Contractors install solar panels on the roof of a house in Oregon. (Photo courtesy of Oregon Department of Energy)
Oregon Attorney General Dan Rayfield and the attorneys general and governors of 18 other states are suing federal energy officials over a new policy meant to cut funding for staff who work on sustainable energy and energy efficiency projects across the country.
The states filed their lawsuit against the U.S. Department of Energy and its leader, Chris Wright on Friday in U.S. District Court in Eugene. States argue that a new rule mandating that “indirect” and “fringe” costs for State Energy Program projects — such as staff salaries, health insurance and pensions — cannot exceed 10% of overall project costs is arbitrary, against the law, and will lead to needless job losses and project terminations. Officials from the U.S. Department of Energy did not respond to a request for comment by Monday evening.
The federal grants help state energy agencies pay for the design, development and execution of renewable energy projects and energy efficiency programs. The grants fund electric vehicles for state and local governments and public transit, state-sponsored home weatherization programs, energy affordability programs for low-income residents, emergency preparedness and state energy planning.
Last year, Oregon received about $786,000 in federal grants through the program, according to Rayfield’s office. Most of the money paid for on-the-ground project costs, but nearly half — about $333,000 — went to indirect and fringe costs, such as project staff salaries, as well as health and retirement benefits.
Oregon Attorney General Dan Rayfield speaks to an attendee at a town hall in Phoenix, Arizona on March 5, 2025. (Photo by Jerod MacDonald-Evoy/Arizona Mirror)
“Oregonians count on these programs to keep our homes energy-efficient, our air clean and our bills manageable,” Rayfield said in a statement. “This cap strips away the resources we need to keep that work going — and the people and expertise behind it. We can’t meet Oregon’s energy needs if the federal government pulls critical infrastructure that supports the people and expertise behind this work midstream.”
Other federal agencies have recently attempted to impose similar overhead caps on federally funded projects at colleges that receive grants from the National Institute of Health, National Science Foundation and Department of Defense. All were blocked in court.
Rayfield is joined in the latest suit by the attorneys general of California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maine, Maryland, Michigan, Minnesota, Nevada, New Mexico, New York, North Carolina, Washington, Wisconsin and the District of Columbia, as well as Kentucky Gov. Andy Beshear and Pennsylvania Gov. Josh Shapiro.
No more negotiation
Typically, states negotiate with the U.S. Department of Energy to land on a percentage of project costs that can be spent on staff and benefits. The minimum is 15% and the maximum in some states, depending on the year and the project, can be as high as 45%.
The Colorado Energy Office last year negotiated with the federal energy department a deal that allows indirect costs to be no more than 43.6% of the project budget. In April, the office submitted its annual application for State Energy Program grants, but in May, learned that Wright and other agency officials had decided to cap overhead costs on projects.
By July, state energy officials in Colorado and several other states learned their applications had been rejected and were told to submit revised budgets with a 10% cap on indirect and fringe costs.
Colorado’s energy agency stands to lose about $367,000 in expected funding if the 10% cap on indirect and fringe funding isn’t lifted, which would lead to staffing cuts across several teams, according to the lawsuit.
Minnesota stands to lose about $290,000 in the next year if the cap is not lifted.
“To cover this shortfall, Minnesota will need to reduce staff paid by these funds and use available funds from other programs more quickly than otherwise planned, leading to budget constraints that will impact the state’s ability to meet its statutory energy efficiency and renewable energy objectives,” the suit reads.
Kentucky stands to lose $230,000 per year, according to the lawsuit. That’s money the state sends to electric cooperatives and to non-profits helping Kentuckians improve home and business energy efficiency and affordability. The state also sends State Energy Program funds to universities that provide technical assistance and expertise for sustainable energy projects and initiatives, such as community microgrids and nuclear energy development.
“This will impair the Commonwealth’s ability to support essential employees’ direct costs and may result in increasing costs should the state move to alternative employment arrangements,” the suit reads.
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