Twenty-three states had a filed a lawsuit last year accusing the administration of using the clause to make cuts to everything from crime prevention to food security to scientific research. They were concerned that it would be used to cancel current and future grants.

U.S. District Judge Indira Talwani granted a summary judgment preventing the administration from relying on the clause to make cuts and denied a motion by the government to dismiss the case.

“Defendants’ interpretation of the Termination Clause is not clearly supported by the text of the provision, runs counter to the regulatory scheme, receives no support in the rulemaking history, and would violate the Spending Clause’s requirement that conditions be imposed unambiguously,” Talwani, who was nominated by Democratic President Barack Obama, wrote.

The lawsuit argued that the Office of Management and Budget promulgated the use of the clause in question to justify what it described as a “nationwide slash-and-burn campaign.”

The clause, which was first introduced in 2020 and revised in 2024, says federal agents can terminate a grant if the award “no longer effectuates the program goals or agency priorities.” The states argued that the language, put in place during the Biden administration, was for the first time being used to terminate grants.

“Instead of working with us to keep the public safe and lower costs for hardworking New Jerseyans, the Trump Administration has recklessly and illegally gutted federal funding for public safety, disaster preparedness, scientific research, clean water, and more,” New Jersey Attorney General Jennifer Davenport said in a statement.

“Today’s decision is an important win for all New Jerseyans and confirms that the Trump Administration defied the law when it embarked on its campaign to gut critical federal funding to the states,” she continued. “The President and his allies cannot hold critical programs hostage to their personal whims and political ideologies, destabilizing the country by yanking essential federal funding that was already awarded to the states.”

Calling the case an “extraordinarily unusual lawsuit,” lawyers for federal government argued it should be dismissed because some of those grants have already been terminated and plaintiffs’ argument about the impact to future grants was far too speculative. They also accused the states of “raising blanket, undifferentiated objections” to the termination of thousands of grants without seeking relief that would “restore a single grant.”

“That mismatch between the allegedly unlawful agency ‘decision’ on one hand, and the amorphous relief requested in this suit, on the other, creates a set of jurisdiction and justiciability defects that doom this lawsuit at the threshold,” lawyers wrote in the motion to dismiss.

A spokesperson for the Office of Management and Budget did not respond to a request for comment.