A federal appeals court on Wednesday ruled the Trump administration’s threat to deny federal grants to jurisdictions with so-called “sanctuary” policies is unconstitutional.

The 9th U.S. Circuit Court of Appeals ruled in favor of a lower judge’s ruling for the city of San Francisco and Santa Clara County in California. The two jurisdictions sued President Donald Trump in February after he signed an executive order putting the country’s local governments on notice that they would lose federal funding if they refused to cooperate with federal immigration enforcement.

“We conclude that, under the principle of separation of powers and in consideration of the spending clause, which vests exclusive power to Congress to impose conditions on federal grants, the executive branch may not refuse to disperse the federal rants in question without congressional authorization,” Judge Sidney Thomas wrote in the ruling opinion.

The three-judge panel, though, said District Judge William Orrick III of San Francisco went too far in November when he ruled to permanently block the executive order. The appeals court removed the injunction, saying that though it agrees with relief for San Francisco and Santa Clara County, the judge wasn’t within his power to implement a nationwide injunction.

In its lawsuit, San Francisco said Trump’s orders violate the Constitution’s provisions protecting state rights, which extend to cities.

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San Francisco City Attorney Dennis Herrera said San Francisco could lose $1.2 billion a year in federal funding, which is mostly used for healthcare, nutrition and other programs for the city’s poor. The city has had a sanctuary policy since 1989.

In June, the Justice Department asked the Supreme Court to stay a ruling by District Judge Harry D. Leinenweber in Chicago which blocked Trump’s sanctuary city executive order.

Trump said some of the people protected by sanctuary policies include “bad actors,” “predators,” “rapists” and “killers” during a sanctuary cities roundtable event in March.

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