On May 29, 2026, the Office of Management and Budget (OMB) proposes to revise the Guidance for Federal Financial Assistance. The proposals might be among the most consequential changes to federal grant administration in more than a decade, particularly in the breadth of its policy conditions. OMB is proposing to rewrite the foundational rules that govern how nearly every federal grant dollar—including broadband, digital equity, research, and community development funds—is awarded, conditioned, and potentially terminated. Every entity that receives federal grants or cooperative agreements—states, local governments, Tribes, universities, nonprofits, hospitals, and for-profit organizations—could be impacted. That impact includes recipients of broadband funding from the National Telecommunications and Information Administration (NTIA) (Broadband Equity Access and Deployment (BEAD) Program, Tribal Broadband Connectivity Program, Digital Equity Act programs), the U.S. Department of Agriculture (USDA) (ReConnect), the U.S. Department of the Treasury (Capital Projects Fund), and the Federal Communications Commission (FCC) (Universal Service Fund programs, including Lifeline and E-Rate). The proposed rule would embed the current Administration's policy priorities—including prohibitions on diversity, equity, and inclusion (DEI) activities—directly into the terms and conditions of federal awards. The proposal would also significantly expand agencies' power to terminate awards mid-stream, require E-Verify participation by all recipients, and shift OMB's "guidance" into binding regulation. The public comment period closes July 13, 2026.

The Proposed Rule

The document is a joint proposed rulemaking by the OMB and dozens of federal agencies to revise Title 2 of the Code of Federal Regulations (CFR), which contains the government-wide rules for federal financial assistance—commonly known as the "Uniform Guidance" or "2 CFR Part 200."¹ The proposed rule has three stated objectives:

1. Improve transparency, accountability, and oversight for federal spending
2. Clarify that OMB's rules in 2 CFR Subtitle A are binding regulations, not guidance
3. Reduce recipient burden

National Policy Conditions

OMB would amend the core "statutory and national policy requirements" section to prohibit use of federal award funds to "fund, promote, encourage, subsidize, or facilitate" any of the following (with the qualifier "to the maximum extent permitted by law"):

• Unlawful DEI Provision: DEI or DEIA (diversity, equity, inclusion, and accessibility) policies that violate federal anti-discrimination laws, including the use of race or "intentional proxies for race" (e.g., using zip code or school district as a selection criterion if those correlate with race) as selection criteria for employment or program participation. [Editor's note: The phrase "that violate federal anti-discrimination laws" may appear to limit the provision's reach, but the preamble interprets that phrase broadly—more broadly than prior federal enforcement positions under Title VI and Title VII of the Civil Rights Act of 1964²—and that interpretation is contested;³ grant recipients should not treat the limiting language as a reliable safe harbor without seeking legal counsel.]
• Gender Ideology Provision: Activities endorsing or advocating for the view that sex is a chosen or mutable characteristic, as defined by Executive Order (EO) 14168.
• Protecting Children Provision: The "transition" of a child under 19 from one sex to another, including gender-affirming medical procedures, as defined by EO 14187.

Disparate-Impact Liability Prohibition

OMB would add a new provision directing agencies and pass-through entities (generally, states and large nonprofits that receive a federal award and pass some portion of the funds to a subrecipient to carry out part of the program) "to the maximum extent permitted by law," to ensure that federal awards are not used to promote or support "theories of disparate-impact liability"—the legal doctrine under which facially neutral policies can constitute unlawful discrimination if they produce disparate outcomes by race, sex, or other protected characteristics.⁴ Recipients and subrecipients are directed not to adopt or enforce disparate-impact standards in administering federally funded programs, and to review existing policies for compliance. A limited exception exists for internal statistical analysis, provided federal funds are not used, and results are not applied to award activities.

Prohibition on Discriminatory Event Services

OMB would require public entities that are grant recipients or subrecipients not to discriminate on the basis of "viewpoint, content, or subject matter of speech"—including political, ideological, or religious affiliation—when providing services for events or meetings on property they control. The provision would also apply to non-public entities "to the extent that the relevant activities are within the scope of activities funded by a Federal award."

