A coalition of states is suing the Trump administration for placing caps on federal reimbursements for a bevy of energy programs.

On May 8, the Department of Energy (DOE) released a “Policy Flash” outlining a “maximum allowable dollar amount” expressed as a percentage of the total project funding that will cover allowable, allocable, and reasonable indirect costs. The memo advised states and local governments that the reimbursement cap is set at “10 percent,” covering all indirect and fringe benefit costs.

Amid the bureaucratic language, state plaintiffs argue that this policy undermines important state-run programs, potentially increasing expenses for residents in the impacted states.

On Friday, through a 38-page lawsuit, 19 states and the District of Columbia petitioned a federal judge in Oregon to nullify the policy, label it as “unlawful,” and prevent its enforcement.

Leading the plaintiffs, New York Attorney General Letitia James asserts that the lawsuit is crucial because the funds provided by the DOE support critical state services and programs. The new policy would unlawfully restrict these funds, negatively impacting renewable energy efforts.

In practical terms, “indirect” costs refer to essential administrative or personnel expenses necessary for operating federally funded programs, while “fringe” costs relate to the benefits provided to program staff.

“Because indirect and fringe costs awarded by the DOE to Plaintiff States fund crucial work like supporting energy security, lowering energy costs, reducing greenhouse gas pollution, and enabling the transition to clean energy sources, Plaintiffs bring this action to protect their states and institutions from DOE”s unlawful policy,” the lawsuit reads.

The plaintiffs claim DOE’s “historical practice” is to award indirect costs and fringe benefits to state energy agencies – and that the agency has long “accepted” those agencies’ “negotiated indirect cost rates with other cognizant federal agencies.”

In other words, the states have long received federal support for myriad energy programs. Now, they say, the Trump administration is abruptly trying to limit such support under a hard dollar amount.

The states say this change directly violates an Office of Management and Budget (OMB) regulation that says “a federal award be comprised of all allowable direct costs and allocatable indirect costs,” according to the lawsuit. The proposed change would also violate an OMB regulation requiring the federal government to “accept” state “agencies’ negotiated indirect cost rates,” the plaintiffs claim.

The upshot of this will be increased costs for consumers – with significant damage to renewable energy programs, the lawsuit says.

From the filing, at length:

Plaintiff States will be harmed by the Policy Flash because their State agencies cannot sustain DOE-sponsored grants if the maximum reimbursable dollar amount for indirect and fringe costs is capped at 10% of the total award amount. Plaintiff States rely on these grants to implement clean energy generation and energy efficiency projects; fund weatherization assistance grants to help reduce energy bills for income-qualified residents; provide technical assistance and modeling support for state energy planning processes; and support emergency preparedness efforts, including nuclear emergencies. Plaintiff States’ agencies will not be able to maintain these programs and activities at current levels and may be forced to abandon numerous projects and lay off staff.

“If allowed to stand, the cap would strip away the resources states rely on to keep programs operating and ensure federal dollars reach the people they are meant to help,” James’ office added in a press release. “It would force states to make deep cuts to staffing and operations, sharply reducing their ability to deliver energy efficiency rebates, technical assistance, and weatherization services to households and small businesses. Projects to modernize the electric grid, expand renewable energy, and strengthen resilience against extreme weather could be delayed or cancelled.”

Each of the states lay out their own cases for what the cuts are likely to do to their budgets and renewable energy programs.

“[F]or example, the loss to Colorado would be approximately $367,000,” the lawsuit goes on. “If applied, the Colorado Energy Office will not be able to adequately support its current staffing needs across several teams. This will severely interfere with Colorado’s ability to promote energy efficiency and implement renewable energy across the state, as implementation of the Policy Flash will be deeply damaging to CEO’s ability to staff ongoing programs to support energy security, lower energy costs, reduce greenhouse gas pollution, and enable a state-wide transition to clean energy.”

The litigation is premised on two violations of the Administrative Procedure Act, the federal statute governing agency actions.

The lawsuit notes that four times since President Donald Trump returned to the White House, four different courts have “swiftly intervened” and chastised federal agencies – including the DOE – for issuing caps on the recovery of indirect costs, each time “enjoining or vacating these policies as unlawful on these same grounds.”

“Attorney General James and the coalition argue that the new policy is unlawful, violating federal regulations that require agencies to honor negotiated indirect cost rates between states and the federal government, mirroring similar caps that federal courts have recently struck down,” the press release goes on. “The attorneys general emphasize that every court to have ruled on the merits of such blanket limits has found them unlawful, unjustified, and disruptive to essential public programs.”