Federal Court Vacates HUD's 2026 Homelessness Funding Overhaul, Blocking Shift Away From Permanent Housing

On August 7, a federal district court in Rhode Island vacated HUD’s 2026 Continuum of Care funding notice, blocking a sweeping overhaul that would have shifted billions in annual homelessness grants away from permanent housing and toward temporary services carrying new political conditions. The ruling — issued by U.S. District Court Judge Mary S. McElroy, a Trump appointee who granted summary judgment in National Alliance to End Homelessness v. Turner — held that HUD violated the Administrative Procedure Act by failing to conduct the mandatory public notice-and-comment process before issuing the revised Notice of Funding Opportunity.

The sums involved are substantial: the Continuum of Care program distributes over $4 billion in annual grants to communities across the country. HUD’s 2026 NOFO restructured those grants in ways that marked a significant departure from the program’s existing framework — most notably by setting aside $1.3 billion exclusively for new projects.

That set-aside was earmarked for approaches Democracy Forward’s account describes as unproven strategies that would come at the expense of the permanent housing programs Congress directed HUD to prioritize. Permanent supportive housing and Housing First models have been the backbone of federal homelessness policy for years, and communities had structured their grant applications accordingly. The 2026 NOFO would have directed a significant portion of funding toward temporary and transitional services instead — shifting the federal posture on where and how that money should be spent without the public deliberation the APA requires.

The political conditions attached to the funding were equally consequential. The NOFO attempted to force grantees to comply with recent executive orders on DEI, transgender identities, and immigration enforcement — including requirements to cooperate with immigration authorities and to reject non-binary sex definitions as a condition of receiving homelessness funds. For local governments already running Continuum of Care programs, these conditions would have introduced compliance obligations that had nothing to do with housing and everything to do with aligning federal grant recipients with the current administration’s policy priorities.

The U.S. Conference of Mayors welcomed the ruling, with USCM President Todd Gloria calling on HUD to provide clarity and protect existing housing programs. For cities currently operating under CoC grants, the immediate question is practical: summer is when many community planning organizations lock in their annual funding cycles, and the vacated NOFO means the program’s rules are, at least temporarily, still the old ones.

What makes the ruling significant beyond the specific dollars is the procedural basis. The court didn’t reach a final judgment on whether HUD’s policy preferences for temporary services over permanent housing are good or bad policy — it ruled that HUD skipped the step that would have let the public argue about it. The APA’s notice-and-comment requirement exists precisely so that agencies proposing structural changes to major grant programs hear from the communities those changes will affect. HUD’s decision to issue the 2026 NOFO without that process meant that cities, service providers, and the people those programs serve had no formal opportunity to weigh in on a reorientation of $4 billion in annual federal homelessness funding before it was finalized.

The ruling doesn’t close the door on HUD revising its approach — the agency could begin a notice-and-comment process on a new NOFO. But that process takes time, and the existing grants need to keep flowing in the interim. For the mayors and local officials whose communities depend on Continuum of Care funding, the priority now is certainty: knowing what the rules are, knowing the money isn’t going to be conditioned on compliance with unrelated executive orders, and knowing the permanent housing programs they’ve built their response systems around aren’t being defunded by administrative fiat.

Sources

• Mayors Welcome Federal Court Ruling Blocking HUD’s Homelessness Funding Overhaul, Call for Certainty on Continuum of Care Grants — U.S. Conference of Mayors
• Judge Blocks Federal Overhaul of Homelessness Grants — Uprise RI
• Court Sides With Coalition Challenging Latest Efforts to Politicize Homelessness Funding Grants — Democracy Forward