Prohibition on Covered Foreign Collaborations

OMB would prohibit recipients and subrecipients from using federal funds—including indirect costs (expenses like utilities, administration, and facilities that can't be attributed to a single project but are necessary to run an organization)—to support bilateral or multilateral collaborations with entities from "covered foreign countries" (foreign adversaries, countries of particular concern, or countries under national security sanctions) or "covered foreign entities" (entities owned or controlled by such countries, or affiliated with their military or intelligence services).⁵ Exceptions may be granted by the agency head if the activity poses no national security risk and is in the national interest.

Discretionary Termination and Suspension

The proposal would dramatically expand the grounds on which federal agencies can terminate or temporarily suspend grants mid-award. Agencies would be able to terminate any discretionary award (meaning Congress gave the agency choices about who receives funding, how much, and for what) "if the Federal agency or pass-through entity determines that a termination is in the interest of the Federal agency or pass-through entity, including if a Federal award does not effectuate program goals, Federal agency priorities, or the national interest as they exist at the time of the termination." By adding the phrase “as they exist at the time of termination,” the proposal makes clear that awards that were fully compliant can be terminated post hoc if “Federal agency priorities may change in response to new direction from politically accountable leadership."

Agencies must include this discretionary termination provision in all discretionary awards, with limited exceptions:

• Block grants, formula grants, and disaster recovery grants (statutory entitlements) are exempt,
• BEAD (awarded under division F of the Infrastructure Investment and Jobs Act, Pub. L. 117-58) is explicitly exempt by name, and
• Awards under the CHIPS Act (Pub. L. 117-167) and the Thornberry NDAA (for Commerce programs) are also exempt.

A parallel new provision allows agencies to issue written stop-work orders—temporary pauses of up to 90 days—without terminating the award. For discretionary terminations, agencies would have to provide a brief written rationale. Recipients would be allowed to submit a statement of termination costs. Costs incurred before the effective date of termination might be allowable if properly incurred and not in anticipation of termination, provided recipients make "all reasonable efforts to cancel, mitigate, or otherwise reduce" such obligations. The proposed rule provides no appeal rights for recipients facing discretionary terminations (as distinct from terminations for noncompliance, which retain hearing rights). The proposal also does not specify what constitutes adequate documentation of efforts to mitigate termination costs.

E-Verify Requirement

OMB seeks to require all recipients and subrecipients to participate in the Department of Homeland Security's E-Verify program to confirm employment eligibility of "all employees and contractors hired in or performing work in the United States under a Federal award." Recipients would have to notify the federal agency if they receive a Final Nonconfirmation (FNC) notice through E-Verify; failure to do so may result in termination. E-Verify has previously been required for companies holding federal contracts (under FAR), but not generally for grant recipients. This extends the requirement broadly to the grants community, including small nonprofits, community organizations, and state agencies that administer broadband and digital equity programs.

Do Not Pay System Verification

OMB would require states (as grant recipients) and federal agencies to verify payee eligibility through the Treasury's Do Not Pay (DNP) system before disbursing federal funds. (DNP is a database that cross-checks payment recipients against lists of ineligible parties like deceased individuals, debarred entities, etc.) The proposal would also require non-state recipients to include a brief written justification with each payment request describing what award-related work it supports.

Elimination of Fixed Amount Awards and Subawards

OMB proposes to eliminate fixed amount awards (a type of grant where the recipient receives a set amount regardless of actual costs incurred) unless specifically authorized by federal statute. Fixed amount subawards would be eliminated. Fixed amount awards have been used in some digital equity and broadband contexts. Recipients with existing fixed amount awards are not affected; the change applies prospectively.

Rules as "Binding Regulation"

OMB is proposing to formally reclassify the "Uniform Guidance" (2 CFR Part 200) as a binding OMB regulation—the "Uniform Grants Regulation" (UGR)—rather than guidance. Going forward, when OMB amends the UGR through notice-and-comment rulemaking, those changes would take effect government-wide on OMB's effective date without the need for each individual agency to conduct its own rulemaking. This change concentrates future grant policy authority in OMB and streamlines updates—but it also means that future changes could take effect faster across all agencies without individual agency notice-and-comment. 

