the same way as a competitive research grant, a community development grant, a public health project award, or an arts and humanities grant.

The more precise concern is this: when Kentucky institutions apply for discretionary federal grants, federal agencies would be required to include a political-appointee review step before the money is awarded. The proposed rule states that review could serve as the basis for a decision not to select an applicant.

The rule also changes how existing awards could be terminated. Proposed § 200.340 would allow a federal agency or pass-through entity to terminate a federal award, in whole or in part, if the agency determines the award no longer serves program goals, agency priorities, or the national interest at the time of termination. The notice would need to provide reasons, but the proposed rule says the explanation need not be detailed or exhaustive.

That creates a different kind of risk for grant recipients.

A university lab, public agency, local government, or nonprofit could win an award, hire staff, sign subcontracts, begin work, and later face a discretionary termination decision.

The proposed language allows the recipient to submit information regarding termination costs, but it does not guarantee that the federal government will cover all disruptions resulting from a stopped award.

Kentucky institutions depend on the money at stake

Kentucky relies heavily on federal dollars. USAFacts reports that Kentucky state and local governments received $21.3 billion in federal transfers in fiscal year 2023. Federal transfers made up 34.9% of Kentucky government revenue that year, higher than the average state share. Public welfare accounted for 69.4% of those federal transfers, and education accounted for 11.9%.

Those numbers include many kinds of federal funding, not only discretionary grants affected by this proposal. Still, they show the scale of Kentucky’s dependence on federal money. A rule that changes how federal assistance is reviewed, conditioned, suspended, or terminated deserves careful attention from Kentucky agencies, counties, universities, school systems, and nonprofits.

The University of Kentucky provides one clear example. The UK reported $496.9 million in total grant and contract awards for the fiscal year 2025. Federal agencies accounted for $255.3 million, or 51.4%, of that total. UK listed $130.2 million in National Institutes of Health grants, $25.2 million from the National Science Foundation, and $23.4 million from the Department of Energy.

UK also reported that its research and development expenditures supported 5,149 jobs and generated $1.02 billion in economic activity across Kentucky in fiscal year 2025. That is the local effect behind federal grant language. Research funding can support lab staff, graduate students, clinical studies, medical advances, vendors, construction, equipment, and local payroll.

The NIH funding map shows that federal research dollars also go beyond Lexington. In fiscal year 2025, NIH awards in Kentucky included funding to the University of Kentucky, University of Louisville, Western Kentucky University, Northern Kentucky University, Murray State University, and private companies.

Kentucky nonprofits and local governments also need to read the rule closely. Many do not receive federal money directly from Washington. They receive it through state agencies, universities, fiscal courts, city governments, or other pass-through entities. If the federal rules change, the compliance burden can travel down to subrecipients that never negotiated directly with OMB or a federal agency.

Expert review would no longer be the final safeguard

The strongest concern is not that federal grants should lack oversight. Federal money should be audited, documented, reviewed, and tied to lawful public purposes. Kentucky taxpayers deserve careful stewardship of public funds.

The problem is the proposed placement of political judgment inside the grant-award process.

The rule would give senior appointees a formal review role for discretionary awards and require them, where applicable, to assess whether those awards advance presidential policy priorities. That is a direct shift in who can influence grant decisions.

Peer review would remain available, especially in scientific research. But the proposed rule says peer-review recommendations are advisory. Senior appointees cannot merely defer to them. In practice, that means a project that clears expert review could still be rejected or delayed during appointee review.

For Kentucky universities, this could affect how researchers write applications, describe public health goals, choose partners, use language, and assess risk. For Kentucky nonprofits, it could affect whether programs dealing with civil rights, health disparities, immigrant services, LGBTQ people, race, sex discrimination, or community equity are rewritten, narrowed, avoided, or funded from non-federal sources.

The proposed rule also includes language tied to DEI, “gender ideology,” transition-related care for minors, immigration, and other policy categories drawn from Trump administration executive orders. Those provisions could affect grant-funded work in education, health care, research, social services, legal aid, workforce training, and community programming.

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What you can do now

Read the proposed rule or a reliable summary before the comment deadline. The comment window closes July 13, 2026. Comments can be submitted through Regulations.gov under docket OMB-2026-0034.

Kentuckians who work in universities, nonprofits, local government, health care, public health, education, workforce training, legal aid, arts, humanities, rural development, or research should ask their institution whether it plans to comment. A strong comment should explain which grants are affected, which services or jobs depend on them, what compliance changes would cost, and how political review could alter program decisions.

Ask Kentucky universities to disclose whether they are submitting comments individually or through national associations. The same question can be asked of the Kentucky Council on Postsecondary Education, the University of Kentucky, the University of Louisville, Western Kentucky University, Northern Kentucky University, and other public institutions with federal research or program funding.

Ask city councils, fiscal courts, and school districts whether they receive discretionary or pass-through federal grants that could be affected. The useful question is specific: which current grants could face new award, payment, compliance, or termination conditions under the proposed rule?

Nonprofit boards can ask staff to prepare a grant-exposure list. That list should identify federal awards, pass-through awards, subawards, renewal dates, politically sensitive program language, staffing for each grant, and contingency plans in the event a grant is delayed or terminated.

Contact members of Congress and ask whether they will defend expert and merit-based review in federal grantmaking. Request oversight hearings, written questions to OMB, public statements from federal agencies, and protections for research, public health, education, and local services.

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