A group of Democratic state attorneys general and governors won a lawsuit accusing the Trump administration of illegally using a budget loophole to block billions of dollars in federal grants for public services that were already approved by Congress.

The grant terminations improperly trampled the spending authority of Congress, which appropriated the disputed funds, U.S. District Judge Indira Talwani ruled Friday in Boston. The judge granted so-called summary judgment to the states, awarding them a final victory in the case.

The suit, filed in June 2025, accused the administration of illegally using an obscure termination clause in the Office of Management and Budget spending rules as a “limitless authority to cut grant funds that support essential services throughout the country.”

The federal government argued that the states’ interpretation of the termination clause would prevent OMB from implementing the president’s “vision across the Executive Branch.” But the judge disagreed, saying that while OMB should support the president’s new priorities, it cannot do so retroactively by slashing federal awards already approved by Congress.

The Justice Department didn’t immediately respond to a message seeking comment.

“Nothing in this interpretation of the Termination Clause limits the president or agencies from setting program goals and agency priorities before awarding new grants,” the judge wrote. “The regulation, as declared by this court, demands only that grantees be apprised of those goals and priorities before grants are awarded.”

The Justice Department has vigorously defended the government’s use of the OMB clause in several cases that challenged spending cuts on different grounds. In those suits, the government said it was using the spending provision properly and that grant recipients were on notice that it could be used to terminate funding.

Trump, in the weeks after he took office, issued a slew of executive orders that mandated the termination of programs including diversity initiatives, gender equity efforts and environmental policies in the federal government. Agencies then began terminating grants through letters saying the funding no longer met the administration’s priorities.

The states argued that the cuts were undermining critical services, including preparation for natural disasters, medical research, clean water initiatives and improvements to state unemployment systems. According to the suit, the Justice Department cited the provision to cancel funds for states to combat hate crimes, while the Environmental Protection Agency blocked funds for research into removing “forever chemicals” from drinking water.

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