This provision raises some questions. What would the mechanism be for a recipient to challenge a new condition that conflicts with their program statute? The proposed rule says program statutes govern in conflicts, but who resolves that conflict—and through what process?

Merit Review and Pre-Issuance Review

OMB wants to require Federal agency heads to designate "senior appointees" (political appointees) to conduct pre-issuance reviews of all discretionary awards to ensure they are consistent with applicable law, "Federal agency priorities, and the national interest." Specific principles to apply include:

• Awards must "demonstrably advance the President's policy priorities."
• Awards must not fund racial preferences, "denial of the sex binary," illegal immigration, or activities that "compromise public safety or promote anti-American values."
• All else being equal, preference should go to institutions with "lower indirect cost rates."
• Peer review remains advisory; senior appointees must exercise independent judgment and "must not ministerially ratify or routinely defer to" peer reviewers.

Prior versions did not require political appointee override of peer review recommendations. This revision explicitly subordinates peer review to political appointee judgment and imports executive policy priorities into the merit review process.

Applicant Risk Review Expansion

OMB is proposing to expand the list of factors agencies may consider when evaluating applicant risk to include:

• An applicant's history of plagiarism, non-replicable studies, or activities inconsistent with civil rights laws or religious liberty laws,
• Membership in or affiliation with organizations that "advocate for the overthrow of the United States Government," or violate federal law, or undermine public safety or national security
• Compliance with foreign gift and contract disclosure requirements under Section 117 of the Higher Education Act

"Publicly available and verifiable information" is the stated standard for evaluating questionable practices—but no definition or process for challenging such determinations is provided.

Prohibitions Added to Lobbying and Cost Provisions

New unallowable cost categories include:

• Voter registration campaigns or drives
• Issue advocacy or public messaging that promotes or opposes a "particular social, political, or public policy position unrelated to the statutory objectives" of the award
• Attempts to influence state executive branch agencies on matters unrelated to the award's objectives

The prohibition on "issue advocacy" is broad and undefined. For recipients doing broadband policy work, digital equity advocacy, or community outreach, the line between permissible program outreach and prohibited issue advocacy is not clear from the text.

Publication Costs Now Unallowable by Default

The proposal would make publication costs—including article processing charges (APCs) and open-access fees for peer-reviewed journals—unallowable by default under federal awards, unless specifically required by statute or approved in advance by the agency on a case-by-case basis. This could affect academic and research institutions that receive research grants, including the National Science Foundation, NTIA, and FCC-funded work, where publishing results is frequently a program requirement or expectation.

Subaward Reporting and Pass-Through Entity Accountability

OMB would strengthen requirements for pass-through entities (such as states that pass federal broadband funds to local governments or subrecipients). Key changes include:

• Pass-through entities must report all subawards to SAM.gov (previously FSRS.gov, which was retired March 8, 2025, SAM.gov is the federal government's central supplier and grantee registration and reporting system)
• Transfers to affiliated or related organizations must be classified as subawards or contracts—they cannot be treated as internal allocations exempt from reporting
• Pass-through entities must ensure subrecipients "do not take actions that could significantly damage the reputation of the pass-through entity, the Federal agency, or the Federal Government." If such actions occur, the pass-through entity must consult with the federal agency about whether to terminate the subaward.

The "reputational harm" provision in § 200.332(i) is new and undefined. The provision is not limited to legal violations or programmatic failures. For broadband grant programs administered through states, this creates a new, potentially broad ground for subaward termination.

Internal Controls: GAO and COSO Standards No Longer Required

OMB proposes to remove an existing provision directing recipients to follow the GAO's Standards for Internal Control in the Federal Government and the Committee of Sponsoring Organizations of the Treadway Commission (COSO) framework as standards for internal control. These frameworks "may continue to be considered as general reference points" but are no longer expressly recommended.

All Notices of Funding Opportunity Must Go Through Grants.gov

OMB would require all discretionary award announcements to be posted on Grants.gov and applications submitted through Grants.gov, with limited exceptions requiring agency head approval (e.g., for national security). OMB encourages the use of Statements of Interest (SOIs) to reduce the burden on applicants before full proposals are required.

