By Jayden Park
For more than two decades, the federal government’s primary tool for funding local homelessness services has been the Continuum of Care (CoC) Program, which every year channels billions of dollars to nonprofits, cities, and states through HUD. Since 2025, however, that funding stream has been caught in an escalating legal fight between the Trump administration and a coalition of mostly Democratic-led states.
In July 2025, the White House issued an executive order directing federal agencies to treat homelessness primarily as a public safety issue, encouraging steps such as encampment bans. The United States Department of Housing and Urban Development (HUD) followed with a notice of funding opportunity that capped the share of CoC funding at 30 percent, a sharp break from the “Housing First” model, which prioritizes moving people into stable housing quickly on the basis that other problems are easier to address once someone is no longer on the street.
Homelessness services administrators described the change as chaotic. Grantees were asked to pivot away from permanent housing programs, some of which had two-year contracts signed in 2024, within weeks and during the holiday season. According to interviews conducted with dozens of CoC administrators nationwide, the new rules were vague enough that providers could not tell whether things like a 40-hour-per-week supportive-services requirement meant classes, staffing coverage, or something else entirely, and many said HUD’s own guidance webinars did little to clarify the confusion, with one administrator describing the sessions as unhelpful because presenters did not seem to understand their own policies. Some CoCs laid off staff, delayed hiring, or closed housing developments altogether.
A coalition of homelessness advocacy groups, local governments, and states sued the federal government, arguing the November Notice of Funding Opportunity (NOFO) was unlawful because it severely slashed funding for Permanent Supportive Housing in favor of transitional housing. With this, a federal judge in Rhode Island issued a preliminary injunction blocking the NOFO on December 19, 2025. The HUD then issued a revised version of the notice, which the same court temporarily halted days later. In April 2026, a federal appeals court upheld that block, warning that implementing HUD’s proposed conditions would be severely disruptive. It is clear that acts of opposition began to set the stage for a legal dispute.
In a statement responding to the ruling, the agency said it remained committed to overhauling what it called a failed Housing First approach, and in June 2026, the HUD announced that the 2026 CoC funding notice would be published by June 1 with awards made by December 1. HUD Secretary Scott Turner has argued that decades of Housing First spending failed to reduce homelessness and that the government recorded a record number of unhoused people nationwide in 2024.
The HUD’s unwillingness to alter its approach sparked another wave of lawsuits. On July 7, a coalition of 24 states and the District of Columbia, led by Washington, New York, and Rhode Island, filed a new lawsuit in Rhode Island federal court arguing the set-aside still violates the Administrative Procedure Act and the McKinney-Vento Homeless Assistance Act’s requirement that HUD prioritize renewing existing housing projects. The National Alliance to End Homelessness estimated the change would put at least 97,000 people in CoC-funded permanent housing at risk of losing it, including nearly 24,000 in New York and California alone. Virginia Attorney General Jay Jones, whose state joined the suit, said the administration’s continued targeting of HUD funding undermines family and community stability. Many lawsuits similar to this exist nationwide, with varying levels of success.
For Continuums of Care across the country, the practical effect of this back-and-forth has been less about any single ruling and more about uncertainty regarding whether funding can be sustained nationally. With HUD’s 2026 NOFO now in effect and a new multistate lawsuit challenging it, the fight over how nearly $4 billion a year in federal homelessness funding gets distributed is far from resolved, and the outcome will shape whether hundreds of thousands of formerly homeless Americans keep the housing they currently rely on, as well as the effort to mitigate homelessness in the upcoming years.
References:
Chau, T. (2026, July 6). Court blocks Trump administration changes to homelessness funding. CT Mirror. https://ctmirror.org/2026/07/06/continuums-of-care-funding-change-blocked-lawsuit/
Grainger, G. L. (2026, April 20). “A grim march toward death”: What HUD’s new homeless policy looks like on the ground. Shelterforce. https://shelterforce.org/2026/04/20/what-huds-new-homeless-policy-looks-like-on-the-ground/
Ludden, J. (2026, April 1). Appeals court rejects HUD homelessness overhaul, saying it would be ‘disastrous’. NPR. https://www.npr.org/2026/04/01/nx-s1-5770629/appeals-court-rejects-hud-homelessness-overhaul
Luetkemeyer, R. (2026, July 7). Multistate coalition sues federal government over ‘unlawful’ homeless funding conditions. Courthouse News Service. https://www.courthousenews.com/multistate-coalition-sues-federal-government-over-unlawful-homeless-funding-conditions/
Office of the Attorney General of Virginia. (2026, July 13). Virginia joins suit to stop Trump administration from blocking funding addressing homelessness [Press release]. https://www.oag.state.va.us/media-center/news-releases/3074-virginia-joins-suit-to-stop-trump-administration-from-blocking-funding-addressing-homelessness
U.S. Department of Housing and Urban Development. (2026, April). HUD moving forward on bold homelessness reform (Press Release No. 26-031). https://www.hud.gov/news/hud-no-26-031