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FEDERAL FUNDING & OVERSIGHT  

Administration Withholds $810 Million in Congressionally Approved Funding Despite Government Accountability Office Finding It Lacks Authority

• Lawmakers slam Trump’s ‘unlawful’ move to cut $810 million in federal funds

• What to know about the $810 million in spending canceled by President Trump 

• Government Watchdog Asserts Donald Trump's $810 Million Pocket Rescission was Unlawful

• California, six other states sue Trump administration over federal funds

The administration withheld approximately $810 million in congressionally appropriated funding through the end of the fiscal year despite a September 29 Government Accountability Office finding that the Impoundment Control Act does not authorize the administration to withhold the funds through expiration without congressional approval.

Trump proposed the rescissions on September 25, five days before the end of the fiscal year. The package targets funding across 11 federal accounts, including $567 million for programs serving refugees, asylees and other noncitizens, $70 million for international education programs, $56 million for HUD housing counseling, $25 million in educational programs for noncitizens, $15 million for the Justice Department’s Community Relations Service and $10 million for the Minority Business Development Agency. The administration identified DEI, race- and sex-based initiatives and gender-related research among its reasons for targeting some of the spending.

The administration maintains that the Impoundment Control Act permits funds proposed for rescission to be withheld until they expire, effectively eliminating the spending without congressional approval. The Government Accountability Office concluded that the statute does not authorize such “pocket rescissions” and that the funds must be made available for obligation unless Congress approves the rescission.

Legal challenges are now underway. California and six other states filed suit on September 30 challenging the withholding of congressionally approved funds, while a federal judge temporarily protected nearly $56 million in HUD housing counseling grants included in the rescission package as a separate challenge proceeds.

See also: OMB Proposes Rule Barring Federal Grants for DEI Activities (Issue 67); Scientists Unite Against Trump Grant Attacks (Issue 72); Federal Keyword Lists Used to Cancel Billions in Research Funding (Issue 75)

FEDERAL FUNDING & OVERSIGHT 

DOT Finalizes Overhaul of Disadvantaged Business Enterprise Program

• 2026-19688.pdf

• DOT Finalizes DBE Program Revisions: Key Clarifications for Current and Prospective DBE Firms 

OVERVIEW

On September 25, the U.S. Department of Transportation finalized changes to its Disadvantaged Business Enterprise and Airport Concession Disadvantaged Business Enterprise programs, making permanent the elimination of longstanding race- and sex-based presumptions of social and economic disadvantage that DOT first implemented through an interim rule in October 2025.

Under the final rule, every firm seeking DBE or ACDBE certification must demonstrate social and economic disadvantage based on the individual experiences and circumstances of its owners. Applicants must submit a personal narrative identifying specific social barriers, denied opportunities or other circumstances that caused economic harm. DOT clarified that applicants may cite personal experiences of race- or sex-based discrimination as evidence, but race or sex alone cannot establish disadvantaged status.

The rule also continues the requirement that currently certified DBEs be reevaluated under the individualized standard. Until a firm has been reevaluated and found eligible under the new criteria, recipients may not count its participation toward DBE goals.

LEGAL INTERPRETATION

The final rule formalizes DOT’s position that the DBE program’s prior race- and sex-based presumptions cannot satisfy constitutional equal protection requirements. DOT relies in part on the Supreme Court’s 2023 decision in Students for Fair Admissions and the 2024 preliminary injunction in Mid-America Milling, although commenters disputed whether those decisions require elimination of the presumptions in federal contracting.

The DBE and ACDBE programs remain authorized and operational, but eligibility is now determined individually rather than through categorical presumptions. Race and sex may be considered as part of an applicant’s specific experience of discrimination or social barriers, but cannot independently establish eligibility. Existing firms must also qualify under the revised standard before recipients may count their participation toward DBE goals.

BRIDGE POV

The DBE program remains in place, but the shift to individualized eligibility changes how organizations should think about participation and supplier strategy. Companies should not interpret the elimination of race- and sex-based presumptions as a reason to retreat from supplier diversity or broader efforts to identify and engage qualified businesses from historically underrepresented communities.

