A Federal Judge Just Ruled the EPA's Termination of $2.8 Billion in Environmental Justice Block Grants Was Unlawful. Why the September 30 Statutory Deadline Now Becomes the Real Story

On June 11, 2026, U.S. District Judge Richard Mark Gergel of the District of South Carolina issued a 47-page opinion in Southern Environmental Law Center v. EPA ruling that the Environmental Protection Agency's February 2025 termination of the Environmental and Climate Justice Block Grant Program — the $2.8 billion grants vehicle authorized by Section 60201 of the Inflation Reduction Act — was "arbitrary and capricious and unlawful" under the Administrative Procedure Act. The decision voids the termination, restoring legal status to the 116 grantees that had been mid-award when EPA shut the program down sixteen months earlier. It does not, however, order the agency to disburse remaining funds or restore the administrative machinery the agency dismantled. That tension is the entire story.

The ruling lands roughly 105 days before the program's statutory deadline. Under Section 138 of the Clean Air Act, as amended by IRA Section 60201, EPA has authority to obligate Environmental and Climate Justice (ECJ) Block Grant funds only through September 30, 2026. After that date, unobligated funds revert to the Treasury and the program ceases to exist as a grant-making vehicle. The Court of Federal Claims may eventually award damages to terminated grantees who can prove cognizable contract or property interests. But damages litigation is not the same as a live program serving disadvantaged communities. For practitioners, that is the distinction that matters.

For background on the broader regulatory environment shaping every federal grant in 2026, see Granted News and our earlier analysis Three Federal Rules Are Quietly Rewriting the Fine Print on Every Grant You Hold in 2026.

What Section 60201 Actually Authorized

The Environmental and Climate Justice Block Grant program was the largest single environmental justice appropriation in U.S. history. Section 60201 of the Inflation Reduction Act amended the Clean Air Act by adding a new Section 138, which directed EPA to make $2.8 billion in financial assistance grants and $200 million in technical assistance available to community-based nonprofit organizations, partnerships of nonprofits with Indian tribes, partnerships with local governments, and partnerships with institutions of higher education. All awards had to benefit "disadvantaged communities" — a term that EPA defined through the Climate and Economic Justice Screening Tool (CEJST) and supplementary indices drawn from EPA's EJScreen.

Eligible activities ran broad. Community-led pollution monitoring. Indoor and outdoor air toxics reduction. Climate resilience infrastructure including cooling centers, weatherization, and stormwater management. Workforce development tied to environmental remediation. Engagement infrastructure that allowed disadvantaged communities to participate meaningfully in federal, state, and local regulatory processes. Award periods ran up to three years, and the program required no matching contribution — a deliberate design choice intended to lower the application barrier for small community-based organizations.

The Biden administration moved the program out the door in two large tranches. In December 2023, EPA selected 11 regional grantmakers to receive $600 million in pass-through funding under the Environmental Justice Thriving Communities Grantmaking Program. In November 2024, EPA announced 105 direct awards totaling roughly $1.6 billion under the Community Change Grants program — the largest cohort of EJ awards in agency history, with individual awards ranging from $10 million to $20 million for three-year project periods. By inauguration day, roughly $2.2 billion of the $2.8 billion authorization had been obligated. Disbursements were ongoing.

In February 2025, EPA terminated the program in its entirety. The termination notice cited Executive Order 14154, "Unleashing American Energy," which directed agencies to pause disbursement of IRA funds, and Executive Order 14151, which directed federal agencies to end DEI programs. EPA issued effectively identical termination letters to every grantee, citing program-level rather than grantee-specific grounds.

What Gergel Found

Judge Gergel's opinion is, on its face, a narrow administrative-law decision. EPA terminated the awards under the agency's discretionary termination authority at 2 CFR 200.340 — the provision allowing termination when an award no longer effectuates agency priorities. The court did not rule that the agency lacks that authority. It ruled that the agency failed to exercise it lawfully.

Three specific findings carry the opinion. First, EPA did not engage in reasoned decision-making under Motor Vehicle Manufacturers Ass'n v. State Farm. The termination notices were boilerplate. The agency did not analyze grantee-specific facts, did not consider the reliance interests of the 116 grantees that had already begun work, and did not weigh statutory mandates that ran against the termination — specifically, Congress's appropriation of the funds for a defined purpose with a defined deadline.

Second, EPA terminated the awards before completing the rulemaking process that would have legally enabled program-level termination on changed-priority grounds. The proposed OMB Uniform Grants Regulation published May 29, 2026 expressly expands agencies' authority to terminate discretionary awards when they "no longer align with agency priorities or the national interest." Gergel noted, pointedly, that the proposed rule's existence suggests the agency understood that its existing authority did not extend that far in February 2025. That observation will be cited in every IRA-rescission case still active in the federal courts.

Third, the court ruled that EPA's stated justification — alignment with executive orders directing the end of DEI programs — was not a permissible ground for terminating awards authorized by statute that did not themselves implement DEI policy. The ECJ Block Grant Program was authorized by Congress to benefit disadvantaged communities defined geographically and economically, not by reference to protected characteristics. Gergel was emphatic on this point: an executive order cannot rewrite the statutory eligibility criteria Congress passed.

