Trump Freezes $26bn for Democratic States as Shutdown Deepens

The U.S. government shutdown has entered its second day with mounting tension after President Donald Trump’s administration froze $26 billion in federal funding earmarked for Democratic-led states, a move that has sparked outrage, fears of job losses, and warnings of long-term economic damage.

The suspended funds include $18 billion for New York infrastructure projects, notably the Hudson River rail tunnel and the Second Avenue subway extension, as well as $8 billion in green energy grants for 16 Democratic-run states including California, Illinois, and Washington.

Officials linked the freeze to concerns that states applied for the funds using diversity, equity, and inclusion (DEI) criteria, which the White House argues are unconstitutional.

Democratic leaders denounced the decision as politically motivated. Senate Minority Leader Chuck Schumer described it as “using Americans as pawns in a partisan game,” while House Minority Leader Hakeem Jeffries warned it would “devastate communities and stall critical progress.”

Governors in the affected states are considering legal action, citing violations of the 1974 Impoundment Control Act, which restricts a president’s power to withhold congressionally approved funds.

The funding halt comes amid a shutdown triggered by Congress’ failure to pass appropriations bills before October 1. The impasse has forced 750,000 federal workers into furlough, while essential services continue under strain.

Vice President JD Vance has warned of further layoffs if the stalemate persists.

Business leaders and labor groups have voiced alarm, noting that the suspended infrastructure and energy projects support tens of thousands of jobs. Economists caution that a prolonged freeze could ripple across local economies, delay green transition goals, and erode investor confidence.

Even some Republicans have expressed unease.

Senator Thom Tillis said the freeze risks “complicating negotiations and worsening the gridlock,” while others privately worry it could harm the party ahead of the 2026 midterms.

With lawsuits looming, stalled negotiations in Congress, and growing pressure from workers and businesses, the situation underscores the high stakes of the shutdown. For now, millions of Americans in Democratic states are caught in the middle of a political battle that shows no sign of resolution.