States sue Trump administration over HUD homelessness grant rules

A grant fight returns to Rhode Island

A multistate coalition is back in federal court over the Trump administration’s latest attempt to reshape HUD homelessness grants, challenging a fiscal 2026 funding notice for the Continuum of Care program.davisvanguard The new case follows a June 29 ruling in Rhode Island that blocked key parts of HUD’s 2025 grant conditions, after the same court found the agency’s earlier restrictions unlawful.davisvanguard California Attorney General Rob Bonta joined 21 attorneys general and two governors in arguing that the 2026 notice again steers money away from permanent supportive housing.[0]

The Continuum of Care program is HUD’s main homelessness funding stream, distributing billions of dollars each year to state, local and nonprofit providers for housing and services.rhodeislandcurrent The states say Congress designed the program to protect renewals for permanent housing projects that already serve people who were homeless, including families, seniors, veterans and people with disabilities.rhodeislandcurrent

The dispute centers on Housing First

HUD’s June 1 notice sets aside about $1.3 billion for transitional housing and supportive-services-only projects, which the challengers say creates a de facto cap of roughly 68% on permanent housing funding.davisvanguard +1 The coalition says that shift would cut below the amount needed to maintain existing permanent housing projects and could put at least 97,000 residents of federally funded permanent housing at risk of losing their homes.justsecurity +1

The lawsuit also attacks scoring criteria that favor programs requiring participants to engage in treatment or other services before or alongside housing help.rhodeislandcurrent State officials argue those rules penalize providers that follow the Housing First model, which prioritizes stable housing without preconditions such as sobriety, income thresholds or mandatory treatment.phoenixnewtimes HUD has defended the overhaul by saying the older approach failed and that the 2026 competition should fund recovery, accountability and “results, not the status quo.”davisvanguard

Local systems could carry the costs

The plaintiffs are asking the U.S. District Court for the District of Rhode Island to declare the challenged conditions illegal and block HUD from enforcing them while the case proceeds.phoenixnewtimes They argue HUD violated the Administrative Procedure Act by making a major policy change without notice-and-comment rulemaking and by failing to explain its reversal from two decades of support for permanent housing.phoenixnewtimes +1

The projected effects vary by state but are politically potent. New Jersey officials say more than 1,300 residents there could lose housing under the new rules.rhodeislandcurrent Rhode Island reporting cited an estimate that the state could lose more than $5 million in permanent housing funding and put 441 people at risk of reentering homelessness.davisvanguard The case now tests whether HUD can quickly redirect a $4 billion grant competition after losing the prior round in the same federal court.davisvanguard +1