States reported numerous instances of arbitrary freezes and terminations of federal funds, indicating that the freeze was applied indiscriminately, which bolstered their case against the administration.

Judge John J. McConnell Jr. of the Federal District Court for the District of Rhode Island had previously ruled that the Trump administration's actions undermined Congress and threatened state budgets.

The appeals court noted that the funding freeze posed significant risks, including forcing states to incur debt and causing disruptions in state operations and planning.

The funding affected by the freeze included critical disaster relief from FEMA and early childhood education funding from Head Start, among others.

On March 26, 2025, a federal appeals court upheld a lower court's ruling that prevents the Office of Management and Budget from implementing a freeze on federal funding to states.

This decision stemmed from a lawsuit filed by nearly two dozen Democratic-led states, which argued that the funding freeze jeopardized essential services and support.

Although the Office of Management and Budget's guidance suggested that the freeze was intended to apply only to certain funding streams, states contended that it had broader implications, causing significant confusion and upheaval.