Indirect Cost Rate System: No Changes Proposed

Despite Improving Oversight of Federal Grantmaking's (EO 14332) direction to OMB to revise indirect cost recovery rules, this proposed rule makes no changes to the indirect cost rate negotiation system. OMB notes that FY2026 appropriations language restricted changes to negotiated rates, and that OMB is "not proposing updates" at this time. Given the Administration's stated interest in reducing overhead costs and the significant attention indirect cost rates have received in the context of research grants (particularly at the National Institutes of Health), the absence of proposed changes is notable. OMB signals it "may consider issuing a request for information on this topic in the future."

Impact on Broadband and Digital Equity Programs

The proposal could impact federal broadband deployment and adoption programs. For all federal broadband deployment programs except BEAD, the threat is essentially the same—new awards, modifications, and subawards executed after October 1, 2026, would be subject to the termination authority and the new policy conditions. Below, we look at some nuances program by program.

BEAD

The NTIA's BEAD Program is explicitly exempt from the discretionary termination provision by name (§ 200.340(b)(2), citing Pub. L. 117-58, division F). This is significant and was required by EO 14332 itself. However, BEAD recipients and subrecipients would be subject to:

• The DEI and gender ideology prohibitions,
• The disparate-impact prohibition,
• E-Verify requirements,
• Expanded risk review factors,
• The subaward reputational harm provision, and
• Pre-issuance political appointee review for any new competitive awards.

The NTIA's original BEAD Notice of Funding Opportunity contained extensive labor, equity, and community engagement requirements. The preamble explicitly cites the BEAD Program as an example of federal broadband failure attributable to "burdensome policy requirements" (citing the June 6, 2025, NTIA BEAD restructuring notice). The preamble makes clear that the Administration views Biden-era BEAD conditions as the type of requirements these new rules are designed to prevent.

The BEAD exemption shields existing awards from discretionary termination, but it does not resolve every compliance question the proposed rule raises for state broadband offices currently administering BEAD grants. One tension is immediate and practical: NTIA's own BEAD reporting requirements ask states and subgrantees to collect and report demographic data on program participants, including race, income, age, and disability status. The proposed rule's DEI prohibition bars the use of federal funds to "promote, encourage, subsidize, or facilitate" DEI policies—but does not say whether federally mandated demographic data collection constitutes such facilitation. A recipient collecting that data because NTIA requires it is arguably not "promoting" a DEI policy in the sense the rule targets—the obligation runs to the federal government, not to the recipient's own programmatic choices. But the proposed rule does not explicitly say so, and the preamble's broad interpretation of what counts as an unlawful DEI practice does not provide a clear safe harbor. State broadband offices administering BEAD awards are therefore left with an unresolved conflict between two federal obligations, and no guidance from the proposed rule on how to reconcile them.

Two additional questions the proposed rule leaves open for BEAD recipients :

First, for states that have already subgranted BEAD funds to ISPs, the BEAD exemption applies to termination of the prime award—it does not protect subgrants made before the effective date, and the rule does not address what happens if new conditions applied to a state's prime award cannot be flowed down to existing subgrants.

Second, the rule does not address whether a change in government-wide regulation automatically modifies the terms of existing BEAD awards negotiated under the prior regulatory framework.

Both questions have practical consequences for state broadband offices and subgrantees currently mid-implementation, and neither has a clear answer in the proposed rule's text.

Tribal Broadband Programs

Two federal programs specifically designed to expand broadband access on Tribal lands are directly implicated by this proposed rule, and both have funding rounds that have not yet been issued—placing them squarely in the proposed rule's path.

1. The Tribal Broadband Connectivity Program (TBCP), authorized by the Consolidated Appropriations Act of 2021 and the Infrastructure Investment and Jobs Act, received a combined $3 billion to fund broadband infrastructure deployment, adoption, and use on Tribal lands. NTIA has already made 275 awards totaling $2.2 billion through two NOFOs, and NTIA has not rescinded any obligated awards. For the approximately $2.2 billion already obligated, the analysis is similar to BEAD's existing awards: the prime awards are executed, and the proposed rule's new conditions apply prospectively to new awards made after October 1, 2026, not to existing grant agreements.

