I think you've misread the part about the grants. Its not that they're being taken back, its that the state law would prohibit the state university from underta

I think you've misread the part about the grants. Its not that they're being taken back, its that the state law would prohibit the state university from undertaking the actions the federal grants are for. Since the university can't undertake the actions the money was given for, it must return the money. Any money already spent towards the grant goals would, I suspect, need not be returned.