The Trump administration suddenly withdrew its federal policy change reducing funding for permanent supportive housing on Monday, Dec. 8, 2025. (Photo by Nadia Engenheiro, Half Street Group)

An hour before a scheduled court hearing on two federal lawsuits over recent changes to a key federal homelessness and housing funding program, the Trump administration withdrew the funding notice that prompted the litigation.

The move came as a surprise to the attorneys for plaintiffs who were initially scheduled to make their case for a temporary restraining order before Rhode Island Judge Mary S. McElroy. 

“It feels like intentional chaos,” McElroy said.

In a message to Continuum of Care networks, the U.S. Department of Housing and Urban Development (HUD) announced Monday afternoon that officials rescinded its Nov. 13 Notice of Funding Opportunity for federal fiscal 2025 grants to “make appropriate revisions.” The notice had set Jan. 14 as the deadline for applications for Continuum of Care funds, which address homelessness.

Rhode Island’s Continuum of Care gave the state’s homeless care a deadline of Dec. 12 to get their applications done to give to HUD, according to one of the lawsuits.

“We received notice first through our providers and [electronic filing], not through opposing counsel,” Zane Muller, assistant attorney general for the state of Washington, said during the 25-minute virtual hearing that began at 3:30 p.m.

HUD’s policy rescission too was news for McElroy, who called it a “haphazard approach to administrative law.” 

“There’s a process and procedure that’s laid out,” said McElroy, a first-term Trump appointee. “It’s not by tweets or by last-minute orders or last-minute withdrawals.”

Pardis Gheibi, a U.S. Department of Justice attorney representing HUD, told McElroy the notice was filed with the court as soon as it was published. She did not have the answer when McElroy wanted to know who at HUD made the decision to rescind the funding notice and when.

“We didn’t have the chance to confer with plaintiffs’ counsel — but the rescission happened this afternoon,” Gheibi said.

The Trump administration had planned to slash the amount of grant funds that can be spent on permanent housing — subsidized units that provide a stable residence for formerly homeless people, often those who have experienced mental illness or spent years on the streets — and instead focus on transitional housing.

Grant rules also would have eliminated funding for diversity and inclusion efforts, support of transgender clients and use of “harm reduction” strategies that seek to reduce overdose deaths by helping people in active addiction use drugs more safely.

HUD wrote in its update that it still intends to make changes to the policy for awarding funds for addressing homelessness.

A coalition of states co-led by Rhode Island Attorney General Peter Neronha filed suit over HUD’s latest Notice of Funding Opportunity on Nov. 25. On Dec. 1, a group of cities and nonprofits led by the National Alliance to End Homelessness and the National Low Income Housing Coalition filed a separate 85-page lawsuit.

Both complaints had similar requests for the court to declare the new conditions unlawful and reinstate language from prior funding notices, which is why McElroy opted to combine them into one hearing.

But with the funding notice now withdrawn, Gheibi argued there was no need for immediate relief.

Kristin Bateman, an attorney representing local communities and nonprofits and a senior counsel with Democracy Forward, argued court action is still needed. She said HUD’s rescission still leaves a critical funding gap for homeless services starting early next year since most federal fiscal 2024 grants start to expire in January.

“Those gaps in funding mean that they will not have the money to continue supporting the permanent housing that they fund for people to live in,” Bateman said. “People are going to be displaced, put back into homelessness in the middle of winter and face all the harms that come with that.”

McElroy scheduled the next hearing for 10 a.m. Friday, Dec. 19. She also tasked HUD with producing the administrative record on the grant funding policy, ideally within a week — though Gheibi had asked if it could wait until after the holidays.

McElroy said if the administration could work quickly to rescind the funding notice, they can work quickly to give the court the documents she requested.

“People can work overtime if they need to,” McElroy said. “I do, they do, I’m sure you do.”

The U.S. Department of Housing and Urban Development headquarters. (Photo by HUD Office of Public Affairs)

Nineteen attorneys general and two governors filed suit in Rhode Island on Tuesday to stop the Trump administration from shifting nearly $4 billion in housing grants they say could place as many as 170,000 formerly homeless people back out on the streets.