However, at least $500 million in remaining TBCP funding is expected to be made available through a third NOFO. That third funding round has not yet been issued. Any TBCP awards made under a new NOFO after the proposed rule's October 1, 2026 effective date would be subject to its full set of new conditions—the DEI prohibition, disparate-impact ban, E-Verify requirement, pre-issuance political appointee review, expanded risk review factors, and the subaward reputational harm provision. TBCP, like USDA's ReConnect, is not named as exempt from any provision of the proposed rule, including the discretionary termination authority.

2. The Native Entities Grant Program. The Digital Equity Act included a set-aside for Native entities—the Native Entities Grant Program (NEGP)—administered separately from the state-formula Digital Equity programs. When the broader Digital Equity Act grants were canceled, the Native Entities set-aside was the only DEA grant not terminated. NTIA is planning to combine the remaining TBCP funding and the NEGP set-aside into two new NOFOs—designated TBCP 3 and the NEGP—to expand Tribal broadband access and adoption. Both of those NOFOs, if issued after October 1, 2026, will be subject to this proposed rule's conditions.

OMB has committed to Tribal consultation before finalization of this proposed rule. That commitment is significant because the Indian Self-Determination and Education Assistance Act (ISDEAA) grants Tribal governments specific flexibilities in how they administer federally funded programs—flexibilities that can conflict with standard grants management requirements. Whether and how the new conditions in this proposed rule interact with ISDEAA's self-determination provisions is a legal question the proposed rule does not resolve, and it is the central question Tribal advocates could raise in comments before the July 13, 2026, deadline.

Capital Projects Fund

The Capital Projects Fund (CPF), authorized under the American Rescue Plan Act (Pub. L. 117-2), provided $10 billion to states, territories, freely associated states, and Tribal governments for broadband infrastructure, digital connectivity technology, and multi-purpose community facility projects. Treasury has awarded the full $10 billion, and the majority of projects are in active construction or deployment. For most CPF recipients, the proposed rule's practical impact will be limited—the new conditions apply prospectively to awards made after October 1, 2026, and the prime awards from Treasury to states are already executed.

However, CPF is not entirely outside this proposal's reach. Unlike BEAD, CPF is not named as exempt from any provision, including the discretionary termination authority. Two populations of CPF activity remain exposed.

First, projects with extensions. In May 2026, Treasury extended the CPF completion deadline from December 31, 2026, to June 30, 2027, for recipients facing construction delays, with extension requests due by July 31, 2026. An extension is a modification to an existing award. Whether a modification processed after October 1, 2026—the proposed rule's effective date—triggers incorporation of the new regulatory conditions, including the termination authority, depends on how individual award agreements are written. That question is not resolved by the proposed rule, but it is a real one for the electric cooperatives, rural ISPs, and municipalities seeking extensions.

Second, active subawards. CPF funds flow from states to subrecipients—ISPs, electric cooperatives, and local governments—and that subaward activity continues through the extension period. New subawards or modifications to existing subawards made after October 1, 2026, may be subject to the proposed rule's new conditions, including E-Verify requirements and the subaward reputational-harm provision.

For CPF stakeholders who have already received their funds and are on track to finish by December 2026, this rule is largely irrelevant. For those in the extension population, the interaction between the proposed rule's effective date and Treasury's modification process is worth monitoring.

USDA's ReConnect Program

The ReConnect Loan and Grant Program, administered by USDA's Rural Utilities Service (RUS), provides loans, grants, and loan-grant combinations to fund broadband infrastructure deployment in rural areas that lack sufficient access to high-speed internet. Through five rounds of funding, USDA has made hundreds of millions of dollars in awards to rural electric cooperatives, telephone companies, municipalities, Tribal entities, and other providers across the country.

