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of Care networks, the U.S. Department of Housing and Urban Development (HUD) announced Monday afternoon that officials rescinded its Nov. 13 Notice of Funding Opportunity for federal fiscal 2025 grants to “make appropriate revisions.”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)

Update: On Monday, Dec. 8, the federal government withdrew the funding notice cutting Continuum of Care funds.

A proposed budget from the U.S. Department of Housing and Urban Development (HUD) that cuts funds which have meant the difference between shelter and homelessness for about 170,000 people nationwide has left communities scrambling. In Wisconsin, the cuts are projected to cause the loss of permanent housing for 2,379 people according to a report by the National Alliance to End Homelessness. The loss of funds would hit early in the new year, leaving local governments to absorb the fallout in the middle of winter. 

Korey Lundin, senior staff attorney at the National Housing Law Project and former staff attorney with Legal Action of Wisconsin, told the Wisconsin Examiner that the grants that HUD cut —  known as Continuum of Care (CoC) funds — “help thousands of people. That includes folks who have been recently unhoused.” In Wisconsin, 52% of permanent housing funding is covered by the CoC program. 

The people the CoC program serves, Ludin said, include “families, children, seniors, veterans, those who are survivors of domestic violence,” and others who are “not just the stereotypical image that people get when they think of a homeless person.”

In Milwaukee County, over $12 million in CoC funds covers direct rent payments to help provide housing for vulnerable county residents. The investments help support thousands of people across more than 20 housing programs. 

CoC funding in Milwaukee County supports housing for:

• over 770 children;
• 154 young adults between 18 and 24 years old, 
• 560 working-age residents from 25 to 44 years old, 
• 590 people between the ages of 45 to 64,
• 826 people with no income at all, 
• 347 who earn only $500-$1000 a month,
• 1,049 people diagnosed with mental health disorders,
• 321 people with physical disabilities,
• 123 with co-occurring substance use disorders,
• 549 people who’ve remained in housing for over five years,
• and 610 people who’ve maintained housing for 1 to 2 years. 

HUD has also proposed capping permanent housing support at 30%. In Milwaukee County 89% of CoC funds are dedicated to permanent housing beds. The picture isn’t much different for Dane County (where 78% of CoC funding goes to permanent beds), or Racine County (where 80% of CoC funding supports permanent beds). 

HUD announced the cuts saying they will help fulfill President Donald Trump’s “Ending Crime and Disorder on America’s Streets” executive order. HUD claimed that cutting support for permanent housing beds across the country will restore “accountability to homelessness programs” while promoting “self-sufficiency among vulnerable Americans.” 

The Trump administration has been criticized for policies that essentially criminalize homelessness, jailing and displacing unhoused people in an effort to beautify cities. Lundin sees the HUD cuts as part of that effort. He told the Wisconsin Examiner, “They want to round up and warehouse the unhoused. They want to incarcerate the unhoused. The solutions they’re talking about are solutions that exacerbate homelessness.”

HUD Secretary Scott Turner has said that restricting and cutting permanent bed funding is “ending the status quo that perpetuated homelessness through a self-sustaining slush fund.” In a press release announcing the cuts, HUD criticized “the failed ‘Housing First’ ideology, which encourages dependence on endless government handouts while neglecting to address the root causes of homelessness, including illicit drugs and mental illnesses.”

Housing First is an approach to addressing homelessness that prioritizes placing individuals in permanent and stable housing. One 2022 study — which noted that chronic homelessness in the U.S. costs up to $3.4 billion — found that the economic benefits of implementing Housing First programs outweigh the costs of the programs. In 2023, the U.S. Department of Veterans Affairs published a research brief highlighting that “strong evidence exists that the Housing First model leads to quicker exits from homelessness and greater housing stability over time compared with treatment as usual.” It also stated that studies on the Housing First Model — four of which were reviewed to compile the research brief — show that the model “results in greater improvements in housing outcomes for homeless adult populations in North America.” 

Milwaukee County Executive David Crowley, who credits the county’s Housing First approach for a sharp reduction in homelessness, told the Examiner, “I am deeply concerned about the Trump administration’s move to slash permanent housing funding. This decision will destabilize housing for people across the country and it threatens the real progress we have made in Milwaukee County through our Housing First program.” Crowley noted that Milwaukee County has been recognized for having the lowest number of unsheltered homeless residents count per capita in the country, “and we are looked at as a national leader in this space. As someone who knows what housing insecurity feels like, I will pull every lever I can to protect working families and expand access to permanent housing so we can keep our state moving forward.” 

Especially in the winter, the HUD cuts could have troubling consequences. “We don’t have any state protection that prohibits people from being evicted in winter,” said Lundin, who lives in Wisconsin. “If this goes through it would be happening in the worst time here in Wisconsin in the middle of the winter.” 

Lawsuits are already being filed by cities, states and nonprofits. Lundin also said that Congress could intervene by appropriating funding for the HUD programs the administration plans to cut in 2026. In a statement to the Examiner, U.S. Rep. Gwen Moore (D-Milwaukee) called CoC funding and homeless programs “vital to many organizations in Wisconsin and in Milwaukee who help the unhoused and keep people housed.” 

Moore said in the statement, “as per usual with this administration, it is the most vulnerable, like domestic violence survivors and LGBTQ youth, who would be hit the hardest. The Trump Administration’s proposal disregards Congress’s intent and would be catastrophic, putting 170,000 Americans at risk of homelessness. I am pleased to have joined my colleagues on several letters opposing these changes. House and Senate Members on both sides of the aisle have also pushed back because they recognize what it would do: Move us backward in the fight to end homelessness.”

