Federal Judge Vacates Trump Administration’s 2026 Homelessness Funding Plan

PROVIDENCE, R.I. — A federal judge on Friday struck down the Trump administration’s latest attempt to overhaul billions of dollars in federal homelessness funding, ruling that the U.S. Department of Housing and Urban Development failed to follow legally required procedures before shifting resources away from permanent housing programs.

U.S. District Judge Mary S. McElroy of the District of Rhode Island set aside HUD’s 2026 Notice of Funding Opportunity in its entirety, finding that the agency violated the Administrative Procedure Act by failing to conduct the public notice-and-comment process required under federal homelessness law.

The ruling marks another legal setback for the administration’s effort to move federal homelessness policy away from the Housing First model, which prioritizes getting people into permanent housing without first requiring participation in treatment or other services.

The court noted that HUD’s 2026 funding announcement sought to move away from Housing First in favor of temporary housing assistance and programs conditioning housing on beneficiaries meeting certain criteria.

The National Homelessness Law Center said the funding changes could have resulted in approximately 97,000 people losing access to housing.

The court itself cited the plaintiffs’ allegation that HUD’s $1.3 billion funding set-aside would divert resources previously available for permanent housing into new programs and result in roughly 97,000 people experiencing homelessness.

“Housing solves homelessness, makes communities safer, and enables us all to thrive,” said Antonia Fasanelli, executive director of the National Homelessness Law Center. “It’s time for the Trump administration to focus on addressing the out-of-control cost of housing, which remains the number one cause of homelessness nationwide, instead of promoting harmful policies that will only make homelessness worse.”

“We applaud the court’s decision,” Fasanelli continued. “Today’s victory, which comes amidst coordinated attacks on our homelessness neighbors, strengthens our resolve to ensure that everybody has the housing, care, and support they need to flourish.”

The litigation was brought by a coalition that includes the National Alliance to End Homelessness, National Low Income Housing Coalition, Crossroads Rhode Island and Youth Pride Inc., along with Santa Clara County, California; King County, Washington; and the cities of Boston, Cambridge, Nashville and Tucson.

The plaintiffs challenged HUD’s fiscal year 2026 Continuum of Care funding announcement, part of a federal program distributing more than $4 billion to local governments and nonprofit organizations working to address homelessness.

At the center of the dispute was HUD’s decision to establish a $1.3 billion set-aside for new projects emphasizing transitional housing and enrollment in supportive services.

McElroy found that because those priorities departed from categories of permanent housing already identified in federal law, HUD was required to use a public notice-and-comment process before incentivizing the new approach.

“The Court’s review of the record and the parties’ arguments reveal that HUD’s issuance of the 2026 NOFO violates the APA based on HUD’s failure to engage in the notice-and-comment process required by the MVA,” McElroy wrote.

Federal law identifies permanent supportive housing for chronically homeless people and families, as well as rapid rehousing and related services for homeless families, among strategies proven effective at reducing homelessness.

For other activities, the law permits the HUD secretary to determine that they are effective based on research and after public notice and comment.

HUD argued that the $1.3 billion set-aside did not constitute a bonus or incentive requiring the process, an argument the court rejected.

“The Court rejects the idea that creating a separate category of funding that exceeds one billion dollars does not ‘incentivize’ potential grant recipients to prepare applications that would allow it to receive this funding,” McElroy wrote.

The judge added that setting aside such a large amount of federal grant funding “undoubtedly incentivizes grantees to conform their CoC programs to HUD’s goals in order to obtain a realistic chance of obtaining this funding.”

HUD also contended that public announcements and opportunities for public feedback amounted to sufficient notice and comment.

McElroy rejected that position, noting that notice and comment refers to a formal administrative procedure that gives interested people an opportunity to submit written data, views or arguments.

The court characterized HUD’s contention that it could instead use an informal version of that process as lacking support in the federal statute, concluding that the procedural defect required the entire 2026 funding announcement to be set aside.

The dispute follows earlier litigation over HUD’s November and December 2025 funding announcements. In June, the same court vacated those announcements after determining that HUD had violated the Administrative Procedure Act through arbitrary and capricious agency action.

The 2026 funding announcement represented another effort by HUD to move away from Housing First, but instead of directly limiting renewal funding for permanent housing, the agency created the $1.3 billion set-aside for new projects emphasizing transitional housing and supportive services.

Advocacy organizations challenging the policy argued that the new funding structure would jeopardize existing permanent housing projects regardless of their effectiveness.

