Overview
Note: With both chambers now in recess through the midterms, the Topline will be taking a brief hiatus. Stay tuned for a pre-election special edition in mid-October.
To Be Continued... With fiscal year (FY) 2026 now behind us, Congress has begun its October recess and officially shifted into campaign mode. A significant amount of work remains when lawmakers return after the midterms, most notably completing FY27 appropriations before the current continuing resolution expires December 11. But the political environment will almost certainly look different on the other side of Election Day. Over the next month, lawmakers will be campaigning, sharpening partisan messages, and reassessing negotiating positions, meaning deals that appear possible today could face a different test when Congress returns.
At the same time, a growing fight over executive spending authority is adding another complication to year-end funding negotiations. The Trump Administration has repeatedly tested the boundaries of congressional control over federal funding, prompting bipartisan pushback from appropriators and raising the prospect of new guardrails in future appropriations bills.
Grant Guardrails. We covered the latest fight over NIH funding in last week's edition, when the administration was considering an executive order giving political appointees greater control over NIH grant awards. While the White House appears to have backed away from the proposal for now following bipartisan opposition, appropriators are already discussing language to guard against similar efforts in the future.
The current continuing resolution temporarily blocks OMB's proposed uniform guidance expanding political review of federal grants. Appropriators are looking at extending those protections beyond December 11. Senate Appropriations Chair Susan Collins (R-ME) and Vice Chair Patty Murray (D-WA) are discussing potential language for the Labor-HHS-Education bill protecting NIH's scientific and merit-based grantmaking process, while Sen. Lisa Murkowski (R-AK), Chair of the Senate Interior-Environment Appropriations Subcommittee, has said she is also working on similar protections for scientific research grants.
Pocket Rescissions. Another high-profile fight over congressional spending authority began late last week, when President Trump proposed rescinding $810 million across 11 accounts just days before the end of FY26. The largest piece is approximately $567 million from HHS's Refugee and Entrant Assistance account.
What makes this different from a typical rescission is the timing. Under the Impoundment Control Act (ICA), a president can ask Congress to cancel appropriated funds and temporarily withhold them while Congress considers the request. However, when a request arrives so close to the end of the fiscal year that the funds expire before Congress can act, it becomes a "pocket rescission."
The Government Accountability Office (GAO) concluded this week that the ICA does not allow the President to withhold proposed rescissions past their expiration without congressional approval. The administration disputes that interpretation, with OMB Director Russ Vought accusing GAO of becoming "hyper partisan" and changing its position depending on which party controls the White House. The legal question also remains unsettled: the Supreme Court allowed last year's $4.9 billion pocket rescission to proceed while litigation continued but did not rule on whether the practice itself is lawful.
Appropriators are also considering language to restrict pocket rescissions, though Republicans remain divided. Chair Collins and Sens. Murkowski and Rounds have raised concerns, with Rounds comparing the tactic to a line-item veto. On Wednesday night, Vice Chair Murray and Sen. Merkley (D-OR) sought unanimous consent on legislation to nullify the latest pocket rescission and prohibit requests within 90 days of a funding expiration. Senate Budget Committee Chair Ron Johnson (R-WI) blocked the request, defending the President's efforts to reduce spending.
More from GAO. A separate GAO report released last week highlighted how much previously enacted funding from the Infrastructure Investment and Jobs Act (IIJA) and the Inflation Reduction Act (IRA) had been obligated and disbursed through FY25 at the Departments of Energy (DOE) and Agriculture (USDA). After President Trump's executive orders in January of 2025 directed agencies to pause IIJA and IRA funding to review it for consistency with administration priorities, grant recipients raised concerns that delays in distributing the funds affected their ability to implement their projects.
At DOE, $78 billion in IIJA and IRA funding remained after One Big Beautiful Bill Act (OBBBA) rescissions. DOE had obligated roughly $51 billion, or 65 percent, but disbursed just $6.6 billion, or 8.5 percent of the total. At USDA, $37 billion remained after OBBBA rescissions, with $32.2 billion, or 87 percent, obligated and $10.1 billion, or 27 percent, disbursed. Importantly, GAO's financial data are through FY25 and do not include data from FY26.
The report provides a snapshot of funding obligations and disbursements at the end of FY25. However, it is important to note that undisbursed funds can reflect the normal pace of multiyear projects, and these figures alone do not necessarily establish current delays or risks to individual awards.
Looking Ahead. Taken together, the NIH grant fight, pocket rescissions, and broader disputes over impoundment are making congressional spending authority an increasingly important part of FY27 negotiations. Appropriators already face a difficult path to completing FY27 when they return in November, and midterm politics and debates over potential limits on the executive branch's ability to withhold or cancel funding could make that path even more challenging. For clients, the outcome will shape not only FY27 funding levels, but also how agencies award grants and whether previously approved funds reach their intended recipients.
