The Housing Crisis: States Sue HUD Over $1.3 Billion Shift Away From Permanent Housing

Daily Intel Report 7/11/22 | Listen Free 🎧 | Join the Effort 🫱🏻‍🫲🏾

Just weeks after winning a court victory blocking the Trump administration’s H to impose illegal conditions on billions of dollars in homelessness funding, a coalition of 21 states, the District of Columbia, and the governors of Kentucky and Pennsylvania is heading back to court. The new lawsuit challenges a $1.3 billion set-aside for transitional housing that advocates say would effectively cap funding for permanent supportive housing — threatening housing for at least 97,000 vulnerable Americans.

The Fight Over Continuum of Care Funding

At the center of this legal battle is the Continuum of Care (CoC) program, the federal government’s flagship initiative for funding affordable housing and services for individuals and families experiencing or at risk of homelessness. For more than two decades, HUD has followed a “Housing First” model — an approach that prioritizes rapid placement in permanent housing without requiring people to first meet conditions such as sobriety or a minimum income threshold.

The CoC program distributes approximately $4.04 billion annually to state, local, and nonprofit agencies to support housing and services for people facing homelessness. Well over 80% of CoC funds currently go to support permanent housing.

The Trump administration has rejected the Housing First model. HUD Secretary Scott Turner announced new terms on June 1, 2026, saying: “The ‘housing first’ experiment failed Americans by warehousing the vulnerable without results. This ideology promised to end homelessness. Instead, billions of taxpayer dollars were spent while homelessness increased to record levels.”

A Pattern of Legal Battles

This is not the first time states have sued HUD over these issues.

November 2025: A coalition of attorneys general sued the Trump administration to protect more than $3 billion in CoC funds that were jeopardized by illegal new conditions imposed by HUD. The administration imposed a cap on the amount of CoC funds that could support permanent supportive housing. If enacted, that cap would have slashed CoC funds for permanent supportive housing by two-thirds and put an estimated 170,000 people at risk of losing their homes.

June 29, 2026: U.S. District Judge Mary S. McElroy ruled in favor of the states, striking down HUD’s previous funding conditions. The judge found that HUD acted “arbitrarily and capriciously” and in violation of the Administrative Procedure Act. McElroy wrote that HUD’s explanation “gives little to no thought or analysis of the negative externalities created by its transition from a Housing First approach.”

April 2026: HUD abandoned its appeal of the preliminary injunction.

The New Lawsuit

Despite the court victory and Congress’ subsequent action protecting renewal funding for permanent housing projects, HUD issued a Fiscal Year 2026 CoC Notice of Funding Opportunity (NOFO) on June 1 that again limits funding for permanent housing.

The new NOFO sets aside approximately $1.3 billion for new Transitional Housing and Supportive Services Only projects. The coalition of states argues this functions as an unlawful cap on funding available for permanent housing renewal projects.

By setting aside that money, the federal government effectively caps permanent housing at around 68% of CoC funds — a significant reduction from the historical 90% share that has gone to permanent supportive housing.

The lawsuit was filed in the U.S. District Court for the District of Rhode Island on Tuesday, July 8.

The Human Cost

The National Alliance to End Homelessness estimates that HUD’s new funding approach could put at least 97,000 residents of CoC-funded permanent housing at risk of losing their housing.

The impact varies by state:

Washington state could see funding reduced by more than $37 million, cutting off support for 2,911 formerly homeless people who are now in housing.
King County, Washington, which has shaped its homelessness system around the Housing First model, could lose more than $22 million and housing for nearly 1,700 people.

The Legal Arguments

The coalition argues that HUD’s actions violate the Administrative Procedure Act for, among other things:

Failing to proceed with notice-and-comment rulemaking
Being arbitrary and capricious
Exceeding its statutory authority

The states are asking the court to declare the challenged provisions unlawful, vacate the challenged portions of the FY2026 NOFO, and issue preliminary and permanent injunctions preventing HUD from implementing them.

The lawsuit also challenges new scoring criteria that reward Continuums of Care for requiring participation in certain supportive services and substance use treatment as a condition of continued program participation — which plaintiffs contend conflicts with the statutory framework and HUD’s longstanding Housing First policies.

The Coalition

The lawsuit was filed by a coalition of 21 states, the District of Columbia, and the governors of Kentucky and Pennsylvania, co-led by Rhode Island Attorney General Peter F. Neronha.

The states include: Arizona, California, Colorado, Connecticut, Delaware, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New Mexico, New York, Oregon, Rhode Island, Vermont, Virginia, Washington, and Wisconsin.

HUD’s Defense

A HUD spokesperson responded to the lawsuit in a statement, saying the agency stands by its new funding rules: “Through our 2026 Notice of Funding Opportunity, we are opening the doors to competition and a balance of approaches, so we fund results, not just the status quo.”

HUD Secretary Scott Turner has been clear about the administration’s philosophy: “It is critical we focus on real solutions that lift Americans out of homelessness. We must abandon the failed ‘Housing First’ policies that have misused taxpayer-funded resources without any expectation of results and too often leave individuals trapped in addiction, untreated mental illness, and indefinite dependence on government systems.”

HUD also said the new NOFO would “prohibit funding the widespread use of illicit drugs and distribution of paraphernalia.”

The Response From State Attorneys General

State attorneys general have been unequivocal in their condemnation of HUD’s approach.

