As of October 1, 2025, the federal government has shut down after Congress failed to pass new funding. That means many federal agencies are now operating with skeleton crews, while “excepted” functions (e.g., safety of human life, protection of property) continue. For grantees, the practical question is: what happens to your federally funded projects that are already underway?
Below is a plain-English field guide for city and county departments, school districts, and nonprofits that are in the middle of performance periods on federal grants and cooperative agreements.
Quick primer: what a shutdown legally does and doesn’t do
- No new obligations without appropriations. Under OMB Circular A-11 §124 and DOJ/Anti-deficiency Act guidance, agencies generally may not obligate new funds during a lapse, unless the activity is “excepted.” (Agencies publish contingency plans that apply these rules program-by-program.)
- Already-obligated awards can often keep spending. If your grant funds were obligated before the lapse (e.g., your award is fully executed and funds are available in a payment system), you typically may continue incurring allowable costs and draw down for costs already incurred—so long as the relevant payment system and program rules allow it. Expect slower response times where staff approvals are needed.
- “Excepted” work continues; many staff are furloughed. OPM’s updated shutdown guidance keeps essential personnel working (often unpaid until reopening) and furloughs others, which delays reviews, help desks, approvals, and technical assistance.
How common project types are affected
Below are typical local government and nonprofit projects, plus what to expect during a lapse. (Always double-check your specific agency contingency plan.)
- Housing & Community Development (HUD: CDBG, HOME, ESG/CoC, etc.).
HUD cannot enter new obligations during the lapse, but previously obligated Operating/Capital and project funds may still be drawn from eLOCCS; items that require staff action/approval can stall. - Public Health & Human Services (HHS/HRSA/NIH/CDC).
HHS’s contingency plan keeps the Payment Management System (PMS) staffed to deliver grant payments for excepted programs, but program oversight and communications are curtailed; expect delays on approvals, waivers, and help desks. - Transportation & Infrastructure (FHWA/FTA).
Due to advance appropriations and trust-funding, most federal-aid highway and transit projects continue, and construction generally does not halt. (Airport and FAA-dependent activities vary.) - Environment & Energy (EPA).
EPA plans to suspend most operations (roughly a 90% reduction), slowing grant oversight, monitoring, and approvals—even where drawdowns remain technically possible. - Homeland Security / FEMA.
DHS indicates tariff collections and certain disaster payments continue; but routine grant administration can be delayed. Always check the latest DHS/FEMA plan. - Justice, Education, Labor, and others.
These agencies publish their own plans; the consistent pattern is: no new awards, minimal staffing, and paused actions that require federal review, with previously obligated funds more likely to flow if no human approval is needed.
Where the money actually moves: Many programs pay via ASAP (Treasury), PMS (HHS), or agency systems like eLOCCS (HUD). If your account is funded and not under manual review, you may still be able to request reimbursement for eligible, already-incurred costs—even if your program officer is furloughed. (Do not pre-draw beyond immediate cash needs.)
What you should do this week:
- Map your portfolio by risk.
For each award: note appropriation type (annual vs. multi/no-year), obligation status, payment system (ASAP/PMS/eLOCCS), and whether routine drawdowns require manual review. Flag anything that normally needs federal prior approval. - Stabilize cash flow (30/60/90 days).
- Submit drawdowns now for costs already incurred (and only as needed), while systems are available.
- Line up local bridge funds/board-approved reserves to cover temporary reimbursement delays.
- Freeze moves that require prior federal approval.
Under 2 CFR 200.308, changes in scope, key personnel, budget re-alignment beyond re-budgeting authorities, or construction revisions need written federal approval—these actions will likely sit during a lapse. - Keep costs allowable.
Compensation and other charges must still meet 2 CFR Subpart E (necessary, reasonable, allocable). If staff are unable to perform award work, you generally can’t charge idle time to the award unless clearly allowed by your policies and award terms; consult 2 CFR 200.430 (compensation) and your agency guidance before charging. (Idle facilities costs have specific rules at 2 CFR 200.446.) - Talk to subrecipients & contractors.
