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A judge just froze HUD’s homelessness funding rewrite—and put “housing first” back on life support

A judge just froze HUD’s homelessness funding rewrite—and put “housing first” back on life support

Rule Changes

The Continuum of Care fight is really about whether Washington can force cities to trade permanent housing for ideology-tinted grant rules.

December 19th, 2025: Judge blocks HUD from changing CoC grant conditions

Overview

HUD tried to rewrite the rules of America's biggest homelessness grant program in the middle of the funding cycle. On December 19, after states and cities sued, Judge Mary McElroy told HUD: stop—effective immediately.

The stakes aren't abstract. The lawsuit argues that the new conditions would shove money away from permanent housing and threaten housing stability for roughly 170,000 people. Under the injunction, HUD has to run the Continuum of Care competition under the old rules while the lawsuit grinds on.

Play on this story Voices Debate Who Said What? Predict

Key Indicators

$3B+
Continuum of Care grant funding at issue
The challenged changes targeted conditions on a multibillion-dollar annual program.
170,000
People plaintiffs say were put at housing risk
States and providers warned the shift could disrupt housing for existing recipients.
30%
Proposed cap on permanent housing spending (per critics)
Local-government groups said the NOFO would sharply limit permanent housing relative to prior practice.
20 + DC
States/territories in the coalition (plus local governments and nonprofits)
A broad plaintiff coalition challenged HUD’s authority and process.
Jan 2026
Earliest reported grant-expiration window
Multiple stakeholders warned of funding gaps if HUD delayed or reissued competitions too late.

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People Involved

Mary S. McElroy
Mary S. McElroy
Issued preliminary injunction blocking HUD’s new CoC conditions
 Scott Turner
Scott Turner
Defending HUD’s proposed CoC overhaul; agency says it will pursue reforms within legal bounds
 Nick Brown
Nick Brown
Co-leading the multistate challenge; publicly celebrated the injunction
 Letitia James
Letitia James
Co-leading the multistate challenge to HUD’s CoC changes
 Peter F. Neronha
Peter F. Neronha
Co-leading the multistate case litigated in Rhode Island federal court
 Kristin Bateman
Kristin Bateman
Argued the changes would trigger winter displacement for vulnerable populations

Organizations Involved

U.S. Department of Housing and Urban Development
U.S. Department of Housing and Urban Development
Federal Agency
Defendant; attempted to change CoC funding conditions and competition structure

HUD funds and regulates core federal housing and homelessness programs, including Continuum of Care.
Continuum of Care (CoC) Program
Continuum of Care (CoC) Program
Federal Grant Program
The funding stream at the center of the legal fight

CoC is the backbone grant program funding local homelessness housing and services nationwide.
Coalition of State Attorneys General and Governors (CoC Plaintiffs)
Coalition of State Attorneys General and Governors (CoC Plaintiffs)
State Government Coalition
Plaintiffs; sued HUD arguing the changes violate statute and administrative law

A multistate coalition is challenging HUD’s ability to impose major CoC conditions without proper authority or process.
Democracy Forward
Democracy Forward
Legal Advocacy Organization
Counsel for a coalition of nonprofits and local governments challenging HUD changes

Democracy Forward is litigating on behalf of cities and nonprofits to block HUD’s new CoC conditions.
National Association of Counties (NACo)
National Association of Counties (NACo)
Advocacy association
Warned about disruption risks; pushed HUD to prevent funding gaps

NACo pressed HUD to avoid CoC funding gaps that would hit county-run homelessness systems.

Timeline

  1. Judge blocks HUD from changing CoC grant conditions

    Legal

    Judge McElroy issues a preliminary injunction, forcing HUD to process funds under prior conditions for now.

  2. HUD withdraws the NOFO—then promises to reissue it

    Statement

    Facing lawsuits, HUD pulls the notice but signals the policy fight is not over.

  3. States sue: HUD can’t cap permanent housing and add new gatekeeping conditions

    Legal

    A coalition of states and D.C. files suit, arguing HUD is defying Congress and risking mass displacement.

  4. HUD drops a new FY2025 CoC funding notice—and triggers a panic

    Rule Changes

    HUD’s NOFO reprioritizes funding, alarming jurisdictions dependent on permanent-housing renewals.