Rhode Island AG Peter Neronha: “The Trump administration consistently and constantly targets our most vulnerable Americans, and this case is no different. Those experiencing homelessness are in dire need of support, and these unlawful conditions on funding for permanent housing will cause tens of thousands of people to lose their homes.”

Michigan AG Dana Nessel: “This administration’s efforts to injure Michigan’s most vulnerable residents is exasperating. Time and again, we successfully block Trump’s illegal actions in court, only for his minions to pivot to a different unlawful tactic to dismantle vital services like housing assistance. Trump’s cruelty is the point.”

Connecticut AG William Tong: “Trump tried to impose drastic, cruel conditions on homelessness funding that would have thrown thousands of people out of their homes and onto the streets. We sued, we won, but now Trump is back at it again. His cruelty truly has no bounds.”

California AG Rob Bonta: “A federal court has already blocked HUD’s unlawful attempt to defund permanent housing projects that are home for more than 400,000 people. Congress has made clear that those projects must be funded at adequate levels. Instead of following the law, the Trump Administration is again trying to reverse HUD’s decades-long policy.”

Washington AG Nick Brown: “We think that the changes that they’re attempting to make here will really do some pretty severe damage to people.”

The Broader Context

This lawsuit is part of a broader pattern of the Trump administration using funding conditions to reshape policy across multiple areas.

In the housing sector specifically, HUD has also been sued over new conditions that bar CoC funds from organizations that acknowledge the existence of transgender or nonbinary individuals and exclude programs that provide services for mental disabilities.

What’s at Stake

Research has consistently shown that Housing First programs are the most effective strategy to keep people in housing. Advocates argue there simply haven’t been enough of these housing units to meet the level of need.

The judge who ruled against HUD last month put it this way: “[The] record reveals that HUD did not attempt to meaningfully forecast the harm caused by the disruption these NOFOs created at any point, most notably the instability faced by individuals who would undoubtedly experience homelessness because of this breakneck transition.”

The Bottom Line

The Trump administration is once again attempting to redirect federal homelessness funding away from proven permanent supportive housing programs toward transitional housing — despite a federal court ruling that its previous attempt was unlawful. A coalition of 21 states, the District of Columbia, and two governors is fighting back, arguing that HUD’s $1.3 billion set-aside for transitional housing would effectively cap permanent housing funding and put at least 97,000 vulnerable Americans at risk of losing their homes.

This is a pattern: lose in court, change the language, try again. The administration’s “cruelty is the point,” as one attorney general put it. But the states are not backing down. They are heading back to court to protect the most vulnerable among us.

What You Can Do Right Now

Find Out What’s Proposed in Your Community. Visit the HUD Exchange website, your state’s Department of Housing and Community Development, or your local Continuum of Care’s public notices. Search for how your community’s CoC funding is being affected. Get the documents.

Attend a Public Hearing. These hearings are often scheduled at inconvenient times and poorly publicized. That’s intentional. Show up anyway. Sign up to speak. Bring a neighbor. Your presence matters more than you think.

Connect With Groups Already Doing the Work. Organizations like the National Alliance to End Homelessness, the National Low Income Housing Coalition, and local housing advocacy groups offer resources, organizing guides, and direct support to communities fighting for housing justice. You do not have to start from scratch.

Make Your Voice Heard Locally. County commissions, city councils, and state housing agencies have more power over these issues than most people realize. Call them. Write them. Show up at their meetings. Ask them if they are protecting housing for the most vulnerable — or protecting a policy that puts people back on the streets.

Support the Fight For the People PAC. Support Democrats at every level of government and in every corner of the country who will fight for housing justice and an economy that works for everyone. Sign up to voluteer and/or chip in whatever you can at fightforthepeoplepac.com and democrats.org. Join the effort to make a better America. Be the voice.

Sources

The Spokesman-Review: “WA leads lawsuit to block Trump’s homelessness funding rules” (July 10, 2026)
Oregon Department of Justice: “Attorney General Rayfield Wins Case Protecting Billions of Dollars for States to Fight Homelessness” (June 30, 2026)
The Providence Journal: “Neronha co-leads coalition suing Trump administration over new housing policies” (July 8, 2026)
The Boston Globe: “R.I. leading multi-state lawsuit against Trump administration housing policy” (July 9, 2026)
CT HMIS: “Update on New Lawsuit Challenging FY2026 CoC NOFO” (July 8, 2026)
WSHU: “CT, NY sue HUD over permanent housing funding” (July 8, 2026)
Channel3000: “Wisconsin sues HUD over new rule on funds to combat homelessness” (July 8, 2026)
WLNS: “Michigan sues HUD over funding cap on permanent housing” (July 8, 2026)
Michigan Department of Attorney General: “AG Nessel Sues HUD to Block New Changes to Funding Addressing Homelessness” (July 8, 2026)
New Jersey Attorney General’s Office: “New Jersey Sues to Block Illegal Changes to Homelessness Funding” (July 7, 2026)
California Department of Justice: “Attorney General Bonta Files Supplemental Lawsuit Challenging Trump Administration’s New Funding Restrictions for Permanent Housing Projects” (June 29, 2026)
New England News Press: “Rhode Island joins new lawsuit over Trump administration’s homeless grant changes” (July 11, 2026)

Written and composed with AI.