Federal Judge Vacates HUD’s 2026 Homelessness Funding Notice, Halting Shift From Permanent Supportive Housing

A federal judge in Rhode Island on Friday threw out the U.S. Department of Housing and Urban Development’s entire fiscal 2026 homelessness funding notice, blocking the Trump administration from moving ahead, for now, with a major shift away from permanent supportive housing.

In a memorandum and order dated Aug. 7, U.S. District Judge Mary S. McElroy of the U.S. District Court for the District of Rhode Island set aside HUD’s Fiscal Year 2026 Continuum of Care Notice of Funding Opportunity “in its entirety.” The practical effect is that HUD cannot use this notice to distribute funding through the Continuum of Care program, the federal government’s main stream of grants for housing and services for people experiencing homelessness or housing insecurity.

HUD had announced the 2026 funding notice on June 1, saying it would make about $4.04 billion available nationwide. The notice included a roughly $1.3 billion set-aside for new projects and gave priority to transitional housing and supportive service-only projects. It also steered more money toward competition and performance measures rather than the long-standing renewal patterns that had helped sustain permanent supportive housing, a model that pairs rental assistance with services for people with disabling conditions.

The court did not decide whether that policy shift was wise. Instead, McElroy ruled that HUD had violated the Administrative Procedure Act, the federal law that generally requires agencies to seek public input before making certain policy changes. Her reasoning turned on the McKinney-Vento Homeless Assistance Act, the federal homelessness law that governs the program. The judge found that HUD’s roughly $1.3 billion set-aside functioned as an “incentive” under that statute and therefore required notice-and-comment rulemaking before the agency could adopt it.

Because that procedural flaw was enough to invalidate the notice, McElroy did not reach the coalition’s other statutory or constitutional claims. She also denied the plaintiffs’ request for a permanent injunction. That means HUD is barred from proceeding under this 2026 notice, but the ruling does not permanently forbid the agency from trying again if it follows the required process.

The lawsuit was filed in July by a coalition that included 21 state attorneys general and the governors of Kentucky and Pennsylvania. California Attorney General Rob Bonta, who was part of the coalition, announced the ruling in a press release. Plaintiffs and housing advocates had argued that the 2026 notice threatened the stability of permanent supportive housing nationwide. They estimated that “at least 97,000” residents of federally funded permanent supportive housing could be at risk of losing housing under the new approach, though that figure was an estimate advanced by the challengers, not a finding by the court.

The dispute centers on the administration’s effort to move away from the prior “Housing First” framework, which generally emphasizes getting people into housing quickly, and toward what it described as a model focused on recovery, self-sufficiency and competition. In the June 1 announcement of the funding notice, HUD Secretary Scott Turner said, “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. Housing alone will not solve a crisis driven by addiction and mental illness. Under President Trump’s leadership, HUD is making necessary reforms to put recovery first.”

Friday’s order marks the second major setback for HUD in this fight. On June 29, the same court vacated HUD’s November and December 2025 Continuum of Care notices as arbitrary and capricious.

Bonta framed the latest ruling as another check on the administration’s attempt to change homelessness policy through funding notices rather than the rulemaking process. “The Trump Administration made another attempt to undermine permanent supportive housing — and we stopped them yet again,” he said. “This ruling protects essential federal funding that helps thousands of vulnerable people stay housed. No one is above the law, including this Administration.”