Unlike BEAD, ReConnect is not named as exempt from any provision of this proposed rule.⁶ That distinction matters most for the discretionary termination authority—and it applies to ReConnect in full. The proposed rule exempts block grants, formula grants, and disaster recovery grants from the new termination authority, but ReConnect does not fit any of those categories. Since its inception, every round of ReConnect funding has been administered through a competitive or rolling application process governed by a Notice of Funding Opportunity (NOFO), rather than through a predetermined state allocation or population-based formula. Grants and loan-grant combinations are evaluated competitively based on criteria such as the poverty rate of the proposed service area, broadband speeds to be delivered, and labor standards. There are no pre-allocated amounts for individual states or counties; applicants must propose distinct service areas and compete against others nationwide. The one partial exception is that 100 percent loan applications have historically been reviewed on a rolling, non-competitive basis until the funding pool is exhausted—but loan awards, like grants, are discretionary federal awards subject to the proposed rule's new termination authority.

Every active ReConnect award—grant, loan-grant combination, or loan—is subject to § 200.340(a)(2) as proposed: an agency determination that an award no longer serves "Federal agency priorities, or the national interest as they exist at the time of the termination" is sufficient grounds for termination, with no appeal rights beyond those available for noncompliance terminations. For rural electric cooperatives, telephone companies, and Tribal broadband providers that have structured financing, hired crews, and begun construction in reliance on ReConnect awards, that exposure is not theoretical.

Beyond termination, ReConnect recipients and subrecipients would be subject to the DEI prohibition, the disparate-impact ban, E-Verify requirements, expanded applicant risk review factors, and the subaward reputational harm provision. For Tribal ReConnect recipients in particular, the Tribal consultation provisions of the proposed rule are relevant—OMB has acknowledged receiving concerns from Tribal Nations about the rule's impact on trust and treaty obligations and on the Indian Self-Determination and Education Assistance Act (ISDEAA, 25 U.S.C. § 5301 et seq.), and has committed to Tribal consultation before finalization.

Digital Equity Act Programs

As part of the Infrastructure Investment and Jobs Act, the Digital Equity Act created three grant programs at NTIA to achieve digital equity, promote digital inclusion activities, and spur greater adoption of broadband among what was termed "covered populations." The covered populations included persons who are aging, incarcerated in non-federal facilities, veterans, low-income, disabled, facing a language barrier, members of any racial or ethnic minority group, and residents of rural areas.

In May 2025, President Trump, via a Truth Social post, announced that he and the U.S. Department of Commerce were ending the programs, labeling the congressionally authorized funding as unconstitutional, racist, and illegal. That move is now being challenged in a federal court. The Native Entities set-aside from the Digital Equity Act was not among the canceled programs; its status is discussed in the Tribal Broadband Programs section above.

Should President Trump's cancellation be reversed by the courts and the Digital Equity Act programs resume, they would not be exempt from any provision of the OMB's proposed rule. The DEI prohibition, disparate-impact ban, and merit review overhaul would all apply—and apply with particular force, given that digital equity programs are explicitly designed around the covered populations and equity-based targeting that the proposed rule's national policy conditions are designed to restrict. A court victory restoring the programs could return grantees to an administrative environment significantly more constrained than the one under which the original awards were made.

Lifeline

The FCC's Lifeline program—which provides monthly discounts on broadband and phone service to income-eligible households—faces a significant policy change, but it comes from a separate legal action, not from this proposed OMB rule.  As of December 2025, approximately 8 million subscribers were enrolled in the program.

A U.S. Department of Justice Office of Legal Counsel (OLC) opinion issued May 28, 2026—one day before the OMB proposed rule was published—concludes that Lifeline provides a "Federal public benefit" and a "Federal means-tested public benefit" under the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA, 8 U.S.C. § 1601 et seq.), and must therefore comply with PRWORA's immigration eligibility restrictions. That means the program must be limited to U.S. citizens and "qualified aliens" who have been in the country at least five years. OLC further concludes that collecting a subscriber's Social Security Number at enrollment is not sufficient to verify immigration status for PRWORA compliance, and that the FCC must implement additional verification safeguards. If the FCC follows the opinion—and agencies are generally expected to follow OLC opinions addressed directly to them—Lifeline's eligibility rules will need to change, with significant consequences for enrollment.