The group co-led by Rhode Island Attorney General Peter Neronha is accusing the U.S. Department of Housing and Urban Development of violating “congressional intent” in its plan to dramatically reduce the amount of grant funds that can be spent on permanent housing, along with other conditions placed in its latest Notice of Funding Opportunity for Continuum of Care grants.

Enacted Nov. 13, HUD’s new policy instead shifts Continuum of Care funding toward transitional housing and other short-term interventions to the nation’s ongoing homelessness crisis. Only 30% of funds from the $3.9 billion grant program would be allowed to be used for permanent supportive housing — units that provide a subsidized, stable residence for formerly homeless people, often those who have experienced mental illness or spent years on the streets.  

HUD has previously directed approximately 90% of Continuum of Care funding to support permanent supportive units as part of its “Housing First” philosophy, according to the 55-page lawsuit.

“Addressing the crisis requires urgent action from our communities, institutions, and government,” the lawsuit states. “But instead of investing in programs that help people stay safe and housed, the Trump Administration has embraced policies that risk trapping people in poverty and punishing them for being poor.”

HUD’s latest Continuum of Care grants opportunity is open though Jan. 14, 2026. Grant awards are expected to be made May 1.

The new grant rules also eliminate funding for diversity and inclusion efforts, support of transgender clients and use of “harm reduction” strategies that seek to reduce overdose deaths by helping people in active addiction use drugs more safely.

“Individually, these conditions are unlawful and harmful,” the 55-page lawsuit states. “Together, they are a virtual death blow to the CoC Program as it has operated for decades and will lead to predictably disastrous results.”

If the policy isn’t blocked, Neronha warned the cuts would “further exacerbate already dire conditions for homeless Rhode Islanders.” Indeed, Rhode Island’s homeless care providers project a little over 1,000 formerly unhoused people across the state could wind up back on the streets under HUD’s new funding focus.

“This administration continues to punch down by targeting the most vulnerable Americans, and unfortunately this most recent attack on homeless individuals is consistent with their modus operandi,” Neronha said in a statement. “The president and his administration don’t care about making life easier or better for Americans; they only care about political capitulation, consolidating power, and further enriching the wealthy.”

The HUD Press Office said the agency stands by its Continuum of Care reforms in an emailed statement, calling Biden era homelessness assistance policies “an abject failure.”

“In fact, Biden’s policies harmed the vulnerable people that HUD intends to serve through the grant program,” the statement reads. “This new framework is the first step toward righting those failures with increased funding for those high performing programs that have demonstrated real success and accountability. HUD is dismayed that the plaintiffs have chosen to misuse the Courts and pursue this delaying tactic to serve their own personal political agenda at the expense of the homeless individuals, youth and families now living on our Nation’s streets.  Their use of the courts for political means seeks to prevent nearly $4 billion of aid to flow nationwide to assist those in need. HUD intends to mount a vigorous defense to this meritless legal action. HUD is confident that it will prevail in Court and looks forward to implementing the new Continuum of Care framework after it has done so.”

In addition to Neronha, Washington Attorney General Nick Brown and New York Attorney General Letitia James are co-leading the lawsuit. 

Also joining the complaint are the attorneys general of Arizona, California, Colorado, Connecticut, Delaware, the District of Columbia, Illinois, Massachusetts, Maryland, Maine, Michigan, Minnesota, New Jersey, Oregon, Vermont, Wisconsin, along with the governors of Kentucky and Pennsylvania.

The coalition is asking Judge Mary S. McElroy, who was appointed to the bench during Trump’s first term, to declare the new conditions unlawful and reinstate language from prior funding notices.

HUD framed its new funding policies as a way to promote “self-sufficiency among vulnerable Americans” and align with President Donald Trump’s July 24 Executive Order titled “Ending Crime and Disorder on America’s Streets.”

But the lawsuit filed Tuesday argues that Congress created the Continuum of Care program to ensure stability so providers can reliably serve people whose lives depend on it. The coalition says HUD’s changes are arbitrary and capricious because officials offered no explanation for abruptly reversing longstanding policies.

“HUD has failed to supply any rational explanation for these newly proposed conditions that are entirely unrelated to (and in some cases even inhibit) the statutory purpose of addressing homelessness,” the lawsuit states.