Federal Funding Changes in 2026: What They Mean for US Cities

Federal money reaches your city in ways most residents never see: the formula funds that buy bus service, the block grant that pays for a sidewalk ramp, the competitive grant that funds a violence-interruption program, the reimbursement that covers part of a county’s food assistance administration.

As of September 2026, three separate changes are working through that system at once. One is about the amount of money. One is about the rules attached to it. One is about whether money can be conditioned on local policy choices. This article explains each, using confirmed dates and documents, without taking a position on the underlying politics.

1. The rules: a proposed rewrite of federal grant administration

On May 29, 2026, the Office of Management and Budget published a proposed rule rewriting 2 CFR Part 200 — the Uniform Guidance. The National Association of Counties describes it as the largest revision since the guidance was first published in 2013. The Congressional Research Service published a summary of selected changes for members of Congress.

Why this matters more than a typical regulatory change: the Uniform Guidance is not a program. It is the operating system underneath nearly every federal grant a city or county receives. Change it and you change police grants, transit grants, housing grants, public health grants and emergency management grants simultaneously.

According to NACo’s analysis, the proposal would, among other things:

• Add policy requirements implementing 2025 executive orders, including provisions related to diversity, equity and inclusion.
• Impose viewpoint-neutrality requirements for events held on recipient property, even when the event itself is not federally funded.
• Expand federal agencies’ authority to terminate awards, with carve-outs described for block grants, formula grants and disaster recovery.
• Strengthen pre-award review and risk evaluation.
• Require use of the Treasury Do Not Pay system before payment.
• Expand subaward reporting duties for pass-through entities, which is how most money reaches small cities and nonprofits.
• Eliminate fixed-amount awards except where a statute authorizes them.
• Tighten audit-related provisions.

Notably, NACo reports the proposal states that the indirect cost rate negotiation system is not being revised in this rulemaking — a point that had worried grant administrators.

The comment period closed July 13, 2026. The National League of Cities reported on August 3, 2026 that 496,775 comments were submitted, that the administration targeted October 1, 2026 for implementation, that a final rule would need to publish by roughly September 1, 2026 to meet that date, and that Senate legislation had been discussed that could push implementation to December 11, 2026. NLC’s position is that the changes could limit local governments’ ability to access and administer federal funding, and it asked members to contact Congress.

Key takeaway: Compliance rules are not a side issue. A small city with one grants administrator can lose access to a program not because it was cut, but because the paperwork to claim it no longer fits the staff the city has.

Law firm analyses published in mid-2026, including one from Holland & Knight, reached similar conclusions about scope: broader termination authority and expanded conditions are the provisions most likely to change how recipients behave.

2. The amount: the fiscal 2026 appropriations package

On February 3, 2026, Congress passed the $1.2 trillion Consolidated Appropriations Act, 2026, funding the government through September 30, 2026. The National Association of City Transportation Officials summarized what it meant for cities, characterizing the outcome as “better than bad.”

The pattern NACTO identifies is worth noting: formula programs, which distribute money by population and other set factors, held up better than competitive innovation programs created under the 2021 infrastructure law. For a city planning department, that changes strategy. Formula money is predictable and can be planned against; competitive money requires application capacity and can disappear between cycles.

One date deserves attention right now. The package funds the federal government through September 30, 2026 — the end of this month. Cities with federally reimbursed programs generally watch that deadline closely, because delayed reimbursements create cash-flow problems even when the underlying grant survives.

3. The conditions: litigation over immigration-related grant terms

The third change is legal. As NPR reported in January 2026, the administration threatened to cut significant federal funding from so-called sanctuary jurisdictions, setting a February 1, 2026 deadline without specifying which programs or amounts. The Department of Justice had published a list of more than 30 such jurisdictions in August 2025.

