It doesn't appear in the letter, but is mentioned in the article. The letter also states that there are "more" policies that need to be defunded.

These policies encompass bans on pride flags, prohibitions on insurance coverage, restrictions on DEI programs, and even the defunding of children’s hospitals that offer gender-affirming care.

I see no mention of banning pride flags on this ludicrous list of demands, either.

There are some states that want to ban displaying all “unofficial” flags on publicly funded buildings such as schools and embassies; this would theoretically prohibit pride flags, BLM flags, flags supporting or opposing other nations, religious flags, NRA flags, nazi flags, stars and bars, or any flags that symbolize an ideology apart from the flags of federal, state, and local governments.

It doesn’t apply to non-government buildings, so churches, businesses, private residences that aren’t controlled by HOAs, etc, would still be able to display the flags of their choice.