The OMB proposed rule, by contrast, does not directly affect Lifeline through the 2 CFR framework. The OMB rule applies to "federal awards"—grants and cooperative agreements made by a federal agency—as defined in 2 CFR § 200.1. Lifeline benefits flow through the Universal Service Administrative Company (USAC), a private nonprofit, to carriers and then to subscribers through a discount and reimbursement mechanism, not through a grant or cooperative agreement. The DEI prohibitions, E-Verify requirements, and discretionary termination authority in this proposed rule would require a separate legal step to reach Lifeline—they do not apply through 2 CFR.

However, the OLC opinion has implications beyond Lifeline's immediate eligibility rules. OLC concludes that USF funds are a permanent, indefinite appropriation—not merely carrier contributions—citing FCC, OMB, and GAO as all treating them as such, and noting the funds are held in the U.S. Treasury. OLC further concludes that USAC is FCC's agent under common-law principles, meaning benefits are provided "by an agency of the United States" regardless of USAC's role as an intermediary. That reasoning applies structurally to all four USF programs. An argument that USF programs are categorically insulated from federal funding law because they are financed by carrier contributions and administered by a private nonprofit is now the executive branch's rejected position, at least in the PRWORA context. Stakeholders who have relied on that argument should treat it as more uncertain than it appeared before May 28, 2026—and that uncertainty extends to E-Rate, as discussed below.

E-Rate

E-Rate is structured differently from a conventional federal grant program, and the OMB proposed rule does not on its face apply to it—but the OLC opinion complicates the structural argument for E-Rate's insulation, and that development is worth understanding.

The structural case for E-Rate's separation from 2 CFR begins with how the program works. E-Rate provides discounts of 20 to 90 percent on eligible telecommunications and internet services to schools and libraries, administered by USAC under FCC direction and financed through the Universal Service Fund (USF). Schools and libraries receive discounts on commercially procured services—they do not receive grants or cooperative agreements from a federal agency. The definition of "federal award" in 2 CFR § 200.1 covers grants and cooperative agreements made by a federal agency using federal funds. On that reading, E-Rate has long been understood to fall outside the 2 CFR framework, and this proposed rule does nothing to change that. The FCC adopts 2 CFR Part 200 in proposed § 6000.1, but that adoption covers the small number of grants and cooperative agreements the FCC issues under its limited grant authority—not USF programs administered through USAC.

The OLC opinion, however, directly addresses and rejects the two structural premises that underlie that argument. The opinion concludes, with respect to Lifeline, that USF funds are a permanent, indefinite appropriation—not merely carrier contributions—citing FCC, OMB, and GAO as all treating them that way, and noting that the funds are held in the U.S. Treasury. OLC further concludes that USAC is the FCC's agent under common-law principles, meaning benefits are provided "by an agency of the United States" regardless of USAC's role as an intermediary. E-Rate is one of the same four USF programs administered through the same USAC under the same statutory and funding framework. OLC explicitly names E-Rate in a footnote but limits its holding to Lifeline solely because the FCC's question was framed that way—not because E-Rate's structure is meaningfully different.

Two things keep the OLC opinion from collapsing the E-Rate distinction entirely. First, the PRWORA definition of "Federal public benefit" that OLC was interpreting is a different statutory test from the "federal award" definition in 2 CFR § 200.1. The two definitions serve different legal purposes, and a program can satisfy one without satisfying the other. Second, even if E-Rate were ultimately determined to be funded by federal appropriations administered through a federal agency, it would still need to fit the specific instrument types covered by 2 CFR—grants and cooperative agreements—rather than the discount-and-reimbursement mechanism through which E-Rate operates. That structural difference does not disappear because of the OLC opinion.