  5. Cities sue over new HUD CoC grant conditions

    Legal

    Local governments challenge what they call ideological, unlawful conditions appended to HUD homelessness grants.

  6. White House tells agencies to purge “gender ideology” from grantmaking

    Rule Changes

    Executive action sets a government-wide push to reshape grant conditions around culture-war priorities.

Scenarios

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1

HUD Loses on the Merits, Court Permanently Bars the Overhaul

If the judge concludes HUD’s new framework conflicts with McKinney-Vento’s structure and was rolled out unlawfully, the preliminary injunction becomes a long-term block. HUD would be forced back to a renewal-heavy model emphasizing permanent housing, and future changes would have to go through a slower, more defensible process (or Congress would have to rewrite the statute).

Discussed by: Plaintiff states and local-government coalitions; legal coverage framing the case around McKinney-Vento and the APA
Consensus —
2

HUD Reissues a “Softened” NOFO and Tries Again—This Time With Better Lawyering

HUD’s most likely off-ramp is a reissued notice that keeps some new priorities but avoids the sharpest caps and the most legally vulnerable restrictions. The fight would shift from “this is blatantly unlawful” to “is this still effectively coercive and inconsistent with congressional design,” and plaintiffs could seek to extend or expand the injunction.

Discussed by: HUD’s public signals to revise and reissue; stakeholder briefings tracking a modified NOFO timeline
Consensus —
3

Appeals Court Narrows the Injunction, Restoring Parts of HUD’s Plan

HUD could appeal and argue the injunction is too broad, especially after withdrawing the NOFO. If an appellate panel buys that argument, it might keep protections for existing renewals while letting HUD implement some revised scoring or eligibility rules. That would create a patchwork: providers avoid the worst cliff, but still face a reshaped competition and new compliance risk.

Discussed by: Appellate-risk commentary in legal reporting; prior grant-conditions cases often turning on scope and remedy
Consensus —
4

Congress Forces a Truce: Mandates Renewals or Clarifies the Rules in Statute

If delays threaten a real funding lapse in early 2026, Congress could step in with directive language—ordering renewals, extending expiring grants, or clarifying that permanent housing remains the priority. That wouldn’t end the cultural fight, but it would move the battleground from HUD’s grant paperwork to Capitol Hill’s appropriations and authorizing power.

Discussed by: Local-government associations and policy stakeholders urging congressional backstops to prevent funding gaps
Consensus —

Historical Context

Sanctuary-city grant condition fights (Byrne JAG)

2017-2020

What Happened

The Trump administration tried to attach immigration-enforcement conditions to DOJ public-safety grants. Cities sued, arguing the executive branch can’t rewrite Congress’s grant program by adding new, coercive conditions.

Outcome

Short Term

Multiple courts blocked key conditions for various plaintiffs, limiting enforcement.

Long Term

The episode became a template for how courts police agency attempts to leverage grants for unrelated policy goals.

Why It's Relevant Today

CoC is the same playbook—use grant terms to force local compliance—now aimed at homelessness policy.

NFIB v. Sebelius and the “gun to the head” theory of conditional spending

2012

What Happened

The Supreme Court upheld most of the Affordable Care Act but ruled Congress went too far by threatening states with the loss of all Medicaid funding if they refused expansion.

Outcome

Short Term

Medicaid expansion became optional for states rather than mandatory.

Long Term

NFIB became the modern anchor for challenges claiming grant conditions are coercive or transformative.

Why It's Relevant Today

Plaintiffs cast HUD’s midstream CoC rewrite as an abrupt, high-stakes ultimatum—policy change by financial threat.

South Dakota v. Dole and the boundary rules for federal grant conditions

1987

What Happened

The Supreme Court upheld conditioning a slice of highway funds on states adopting a higher drinking age, while outlining limits: clarity, relatedness, and non-coercion.

Outcome

Short Term

States moved toward a uniform drinking age to avoid funding losses.

Long Term

Dole became the basic test courts cite when governments fight over grant “strings.”

Why It's Relevant Today

This HUD case is a modern argument about whether the new “strings” are related, lawful, and imposed the right way.

Sources

(8)
+2
Reuters Washington State Office of the Attorney General Congressional Research Service (via Congress.gov) POLITICO National Association of Counties San Francisco City Attorney The White House Reuters