These actions have given rise to several new legal questions related to federal funding. Courts across the country are considering the process used by the Executive Branch to withhold funds and the recourse available to those affected. Local educational agencies in California have often been at the forefront of these federal actions, as many saw their funding impacted, and state officials have mounted those challenges based on various legal theories.
On July 1, 2025, for example, the U.S. Department of Education (ED) froze funds for six federal programs without providing any specific reason. Following an agreement reached in a lawsuit filed by several states, including California, the funds were released. Similarly, Elementary and Secondary School Emergency Relief funds, which assisted with post-COVID recovery, were rescinded in March of 2025, prior to their planned expiration, but were eventually restored after a series of legal proceedings in a lawsuit filed by a coalition of attorneys general (including California Attorney General Rob Bonta).
With all of this in mind, this article highlights two pending cases that offer perspective on the nuances of the federal funding process and the legal claims challenging federal actions.
State of Washington v. U.S. Department of Education was filed by a coalition of attorneys general, including California’s, and seeks to restore funding for the federal Mental Health Service Professional Demonstration Grant Program and its School-Based Mental Health Services Grant Program. As described in the complaint, these funds were awarded to “high-need, low income, and rural schools,” but in April 2025, the ED discontinued the grants. According to the plaintiffs, the ED implemented the decision to discontinue the grants by “sending boilerplate notices to plaintiffs claiming that their grants conflicted with the Trump administration’s priorities and would not be continued.” The lawsuit raised various legal arguments including violations of the Administrative Procedure Act (APA).
The lower court granted a preliminary injunction in October 2025, which stopped the ED from enforcing the discontinuation decisions and from reinstituting the decisions based on the same or similar reasons. Notably, the court did not order the ED to pay any funds. The ED requested a stay of the preliminary injunction from the Ninth Circuit Court of Appeals, which was denied. The lower court subsequently granted summary judgment in favor of the plaintiffs, finding that the ED’s actions were arbitrary and capricious and contrary to law, in part because to discontinue the grants, the ED was required to demonstrate performance deficiencies by the grantees, and the ED did not do so. The court ordered the ED to issue continuation awards by Dec. 31, 2025. The ED did not meet this deadline and requested an extension to mid-February, which was granted. The ED has also appealed the junction. If the ED follows the court’s timeline, LEAs should receive funds while the litigation continues. CSBA’s Education Legal Alliance is reviewing to determine whether to provide amicus support.
State of California v. U.S. Department of Education, another lawsuit initiated by attorneys general across the country, relates to grant programs aimed to address K-12 teacher shortages by supporting teacher training programs. While these grants do not specifically supply funds to LEAs, they support the long-term needs of K-12 schools by building a stronger pipeline for hard-to-fill teacher positions, like math and science, in rural and urban communities. The ED terminated most of the grants without warning in March 2025 after deeming some of the training materials containing diversity and equity information unacceptable.
In the early stages of this litigation, a federal district court issued a temporary restraining order (TRO) requiring the ED to reinstate the grants to the states involved in the lawsuit and preventing termination of the grants in other states. This decision was appealed all the way to the U.S. Supreme Court (SCOTUS), which reviewed the matter through its emergency docket.
In a short, unsigned opinion, SCOTUS put the TRO on hold, opining that the district court exceeded its jurisdiction by requiring payment of the grants that were withheld. This order, SCOTUS found, was based in contract law, which is left to the Federal Claims Court, not district courts. Moving forward, the district court will continue to consider the APA claims made, without considering payment of the funds owed to grantees. Those claims can be brought before the Court of Federal Claims at a later point, if appropriate.
The legal nuances of these two cases underscore the complexity of questions related to federal funding. Courts are facing unique, very technical challenges as they review these questions. As a result, states and other plaintiffs must be highly strategic and cautious when they bring these claims, since their desired remedy may depend on whether the challenge to the federal action raises the correct legal question and recovery request.
As both cases show, claims based on the APA and the process used to withhold funding offer a stronger basis to challenge federal fund termination actions. Contractual claims to recover unrealized funds are more complicated and require a different legal process as seen in the State of California case. Nonetheless, even if a judgment requiring continuation notices is secured, funds may still be hard to come by in a predictable way as the State of Washington case shows.
It seems likely that federal funding will continue to be withheld for various reasons and in various ways, leading to more challenges and legal decisions on the topic. LEAs should seek legal counsel from CSBA’s Legal Services at legalservices@csba.org or other counsel to determine the best approach when determining the right path forward in light of a loss of federal funding.
Please note that the information provided here by CSBA is for informational purposes and is not legal advice.