They also challenged provisions requiring grant recipients to comply with administration executive orders involving diversity, equity and inclusion initiatives, transgender and nonbinary identities, and cooperation with federal immigration enforcement.

Because McElroy found the 2026 funding announcement procedurally invalid, however, she declined to decide the plaintiffs’ remaining challenges to the funding announcement or allegations involving the Office of Management and Budget.

Ann Oliva, CEO of the National Alliance to End Homelessness, said communities across the political spectrum depend on federal support for homelessness programs.

“Communities across this nation — in states both red and blue — rely on the federal government to support smart, strategic, lawful, and evidence-based funding opportunities to support their efforts to end homelessness,” Oliva said. “This decision further reinforces that this administration has repeatedly failed to meet that responsibility.”

“On behalf of the providers, system leaders, and people experiencing homelessness that we represent, we applaud the Court’s decision,” Oliva added.

Renee M. Wills, president and CEO of the National Low Income Housing Coalition, said the ruling protects more than individual grant recipients.

“This victory represents more than a legal outcome. It protects the integrity of our nation’s response to homelessness and allows communities to focus on serving people rather than facing unlawful barriers,” Wills said. “Everyone—regardless of income status—deserves the dignity and security of a safe and stable home, and today’s ruling brings us closer to that goal.”

Michelle Wilcox, president and CEO of Crossroads Rhode Island, said permanent housing and rapid rehousing remain essential as homelessness stays near record levels.

“We applaud the court’s decision in once again recognizing that the conditions imposed in HUD’s NOFO were unlawful,” Wilcox said. “At a time when homelessness remains at near record levels both here in Rhode Island and nationwide, it is critical that federal resources remain focused on proven solutions, including permanent housing and rapid rehousing, which help people move out of homelessness and rebuild their lives.”

Cambridge City Manager Yi-An Huang warned that disruption of Continuum of Care funding would have immediate consequences for vulnerable residents.

“Disrupting these critical resources would have meant more families not having a place to sleep, more individuals left without stability or care, and a deeper strain on our community that is already working tirelessly to protect its most vulnerable,” Huang said.

King County Executive Girmay Zahilay said the decision protects permanent supportive housing and other programs used by thousands of people in the Washington county.

“Protecting Continuum of Care funding is a top priority, and we’re pleased that the court blocked the Trump administration’s rushed, politicized, and unlawful attempt to rewrite the rules,” Zahilay said.

Santa Clara County Counsel Tony LoPresti said HUD must follow legally mandated procedures if the agency wants to change longstanding homelessness policy.

“HUD’s repeated attempts to ignore decades-old, evidence-based approaches to combatting homelessness risk doing immense harm to our communities,” LoPresti said. “If HUD wants to move in a different direction, it has to follow the required steps that provide for transparency and public input.”

“It has completely failed to take those steps,” LoPresti added. “We will continue to go to court to remind HUD that we live in a nation of laws.”

Skye Perryman, president and CEO of Democracy Forward, characterized the ruling as an important protection for federal housing assistance.

“This is an important victory to protect key federal support for people trying to secure housing,” Perryman said. “The housing and safety of hundreds of thousands of people was cruelly put in jeopardy by an administration that refuses to abide by the law and allow our democracy to function as major decisions are made.”

Steven Brown, executive director of the ACLU of Rhode Island, said the ruling protects organizations providing housing and services.

“We are pleased the court has once again decided to rule with the organizations and municipalities that are providing the resources and housing for every-day people when they need it the most,” Brown said.

Amy R. Romero, chief legal counsel of the Lawyers’ Committee for Rhode Island, said the decision reinforces procedural safeguards governing federal funding decisions.

“We are pleased with this court’s decision that recognizes that the administration violated the law by imposing their political whims, ignoring the fundamental requirements of notice and comment, on federal funds critical to addressing the needs of individuals and families experiencing homelessness,” Romero said.

The court did not grant everything the plaintiffs requested. McElroy denied their request for a permanent injunction that would have prevented HUD from imposing the disputed conditions in a future funding announcement.

The judge concluded that HUD could potentially issue another funding announcement containing the conditions after completing the required notice-and-comment process, making a permanent injunction inappropriate based on speculative future harm.

For now, however, the 2026 funding announcement cannot proceed.

“The Court therefore sets aside HUD’s issuance of the 2026 NOFO in its entirety as violative of the APA,” McElroy concluded.

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Categories: Breaking News Homelessness National Issues Tags: Continuum of Care Homelessness Housing First HUD Trump Administration