OMB Proposes Major Overhaul of Federal Grant Rules

Background

The Uniform Guidance is codified at 2 CFR Part 200. It establishes the administrative requirements, cost principles and audit requirements that apply to federal grants, cooperative agreements and pass-through awards.

The guidance governs how federal funds are applied for, awarded, administered, monitored and audited across federal agencies. It consolidated several previously separate sets of federal grant rules into one framework for state and local governments, nonprofit organizations, universities, hospitals and other recipients.

The proposed rule would revise 2 CFR Subtitle A, including Part 200, and would make corresponding changes to federal agency regulations contained in Subtitle B.

What Is Included in the Proposed Rule?

The proposed rule includes a broad range of changes to federal grants administration. Major provisions identified by NACo include:

• New national policy requirements for federal awards.
• New viewpoint-neutrality requirements for certain event services provided on property controlled by a public entity.
• Additional pass-through entity responsibilities for monitoring subrecipient compliance.
• New limitations on the use of federal funds involving certain disparate-impact theories, event services and foreign collaborations.
• Expanded authority for federal agencies to terminate awards, with categorical exceptions for certain block grants, formula grants and disaster-recovery grants.
• New pre-award reviews and risk-evaluation requirements, including senior agency review of selected proposals.
• New prepayment requirements, including required use of the U.S. Treasury Department's Do Not Pay system.
• Strengthened subaward reporting through SAM.gov and increased oversight responsibilities for pass-through entities.
• A proposed 10-day requirement for inspectors general to transmit mandatory disclosures to the U.S. Attorney's Office for the District of Columbia.
• Changes to Notices of Funding Opportunity, including plain-language and posting requirements.
• Elimination of fixed-amount awards unless specifically authorized by federal statute.
• New limits on audit requirements beyond those authorized by federal statute.
• Reclassification of 2 CFR Subtitle A from guidance to regulation, allowing future OMB amendments to take effect government-wide without separate agency rulemaking.

OMB indicated that the indirect-cost-rate negotiation system would not be revised as part of this rulemaking.

Potential Impact on Counties and Local Agencies

The proposed rule would affect federal grant programs administered by numerous agencies, including the U.S. Departments of Agriculture, Commerce, Health and Human Services, Homeland Security, Housing and Urban Development, the Interior, Justice, Labor, Transportation and Treasury.

It would also affect programs administered by the Environmental Protection Agency and other federal grantmaking agencies.

Counties and other public entities that administer federal funding to subrecipients may face additional oversight, reporting and compliance responsibilities under the proposed rule.

Although the proposal does not directly amend the State and Local Fiscal Recovery Funds program, the revised Uniform Guidance could affect the broader compliance and audit environment surrounding ARPA funding and other federal financial-assistance programs.

Next Steps

Agencies and organizations receiving or administering federal funding should review the proposed changes and evaluate how the new requirements could affect grant administration, subrecipient monitoring, reporting, payment procedures and compliance practices.

The federal docket referenced in the original NACo article is OMB-2026-0034.