Courts have repeatedly limited these efforts. U.S. District Judge William Orrick granted and later extended preliminary injunctions barring the withholding of funds from 16 jurisdictions, finding that the threats caused irreparable injury in the form of budgetary uncertainty. NPR’s reporting also notes that “sanctuary city” has no precise legal definition; it generally describes jurisdictions that limit local cooperation with federal immigration enforcement, and local officers can decline detainer requests but cannot block federal agents.

The practical effect for city finance officials is less about the final legal outcome than about the interim uncertainty. A city cannot easily budget a grant it might lose in March, which is one reason San Francisco created a “federal risk” reserve in its 2026 budget package.

4. Where the money actually lands: county cost shifts

Counties, which administer much of the country’s social safety net, face a different version of the problem. NACo’s July 2025 “Big Shift” analysis estimated that changes to SNAP administrative cost-sharing could add up to $850 million a year in county obligations, alongside more than $5 billion in rural development funding at risk, the elimination of the Economic Development Administration, cancellation of FEMA’s Building Resilient Infrastructure and Communities program, and sharp reductions in Payments in Lieu of Taxes and Secure Rural Schools funding for some counties.

NACo frames the result as a trilemma: increased costs, diminished support and reduced autonomy, with most counties forced to cut services, raise local taxes or delay infrastructure.

The effect shows up in city ledgers too. The New York State Financial Control Board’s August 6, 2026 staff report found federal categorical grants in New York City’s fiscal 2027 adopted budget falling $2.49 billion, or 25.2%, from the prior year, to $7.37 billion, with the largest declines in social services and housing vouchers.

Key takeaway: When federal support for a service falls, the service does not usually disappear that month. It reappears as a line item in a local budget, a fee increase, a waitlist, or a ballot measure the following year.

A timeline of the 2026 changes

Putting the dates in order makes the pace easier to see:

Three separate tracks — appropriations, regulation and litigation — are running at once, and they interact. A grant that survives appropriations can still be harder to claim under new rules, and a program that survives both can still be caught in a dispute over conditions.

What this means in practice for a mid-sized city

Consider a city of 120,000 with a two-person grants office. The 2026 changes reach it in four steps:

1. Fewer competitive opportunities. Programs like SMART and Reconnecting Communities were the ones such a city could realistically win.
2. Higher compliance overhead. Expanded pre-award review, subaward reporting and payment screening add staff time per dollar received.
3. More risk per award. Broader termination authority means a multi-year project may need a local contingency plan.
4. Pressure on the general fund. Anything the council wants to keep after a federal change gets funded locally, which shows up as a trade-off against streets, parks or staffing.

None of those steps is visible from a single news story. All of them are visible in council agenda packets, where grant acceptance resolutions and budget amendments are voted on in public, usually with little attendance.

How to follow this locally

• Read the grant acceptance items. Councils vote to accept federal awards. Those items name the program, the amount, the match requirement and the term.
• Look for a federal risk reserve. Several cities created one in 2026. Its size tells you how much uncertainty finance staff expect.
• Ask about the local match. Many federal grants require local dollars, so a “free” grant still competes with other spending.
• Watch capital plans. Deferred projects often signal a lost or delayed federal award before any announcement.
• Track your county too. Social services, public health and emergency management are usually county responsibilities, and the county budget is a separate process from the city’s.

Our guides on how city budgets work and county government explained cover the structures involved, and the glossary defines terms like formula grant, categorical grant and local match.

What to watch between now and January 2027

Three things will clarify the picture: whether a final Uniform Guidance rule publishes and when it takes effect; how Congress handles funding past September 30, 2026; and how appellate courts rule on grant-condition cases. Each has a direct line to a line item in your city’s next budget.

What you can do next

• Use My District to find your council member and ask what share of your city’s budget comes from federal sources.
• Attend the next budget or finance committee meeting listed on the town hall calendar and ask about the local match on pending grants.
• Start a debate about which federally supported services your city should backfill locally if funding falls.
• Use a public records request to obtain grant termination or suspension notices your city has received.
• Find your city and county finance offices in the local government directory.