Homeless Funding Rules Deemed Unlawful
A federal judge in Rhode Island has ruled that the U.S. Department of Housing and Urban Development (HUD) acted unlawfully in altering the criteria for awarding tens of millions of dollars in homelessness support funding, striking down a major funding policy change instituted by the Trump administration. The decision, handed down by U.S. District Judge Mary McElroy, concluded that the agency’s revision of funding rules violated federal administrative law and appeared to pursue political objectives rather than the statutory purpose of homelessness programs.
At issue was a newly issued Notice of Funding Opportunity (NOFO) for HUD’s “Continuum of Care Builds” program, intended to allocate roughly $75 million in federal grants to organizations that serve people experiencing homelessness. The Continuum of Care program is one of HUD’s largest homelessness aid mechanisms, traditionally used to support permanent and transitional housing solutions. Under longstanding rules, the program prioritized continuity and predictability, with most funds renewed from year to year so providers could deliver stable housing to vulnerable populations.
However, last year HUD released a revamped NOFO that altered the criteria for eligibility and selection. The new framework included several controversial conditions that critics said would shift funding away from permanent housing initiatives and towards more restrictive measures tied to social policies. Advocates and some local jurisdictions argued the changes introduced politically driven qualifications — such as requiring applicants to demonstrate compliance with certain law enforcement practices, limit “harm reduction” strategies, and even take positions regarding transgender-inclusive practices — none of which were directly related to housing outcomes.
Several nonprofit organizations filed a lawsuit challenging the legality of the new funding criteria, asserting that HUD lacked the statutory authority to impose such conditions, and that the abrupt changes threatened to disrupt services relied upon by thousands of homeless individuals and families. They argued the revised NOFO would irreparably harm qualified service providers and communities already stretched thin by homelessness crises.
In her ruling, Judge McElroy agreed with the plaintiffs. She found that HUD’s implementation of the new criteria amounted to an arbitrary and capricious application of agency authority, violating the Administrative Procedure Act (APA), which governs how federal agencies must propose, justify, and implement policy changes. McElroy criticized the agency’s approach as a “slapdash imposition of political whims,” implying that the agency rushed through significant changes without proper justification or adherence to procedural norms.
The court ordered HUD to scrap the new funding criteria and revert to the prior rules under which homelessness funding had been administered for decades. Legal experts and advocacy groups hailed the decision as a victory for predictable, nonpartisan policy in homelessness assistance. Leaders from Democracy Forward and the National Alliance to End Homelessness noted that the ruling helps preserve decades of established policy designed to help people transition out of homelessness sustainably.
HUD, on the other hand, defended its actions in court filings, arguing that the revised NOFO was intended to ensure funds supported outcomes such as public safety and self-sufficiency. Agency lawyers maintained that conditions addressing issues like cooperation with law enforcement and restrictions on illegal drug use were reasonably related to the goals of homelessness funding. Despite these arguments, the judge was unpersuaded, determining that the changes lacked a clear statutory anchor and were improperly imposed.
Beyond the immediate ruling, the case highlights ongoing tensions between executive branch policy priorities and statutory constraints governing federal grant programs. It underscores how courts continue to serve as an important check on federal agencies when policy shifts appear to overreach their legal authority or disregard established procedural safeguards.
The decision also has wider implications for provider communities that rely on HUD funding. Stable and predictable funding rules allow organizations to plan long-term housing solutions and support services. Conversely, unpredictable changes — especially those tied to political conditions — risk disrupting crucial assistance at a time when homelessness rates remain high in many U.S. cities and states. Advocates say the ruling helps ensure that homelessness assistance remains focused on housing outcomes rather than unrelated policy preferences.
⚖️ Key Legal Outcomes
- A federal judge ruled HUD’s altered homeless funding criteria unlawful, overturning the revised Notice of Funding Opportunity.
- The ruling found HUD violated the Administrative Procedure Act by imposing changes without proper procedural justification.
- Judge Mary McElroy ordered HUD to discard the disputed policy and revert to prior funding rules.
- The court’s decision limits HUD’s ability to tie grant eligibility to unrelated political or social policy conditions.
- Plaintiffs (nonprofits) secured a legal precedent reinforcing judicial oversight over federal agency funding criteria.
📌 Why It Matters
- Protects stability in homelessness funding critical to nonprofits and service providers.
- Prevents politicization of federal grant criteria outside statutory authority.
- Reinforces administrative law norms, limiting arbitrary agency rule changes.
- Impacts how future homelessness and housing budgets are administered nationwide.
- Offers legal precedent that could affect other agency funding programs facing similar challenges.
