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August 18, 2025
LANSING – Michigan Attorney General Dana Nessel has joined 18 other states and the District of Columbia in suing to block the U.S. Department of Energy (DOE) from imposing a new funding cap that slashes support for vital state-run energy programs (PDF). The DOE policy would prevent states from using critical federal funds by limiting reimbursement for key administrative and staffing costs that have long been covered by these federal energy programs. The coalition argues that by capping certain funding for these programs, DOE is jeopardizing states’ ability to keep them running. The states are asking the court to vacate this unlawful cap and restore the legally required reimbursement rates for these essential energy programs.
“This is not the first time we’ve seen the Trump Administration try to unlawfully take resources away from Michigan and other states – and unfortunately, it probably won’t be the last,” Nessel said. “Each one of these attempts has put critical programs at risk, from cutting-edge medical and public health research to the implementation of renewable energy and energy efficiency initiatives. Thankfully, we’ve successfully stopped these illegal actions before and plan to do so again to protect Michigan’s vital energy programs.”
For decades, federal law has required federal agencies like DOE to negotiate agreements with states that set fair reimbursement rates for federally funded, state-run programs. This includes the basic administrative or staffing costs needed to run federally funded programs. These “indirect” and “fringe” costs have never been subject to a cap. On May 8, 2025, DOE announced a new policy that ignores this longstanding practice, capping indirect and employee benefit costs at 10 percent of a project’s total budget, regardless of previously negotiated rates.
If allowed to stand, the cap would limit resources states rely on to keep programs operating and ensure federal dollars reach the people they are meant to help. It could force states to make cuts to staffing and operations, reducing their ability to deliver crucial energy services and potentially delaying or cancelling key projects. State budgets would face sudden shortfalls, and agencies would be forced to spend more time and money navigating DOE’s new budget rules, leaving fewer resources for direct consumer assistance.
The states argue that the new policy violates federal regulations that require agencies to honor negotiated indirect cost rates between states and the federal government. They assert the policy mirrors similar caps that federal courts have recently struck down, and also additional federal regulations regarding fringe costs. The coalition emphasizes that every court to have ruled on the merits of such blanket limits has found them unlawful, unjustified, and disruptive to essential public programs.
The coalition is asking the court to vacate DOE’s new policy and bar implementation of any unlawful reimbursement caps.
Joining Attorney General Nessel in filing this lawsuit are the attorneys general of California, Colorado, Connecticut, Delaware, Hawai‘i, Illinois, Maine, Maryland, Minnesota, Nevada, New Mexico, New York, North Carolina, Oregon, Washington, and Wisconsin, and the District of Columbia, as well as the governors of Kentucky and Pennsylvania.
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