Send a one-page notice: which activities continue; which are paused pending approvals; how to time invoices; and whom to contact for urgent health/safety issues. (Pass-through entities must keep monitoring to the extent feasible under 2 CFR 200.332 and reporting cadences in §§200.328–.329.) - Protect compliance housekeeping.
- Verify SAM.gov registration status and renewal windows; watch for posted maintenance/alerts.
- Keep timesheets, procurement files, and performance data current, so you can report quickly when systems/staff come back online.
- Document shutdown impacts.
Keep a log of disrupted services, delayed milestones, and costs you could not reasonably avoid—useful for communicating with funders and policymakers once operations resume. (Several national associations advise proactive documentation and outreach.)
Agency-by-agency tips (fast triage)
- HUD (CDBG/HOME/ESG/CoC): Try eLOCCS for routine drawdowns on already-obligated funds. Expect delays for actions that require CPD staff. If you operate affordable housing tied to HUD subsidies, talk to your Asset Management contact about using project reserves if subsidies are delayed.
- HHS (HRSA/CDC/NIH/ACF): If your PMS account is funded, draw for incurred, allowable costs; postpone non-urgent prior approval requests and discretionary changes.
- DOT (FHWA/FTA): Construction can generally continue; coordinate with your State DOT/FTA region on reimbursements and any FMIS/TrAMS timing constraints.
- EPA (air/water/brownfields/environmental justice): Plan for limited staff availability and longer clocks on approvals or monitoring; keep field work focused on health/safety-critical tasks.
- DHS/FEMA: Disaster response and certain payments can proceed; check the latest FEMA finance bulletin and your grant’s terms & conditions for drawdown rules during a lapse.
What to expect next: scenarios & how to prepare
- Short shutdown, then a Continuing Resolution (CR).
Under a CR, agencies may resume operations but often at prior-year rates with “no-new-starts” limits. Be ready to re-sequence timelines and submit any backlogged prior approvals promptly. - Prolonged shutdown.
Build a schedule that preserves core services and life/safety activities; prioritize projects with obligated balances and minimal federal touchpoints; use reserves or bridge financing sparingly and document necessity. (EPA/HHS plans illustrate how staffing shrinks over time.) - Full-year appropriations deal.
Expect a temporary surge of federal activity to clear backlogs (awards, prior approvals, closeouts). Have your drawdowns, SF-425s, and performance reports ready to file so you’re at the front of the line.
Copy-paste templates you can use today
Subject: Temporary Federal Shutdown – [Program Name] Grants Operations
Body:
- Our team has reviewed agency contingency plans. Activities funded by already-obligated federal awards will continue where we can incur allowable costs and access payment systems.
- Actions that require federal prior approval (scope changes, key personnel, construction budget moves) are paused until staff return.
- Please submit invoices and timesheets on normal cadence; we will schedule drawdowns for costs already incurred.
- For urgent health/safety issues, contact [Name, 24/7 number].
- We will update you again [date] or sooner if conditions change.
Bottom line
- Don’t panic, prioritize. Most mid-stream projects with obligated funds can keep moving, though anything requiring federal review will slow.
- Cash-flow discipline and documentation are your best friends.
- Stay within 2 CFR guardrails on allowability and prior approvals, keep your subrecipients informed, and be ready to sprint when agencies reopen.
Selected resources to check for your awards (bookmark these):
- OMB Circular A-11 §124 (shutdown operations) and Agency FAQs.
- OPM Shutdown Furlough Guidance (updated; explains “excepted” work & retro pay).
- HUD eLOCCS and contingency updates (CDBG/HOME/ESG/CoC).
- HHS FY26 Contingency Plan (PMS operations).
- DOT Lapse Plans (FHWA/FTA operations under trust-funding).
- EPA Contingency Plan (staffing reductions).
If you need steady hands on the wheel during the shutdown, the Levitate Legal & Consulting team is here to help. We can quickly assess your grant portfolio, map cash-flow options, prepare subrecipient communications, and triage compliance questions so you stay audit-ready and operational. We’re happy to jump in—email Allison Cole at allison@levitatelegal.com and we’ll get you scheduled right away.
