New York and Eleven States Sue Trump Administration Over $300 Billion Gender Policy Funding Rule

States’ battle with Washington over billions in funding spotlights the growing clash between social policy and federal power.

One does not normally expect the fate of $300bn to hinge on an ideological dispute over the definition of sex and gender. Yet New York, together with eleven other mostly Democratic-run states, has launched a legal action that could determine access to a sum rivalling the GDP of Chile. On June 11th, this unlikely drama began playing out in a federal court in Rhode Island, where the coalition seeks to block Trump administration rules tying critical federal grants to a binary, “biological sex” framework.

The states’ lawsuit, spearheaded by New York Attorney General Letitia James, challenges what it terms a “novel and ambiguous funding condition.” A recent directive from the US Department of Health and Human Services (HHS)—rooted in a January executive order—mandates that federal grant recipients recognise only two biological sexes, removing all references to gender identity or “gender ideology” from policy and official papers. The threat is clear: comply, or risk losing a share of over $300bn in health, education, and scientific research funding.

For New York, the stakes run especially high. Its vital institutions—including medical schools, teaching hospitals and public health agencies—stand to forfeit some $80bn annually should they flout the new grant criteria. These funds underpin everything from research at Rockefeller University and Columbia Medical School to HIV prevention clinics and social-work training programmes across the boroughs. To implement the federal order, several HHS agencies—including the Health Resources and Services Administration and Centers for Medicare and Medicaid Services—rewrote grant rules, igniting alarm among hospital directors and university administrators.

The implications for New Yorkers are, at its core, both financial and personal. Stripping away support for facilities that train the city’s next generation of clinicians, or that conduct research on intractable diseases, threatens to hobble a health-care sector already battered by post-pandemic attrition. Untethered from federal dollars, flagship programmes to reduce maternal mortality, combat opioid addiction, or develop resilience in urban schools could see their funding evaporate. Meanwhile, transgender and non-binary New Yorkers—who now constitute some 2% of the city’s youth, by city health estimates—face the prospect of losing legal and practical recognition across services as diverse as elder care and public housing.

There are second-order effects, too. Such federal-state tussles portend a broader realignment, where social policies—once quietly settled in agencies or courts—are increasingly leveraged as fiscal cudgels. Governments in Albany, Sacramento and Olympia have begun to reckon with the possibility that Washington could use the purse strings to upend long-standing policies on not just gender, but also reproductive health, data privacy, and education. The potential knock-on effects are not merely bureaucratic. As health economists point out, a sudden retraction in federal research grants could sap New York’s buoyant biotech sector, which depends on grants for medical breakthroughs, job creation, and attracting global talent.

Politically, the move has stoked the combustion that now characterises debates over “states’ rights” and civil liberties. To supporters of the federal rule—whose architects in the Trump administration cast it as a common-sense reversion to “biological realities”—the new order promises clarity and, perhaps, a cudgel against what they term overreach by progressive localities. Detractors, led by Ms James and a coterie of west coast counterparts, see it as a draconian attempt to dictate values via financial coercion. Polls suggest New Yorkers remain solidly in favour of transgender rights and inclusion, with Siena College reporting a 65% approval rate for state laws upholding such protections.

Funding, federalism and a fight over values

The legal manoeuvering in New York echoes battles elsewhere, as the US becomes a Rorschach test for national identity. Last December, New York joined 18 states in challenging proposed rules that would have nixed Medicare and Medicaid cash for hospitals furnishing gender-affirming care—a suit still winding through the district courts. While the numbers in these cases are gargantuan, the legal terrain remains treacherous. American courts have long recognised Congress’s prerogative to attach “reasonable conditions” to federal dollars. But the doctrine, famously articulated in South Dakota v. Dole (1987), also frowns on “coercive” conditions that strong-arm states to abandon core policies—lines that both sides now claim to defend.

Globally, America’s row over the terms of health and research spending may seem quixotic. Most OECD countries maintain central health funding with robust anti-discrimination protections; funding threats over social policy are rare outside Hungary or Poland. The American model, which leaves states both dependent on and locked in combat with federal largesse, is unique in scale and spectacle. That the world’s wealthiest big city might see its medical research or STEM education defunded over disputes about terminology would strike most European health ministers as quaint, if not faintly absurd.

For now, most New Yorkers can only wait as the courts begin their ponderous work. A verdict against the states would force hard tradeoffs, either in reshaping longstanding equity policies or in quietly accepting a cascade of budget shortfalls. A win, conversely, would bolster the hand of states hoping to resist an emboldened federal government on cultural issues—though it would almost certainly prompt a countermove in Congress, or the next administration.

The merits of the case—and of attaching sweeping ideological tests to federal grants—deserve scrutiny. One need not possess radical views on gender to see the perils in wielding hundreds of billions as a cudgel. Federal spending is an unwieldy tool with which to police philosophical divides among a nation as diverse as the US. Ultimately, the courts must decide whether such directives overstep both precedent and prudence.

A city built on pluralism and evidence-driven policy, New York now finds itself again at the crossroads of identity, autonomy and the challenge of funding the common good. On current form, the battle may outlast not only this round of litigation but several political cycles—and perhaps, regretfully, some vital research grants too. ■