New SBA Rule Preempts State and Local Land Use Standards
Today, January 29, 2026, the Small Business Administration (SBA) published an Interim Final Rule (IFR) that allows the federal government to preempt state and local requirements that “delay” disaster recovery projects funded by SBA Disaster Loan Program. This rule is effective immediately and applies to disaster loans approved nationwide on or after January 1, 2025.
The new IFR comes just days after President Trump issued an executive order (EO 14377) to essentially override the state and local permitting processes in California related to rebuilding efforts in the wake of the 2025 wildfires. However, the new IFR would apply nationwide.
In a Jan. 27 article, Politico called the EO “an unprecedented incursion by the federal government into disaster recovery” and legal experts it spoke to questioned the legality of such a move.
A Direct Challenge to State and Local Authority
Both the EO and the IFR fly in the face of the administration’s stated goal to shift more disaster responsibility to states.
In a nutshell, the IFR would:
- Authorize the federal government to preempt any state or local requirement that causes a more than 60-day delay for a SBA disaster loan recipient.
- Deem the preemption sufficient authorization to proceed with disaster-related reconstruction activities of the loan recipient without needing to obtain or comply with the preempted state or local requirement.
- Prohibit state and local government enforcement of stop-work orders, penalties, or enforcement actions against the SBA disaster loan recipient, any contractor, or subcontractor representing the recipient.
Although the SBA’s announcement states that the IFR “does not preempt any substantive state and local building requirements (e.g., building standards, health and safety requirements, inspections, or certificates of occupancy)” and “applies only where state or local permits or other approvals stand as obstacles to accomplishing the federal goal of rapid relief after a Presidentially declared disaster,” ASFPM views this rule as a significant federal overreach that undermines state and local authority.
“Essentially the IFR is saying that you can ignore local zoning codes, state and local environmental regulations and other state and local standards if those requirements somehow delay the recovery process more than 60 days. Who makes that determination? And what codes and standards will fall under that? While floodplain management regulations are largely tied to public health and safety, the IFR doesn’t explicitly list them as examples of non-preemptable requirements, so who knows?” said ASFPM Executive Director Chad Berginnis.
“This is a carte blanche ticket to trample on the rights of states and communities to determine their own future through appropriate land use and other standards. This IFR raises numerous legal and procedural issues and I have little doubt it will be challenged in court very soon.”
ASFPM is still gathering information about this new rule and reaching out to partner organizations. In the meantime, there are a few things you can do.
Immediate Action for Members:
- Notify Legal Counsel: Ensure your community’s legal department and State Attorney General are aware of this rule.
- Have a Plan for Dealing with SBA Loan Recipients: While we have significant concerns about the IFR’s ability to withstand legal challenges, you may encounter SBA applicants who try to use this rule to avoid obtaining local permits. Coordinate with your legal counsel and have a plan.
- Draft Comments: While the rule is now in effect, the comment period is open until March 2, 2026. ASFPM believes it is always good to build a public record of feedback on proposed federal rules.
Lastly, EO 14377 calls on both the SBA and FEMA to publish proposed regulations within 30 days and final regulations within 90 days. At this time, FEMA has not yet issued their rule on preempting state and local permitting authority.
