Maryland Court Rules EPA’s Termination of Environmental Justice Grants Violates APA

The decision in Green & Healthy Homes Initiatives, Inc., et al. v. EPA determined that the Trump Administration violated the federal Administrative Procedure Act (APA) when it cancelled all of the environmental justice (EJ) grants issued by the Biden Administration.

The decision interpreted the APA to constrain executive action and protect the integrity of federal grant programs. For grant recipients, the ruling affirms that statutory mandates cannot be set aside by administrative fiat and that courts will enforce the procedural and substantive limits imposed by US Congress. As the court noted, agencies must engage in reasoned, individualized decision-making and respect the boundaries of their delegated authority to ensure that properly issued federal grants are not casualties of shifting political winds.

Below, we break down the decision and takeaways for federal grant recipients inside and outside the EJ space.

Case Background

In 2022, as part of President Biden’s Inflation Reduction Act, Congress amended the Clean Air Act to create the Environmental and Climate Justice Block Grants program, appropriating $3 billion for grants to support pollution remediation, climate resilience, and related activities benefiting disadvantaged communities. (For more, see here.) The statute required the US Environmental Protection Agency (EPA) to use these funds for specified purposes and to award grants to eligible entities, including nonprofit organizations and local governments.

Pursuant to this mandate, EPA selected 10 Regional Grantmakers — including the plaintiffs in this case — and awarded them multi-year, multi-million-dollar grants to administer subgrant programs. However, earlier this year following a change in Administration, EPA announced that “environmental justice” was no longer an agency priority and terminated all grants under the program. (For more, see here.) The agency’s termination letters cited a lack of alignment with new agency priorities but provided little substantive explanation or individualized analysis.

The Green & Healthy Homes Decision

It was predictable that the whipsawing between the Biden Administration’s commitments to address EJ issues and the Trump Administration’s desire to “cancel” EJ (including these grants) would lead to litigation. In Green & Healthy Homes Initiative, the Minneapolis Foundation and Philanthropy Northwest filed suit challenging the termination of the grant funding under the APA, arguing that EPA’s actions were arbitrary and capricious, exceeded statutory authority, and violated their constitutional rights. The court agreed, holding that EPA’s terminations were both “in excess of statutory jurisdiction, authority, or limitations” and “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law,” as prohibited by 5 U.S.C. § 706(2)(A), (C). The court vacated EPA’s terminations and remanded the grant cancellation to the agency to be reevaluated, declining to issue a permanent injunction but making clear that the agency could not lawfully terminate the grants on the same grounds.

The ruling provides critical guidance on how the APA applies to federal grant terminations and clarifies the boundaries of executive discretion in administering congressionally mandated programs. Four primary takeaways include the following.

The statutes authorizing or requiring grant issuance can preclude the executive branch from reconsidering grant issuance. Similar to how courts have evaluated Trump Administration funding freezes (for more see here), the executive branch cannot unilaterally change Congress’s spending priorities. To be sure, the executive can unwind certain policies — prior Administration Executive Orders, as an example — without Congress. But agencies cannot terminate grants based solely on a change in Administration priorities where Congress directed that funds be used for specific purposes. For people or entities seeking to vindicate rights embodied in statutes, the APA serves as a check, ensuring that executive agencies cannot unilaterally override legislative directives. 

Here, the court emphasized that Congress’s directive in the Clean Air Act was clear and mandatory; EPA “shall use” appropriated funds to support environmental and climate justice activities. The agency’s decision to terminate grants solely because the new Administration disagreed with the statutory purpose was found to be an impermissible override of congressional will. The court stated, “the President and federal agencies may not ignore statutory mandates or prohibitions merely because of policy disagreement with Congress.”

The APA’s “arbitrary and capricious standard” may apply to grant cancellations. Federal agencies must provide a reasoned explanation for terminating grants, supported by the administrative record and tailored to the facts of each case. Boilerplate justifications or reliance on generalized policy shifts often will not satisfy the APA’s standards. 

Here, the court found that EPA’s process for terminating the grants contained no meaningful analysis or explanation. The agency relied on boilerplate language and a template letter, failed to provide individualized reasons for each termination, and did not consider the reliance interests of the grantees. The administrative record revealed that the only articulated rationale was a change in “administration priorities,” which the court deemed insufficient under the APA’s requirement for reasoned decision-making.

The executive branch lacks constitutional authority to terminate grants unless it has statutory discretion to do so. Green & Healthy Homes Initiatives reaffirms that courts can review grant terminations under the APA unless Congress has explicitly committed the matter to agency discretion. Even where regulations provide for termination based on agency priorities, that discretion is cabined by statutory mandates.

In this case, where federal regulations including 2 C.F.R. § 200.340 allow agencies to terminate grants that no longer effectuate program goals or agency priorities, that authority is expressly limited to the extent authorized by law. The court held that where Congress has imposed a specific, mandatory obligation on an agency, the executive branch cannot invoke general regulatory language or internal policy shifts to circumvent statutory requirements.

Reliance interests matter. Finally, agencies must consider the reliance interests of grantees, especially where significant investments have been made in reliance on multi-year federal funding. Here, EPA was required to provide a detailed justification for its policy priorities in light of preexisting, multi-year commitments made by grant makers.

If shifts in Trump Administration priorities have affected your organization, please reach out. Members of the firm’s Environmental and Energy & Cleantech groups regularly monitor federal and state administrative activity that affect the regulated community.