The transition also creates immediate operational considerations as previously certified firms undergo reevaluation. Companies should distinguish between changes in federal DBE eligibility and their own lawful supplier-development and procurement strategies rather than assuming the new federal standard requires abandoning those efforts.

ACTIONABLE STRATEGIES

1. Assess current DBE exposure. Identify federally funded projects that rely on firms awaiting reevaluation and determine how certification changes could affect participation goals.
   
   
2. Maintain lawful supplier-development efforts. Continue identifying and developing qualified businesses while reviewing programs for compliance with applicable law.
   
   
3. Communicate the distinction clearly. Ensure procurement teams understand that DOT changed DBE eligibility standards rather than eliminating the DBE program or prohibiting broader supplier-development efforts.

See also: SBA Proposes New Standard for 8(a) Program Eligibility (Issue 69); State Alleges President's DEI Rule for Contractors is Unclear and Illegal (Issue 71)

WORKFORCE & EMPLOYMENT   

White Employees’ Race Discrimination Claims Survive in Federal Courts

• White Employee Revives Hostile Work Environment Claim Tied to Racial Justice Training

• Evidence of Differential Treatment Supports White Aerospace Employee's Race Bias Claims 

OVERVIEW

Two federal courts allowed race discrimination claims brought by white employees to proceed this week, in cases involving workplace racial-justice training and alleged differential treatment in discipline and termination.

On September 28, the Ninth Circuit reinstated former City of Seattle employee Joshua Diemert’s hostile work environment claims under Title VII and Washington law. Diemert alleged that statements and conduct associated with the City’s Race and Social Justice Initiative, together with other workplace incidents, created a racially hostile environment. The court emphasized that race-focused workplace programs are not inherently discriminatory, but found that the frequency and severity of the conduct alleged by Diemert could allow a reasonable jury to find a hostile work environment. His other claims remained dismissed.

On September 21, a federal district court in Alabama allowed Title VII and Section 1981 race discrimination claims brought by a white former Collins Aerospace supervisor to proceed. Although the court rejected his proposed Black comparator, it found other evidence that could allow a jury to conclude race played a role in his termination, including differences in how disciplinary actions and internal discrimination complaints involving Black and white employees were handled.

Neither ruling determines that unlawful discrimination occurred. Both allow the surviving claims to proceed toward trial.

LEGAL INTERPRETATION

Title VII prohibits race discrimination against employees of any race. In Diemert, the Ninth Circuit considered the alleged incidents collectively and held that statements or conduct associated with workplace racial-justice programs can contribute to a hostile work environment if they are sufficiently severe or pervasive, while emphasizing that race-focused training itself is not inherently discriminatory.

In the Alabama case, the court found that Lowell’s proposed comparator was not sufficiently similar but held that a valid comparator was not required where other evidence could permit a jury to infer intentional discrimination. Evidence of alleged differences in discipline, internal investigations and opportunities to improve was sufficient for his Title VII and Section 1981 claims to proceed.

BRIDGE POV

These decisions reinforce an important distinction: addressing racial inequity in the workplace is not itself discriminatory, but the way programs are designed, communicated and implemented still must comply with anti-discrimination law. Employers should apply the same rigor to inclusion initiatives that they apply to other workplace practices, ensuring that training does not stereotype or demean employees based on race and that employment decisions, investigations and opportunities are administered consistently.

The goal should not be to avoid conversations about race. It should be to ensure those conversations and the programs surrounding them are designed to advance inclusion without creating different standards or experiences based on an employee’s race.

ACTIONABLE STRATEGIES

1. Review training content and program design. Ensure training does not stereotype or demean employees based on race and that affinity groups and race-focused programs are structured appropriately under applicable law.
   
   
2. Apply employment processes consistently. Use consistent standards across similarly situated employees for discipline, investigations and opportunities to improve.
   
   
3. Document employment decisions. Maintain clear, contemporaneous records of the legitimate performance, conduct and business reasons supporting disciplinary and termination decisions.

See also: DEI Training Hostile-Work Claim Rejected (Issue 64); Seventh Circuit Rejects Reverse Discrimination Challenge to Employer's "Equity Mindset" Requirement (Issue 74)