What Gergel did not do is equally important. He did not order EPA to resume disbursements. He did not order the agency to rehire the program staff it terminated. He did not order the agency to reverse the FY 2026 budget realignment that absorbed the program's administrative funding. He explicitly preserved the agency's ability to make individualized, reasoned termination decisions going forward.

The September 30 Cliff

This is where strategy starts to matter. The Section 60201 obligation deadline is statutory. The court cannot extend it. Congress could extend it, but the One Big Beautiful Bill Act of 2025 — which rescinded all unobligated IRA funds — has already moved in the opposite direction. EPA's practical capacity to obligate funds before September 30, 2026 is constrained by an administrative apparatus the agency spent sixteen months dismantling.

For grantees with awards that were obligated before the February 2025 termination, the ruling has direct operational consequence. The award agreements are legally back in force. Drawdown requests should be processed. Cost reimbursement should resume. The litigation overhang — EPA could still issue individualized, properly-reasoned terminations — is real, but the default state has flipped from terminated to active.

For organizations that were in the pipeline but not yet under award, the calculus is harder. EPA had a backlog of selected-but-not-obligated applicants when the termination hit. Restoring those obligations requires the agency to take affirmative action: complete grant negotiations, execute award documents, and obligate funds. The agency has roughly fifteen weeks to do that work, and the agency has been publicly resistant to doing it.

The Southern Environmental Law Center, which filed the lawsuit, has signaled that it is evaluating motions to expand the relief. The most consequential potential remedy would be a court-ordered timeline for completing obligations on selected awards before September 30. That motion has not yet been filed at the time of writing. If it is filed and granted, the case becomes a different case. If it is not, the September 30 deadline does the work the executive order tried to do.

What This Means for Past, Current, and Prospective Applicants

For the 116 grantees with active awards: contact your project officer this week. The award is legally restored. Drawdown should resume. Document every communication. Maintain detailed cost records. Assume the agency may attempt individualized termination later this fiscal year, and build your administrative file accordingly. If your award is sub-granted to community partners, communicate the restoration but flag the litigation overhang clearly. Do not over-commit on the strength of an unstable agency posture.

For organizations that were in the pipeline: file FOIA requests immediately for your application file, the agency's review record, and any obligation documents that were drafted but not executed. The administrative record matters. If EPA proceeds to obligate your award, you want a clean file. If EPA refuses, you want the documentary basis for a Court of Federal Claims claim. Both paths require the same documents.

For organizations that would apply if the program returned: there is no realistic path to a new competitive cycle before September 30. The administrative apparatus is gone. The technical assistance providers are unfunded. A new NOFO would require Federal Register publication, agency review, application submission, peer review, and award negotiation — a sequence that has historically taken EPA twelve to eighteen months for programs of this scale. Plan instead for the longer game. Track the litigation. Watch the OMB Uniform Grants Regulation finalization timeline. Build the relationships with regional EPA staff now so that if Congress reauthorizes the program in a future bill, you are positioned to move quickly.

For state and local governments that were prepared to partner: the ECJ Block Grant model — non-competitive cooperative agreements with community-based organizations through nonprofit pass-through entities — is unlikely to return at the federal level in this administration. State analogs are filling the gap. California's SB 895 research bond, New York's environmental justice grant program under the Climate Leadership and Community Protection Act, and Washington's Climate Commitment Act allocations are each operating on multi-year horizons. Foundation philanthropy is also stepping in: the Greater Milwaukee Foundation's record $96.9 million 2025 grantmaking cycle is one of several regional foundations explicitly backfilling EJ work that lost federal support.

The Damages Track

The realistic post-September 30 path for grantees is the Court of Federal Claims. The Federal Tort Claims Act, the Tucker Act, and the Contract Disputes Act each provide potential vehicles depending on the legal form of the original award. Cooperative agreements and grants are not traditional contracts, but the Federal Circuit has recognized that grant agreements can give rise to property interests that are protected against arbitrary deprivation. Gergel's opinion does not establish a property interest, but it builds the administrative record that subsequent claims courts will rely on.

Damages litigation is slow. The recent Justice40-Adjacent Programs litigation following IRA rescissions has averaged 28 to 36 months from filing to judgment in the Court of Federal Claims. Grantees considering this path should engage counsel now and preserve documentation aggressively. The Southern Environmental Law Center, Earthjustice, and the Environmental Defense Fund have all signaled willingness to coordinate representation for nonprofit grantees pursuing damages claims.

The ruling is, on net, a partial win for grantees and a clear signal to the agency that the legal limits on summary terminations are narrower than the executive branch has been operating as if they were. It is not, on its own, enough to restart a $2.8 billion program with fifteen weeks left on the clock. The next motion is the one that matters.

Practical Next Steps for Granted Users

If you are a current ECJ grantee, search Granted for parallel state and foundation funding that can carry the work through the litigation period. If you are pursuing damages, search funder profiles for civil-rights and environmental-law nonprofits that fund grantee-side litigation costs. If you are a community-based organization that was building toward a future ECJ application, browse our environmental justice grant database for the state, regional, and foundation alternatives that remain active in 2026 and 2027.

The September 30 deadline is hard. The damages track is slow. The strategic question for every organization that built capacity around this program is which of those two clocks you are now operating under, and whether your funding pipeline can survive the gap between them.