What the opinion does do is put the structural insulation argument on less certain footing than it stood on before May 28, 2026. The prior confidence that USF programs are categorically outside federal funding law because they are financed by carrier contributions and administered by a private nonprofit—rather than appropriated and disbursed by a federal agency—is now the executive branch's rejected position, at least in the PRWORA context. Whether a court or a future OLC opinion would extend that reasoning to the 2 CFR federal-award question is not settled. For E-Rate stakeholders, the more immediate and concrete policy watch points remain the FCC's own rulemaking dockets on program eligibility, funding caps, and the Eligible Services List. But the structural argument for E-Rate's complete separation from federal funding law could now be treated as a contested legal question rather than a settled one, and stakeholders with significant E-Rate exposure would be well-served by independent counsel who can track how this reasoning develops.

Coming Soon to a Grant Near You?

OMB proposes a final rule take effect October 1, 2026—the start of federal fiscal year 2027—to ensure uniform requirements apply to all awards made in FY2027. First, this is your chance to weigh in on the proposal. Comments are due July 13, 2026. Submit electronically at regulations.gov under docket OMB-2026-0034. Begin each comment with the relevant section number in brackets (e.g., [200.340]).

Federal rules of this significance are typically accompanied by an analysis of the administrative costs and benefits the proposed changes would impose across the grants community. However, OMB's cost-benefit analysis was not attached to the Federal Register publication of the proposed rule. Whether OMB's estimates adequately account for the real-world burden on smaller or capacity-constrained organizations—nonprofits, Tribal entities, community-based digital equity programs, and small state broadband offices—is itself a commentable question. Organizations with concrete data on what compliance actually costs them—staff time to implement E-Verify, legal fees to review subaward terms, system investments to meet new reporting requirements—will be well-positioned to submit comments that ground OMB's analysis in operational reality. 

The preamble's legal analysis—particularly on Spending Clause authority, First Amendment limits, and the Equal Protection analysis of the DEI provisions—is extensive and likely reflects anticipation of litigation. Readers with legal expertise might evaluate those sections carefully.

Finally, the proposed rule is unusual in its preamble language. OMB cites Heritage Foundation reports, op-eds from the Manhattan Institute and City Journal, and Senate Republican committee reports as supporting authority for its characterizations of the prior administration's grantmaking. These are advocacy and political documents, not official government findings. Commenters who disagree with the factual predicate of the rule may wish to address this directly.

Notes

1. The document covers both Subtitle A (OMB's government-wide rules) and Subtitle B (individual agency implementing regulations). Participating agencies span virtually the entire executive branch, from the Departments of Agriculture and Commerce to the FCC and the Delta Regional Authority.
2. See, for example, OMB's acknowledgment that it is removing prior reference to Bostock v. Clayton County, 590 U.S. 644 (2020), stating that language is "no longer consistent with Administration policy."
3. See National Ass'n of Diversity Officers in Higher Education v. Trump, No. 1:25-cv-00333 (D. Md. Feb. 21, 2025) (preliminary injunction issued); stay granted, No. 25-1153 (4th Cir. Mar. 14, 2025) (appeal pending). The district court found the administration's interpretation of anti-discrimination law likely unconstitutional in part; the Fourth Circuit stayed that ruling pending appeal.
4. Disparate-impact analysis has been a cornerstone of federal civil rights enforcement for decades, including in broadband and digital equity contexts where geographic or demographic disparities in service are documented and used to target funding. This provision could affect how recipients design outreach, eligibility, and reporting under programs like the Digital Equity Act.
5. This provision could affect research institutions and nonprofits that receive broadband-related grants and have collaborative arrangements with foreign universities or technology partners. The definition of "covered foreign entity" is broad and references multiple lists maintained under statute.
6. ReConnect's one-time appropriation through the Infrastructure Investment and Jobs Act (Pub. L. 117-58, Division J) is distinct from Division F—where BEAD sits and which is explicitly protected. Division J of the Infrastructure Act is not granted such an exemption in the proposed rule.
7. The OLC opinion and the OMB proposed rule arrived on consecutive days, addressing different legal mechanisms but advancing related policy objectives. That timing appears deliberate.

The Benton Institute for Broadband & Society is a non-profit organization dedicated to ensuring that all people in the U.S. have access to competitive, High-Performance Broadband regardless of where they live or who they are. We believe communication policy - rooted in the values of access, equity, and diversity - has the power to deliver new opportunities and strengthen communities.

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