Advocates are urging members of Congress to support a final HUD spending bill that increases funding for housing vouchers and protects CoC funds for permanent housing. The House and Senate version of a bill to fund HUD’s affordable housing, community development, and homelessness services programs differ by billions of dollars as the two chambers work to hammer out a year-end spending deal. 

A homeless man sits in his tent in Washington, D.C., this summer. New rules from the U.S. Department of Housing and Urban Development will sharply restrict how $3 billion in homelessness aid will be spent, allowing no more than 30% of federal grants to be used for permanent housing. (Photo by Anna Moneymaker/Getty Images)

As the housing shortage pushes more Americans into homelessness for the first time, the Trump administration wants to focus federal housing aid on mental health treatment and enforcement against street homelessness, rather than on finding people permanent homes as quickly as possible.

The administration’s new plan to tie federal housing aid to work requirements and drug treatment could be a boon to states such as Alabama, Florida and Wyoming that already are pursuing that strategy. But for many other states — and nonprofit providers across the country — the rules represent a sudden pivot from past expectations. In California, the new federal funding priorities face a direct conflict with state law.

Under new rules announced last month, the U.S. Department of Housing and Urban Development will place new restrictions on $3 billion in homelessness aid, allowing no more than 30% of federal grants to be used for permanent housing. That approach, known as Housing First, prioritizes getting people into safe, stable housing ahead of other treatment and enforcement, and had been a key focus for the federal government’s Continuum of Care Program for homelessness.

Now, HUD’s new rules — a shift to Treatment First policies — could result in a major reprioritization of who gets funding and for what purpose. Backlash from many nonprofits and homelessness service providers across the country has been swift, and 20 states and Washington, D.C., have filed suit to stop the rules, arguing they violate federal law. Several cities and counties across the country also have joined a lawsuit against the department.

While service providers point to success stories from permanent supportive housing, the Trump administration points to rising homelessness — and a perception of violent crime — as a reason to shift funding away from the long-standing approach.

But Martha Are, CEO of the Homeless Services Network of Central Florida, said the Trump administration is putting the onus on  nonprofits and service providers to fix a homelessness crisis that is propelled by a lack of housing that people can afford.

“If homelessness numbers go up, some assume the homeless-response system doesn’t work. But the real driver is the housing market, not the interventions,” Are said. “HUD is penalizing communities for following the rules they set in previous years. I’ve never seen them say, ‘You complied with our guidance, and now you lose points for it.’”

Easy transition for some states

An analysis of publicly available federal data by the National Alliance to End Homelessness found that 88% of federal Continuum of Care dollars flow to permanent supportive housing and rapid rehousing, the models with the strongest evidence of reducing chronic homelessness. The new HUD rules would force cuts large enough to cause roughly 170,000 people to lose that housing, according to the advocacy group’s projections.

But a handful of Continuum of Care programs already devote far less to permanent housing. According to the National Alliance to End Homelessness, that includes that includes certain county or state programs in Alabama, Arkansas, Florida, Georgia, Tennessee, West Virginia and Wyoming.

These programs operate closer to HUD’s new funding requirements and are unlikely to face major disruption. Some even may become more competitive for federal funding, especially in states where policymakers have already adopted enforcement-heavy approaches to homelessness.

Such states — including Florida, Georgia, Missouri, Tennessee and Texas — may be better positioned under HUD’s new grant-funding criteria, which prioritize jurisdictions that criminalize public camping, expand law enforcement involvement or restrict low-barrier shelters, which may have more flexible policies than traditional shelters.

Since the U.S. Supreme Court’s City of Grants Pass v. Johnson ruling in June 2024 allowing localities to ban outdoor camping even if there is no homeless shelter space available, roughly 150 cities in 32 states have passed or strengthened such ordinances.

The annual point-in-time count of people sleeping outside reported that homelessness reached an all-time high in 2024, the most recent data available from HUD. The count, taken during the last 10 days of January 2024, found that 771,480 people were experiencing homelessness, an 18% increase over the previous year and the largest one-year jump in the history of the count.

HUD told Stateline the administration is shifting its approach to emphasize “long-term self-sufficiency and recovery” rather than the number of housing units funded or filled.

The agency rejected advocates’ claims that the new rules will increase homelessness, arguing instead that “failed” Housing First policies have contributed to rising numbers. HUD said it hopes communities will convert many permanent supportive housing programs into transitional housing with stronger requirements around addiction and mental-health services.

Skepticism about Housing First

The impact of these cuts won’t be evenly distributed.

Some areas with the deepest investments in the Housing First approach — including Cleveland, Ohio; Los Angeles; and New York City — stand to lose thousands of units that currently serve older adults, those leaving domestic violence situations, people with disabilities, veterans and families.

Those in favor of HUD’s funding shift argue that long-standing as it may be, Housing First has failed to reduce homelessness.

HUD’s annual counts show national homelessness rising for most of the past decade, and the nonpartisan Congressional Research Service notes that while Housing First stabilizes individuals, it has not reduced the number of people experiencing homelessness.

A 2021 Harvard University study found that while most people in permanent supportive housing remained housed in the first year, retention dropped sharply over time — with only about 12% still housed after 10 years.

Conservative think tanks such as the Cicero Institute, American Enterprise Institute and the Manhattan Institute suggest that Housing First undervalues mental health and substance use treatment. They point to Oregon’s homelessness struggles after drug decriminalization as evidence that voluntary services alone cannot stabilize the most vulnerable residents.

They further argue that permanent housing grants crowd out shelter, detox and transitional programs, and that many nonprofits defending the model are financially invested in maintaining the status quo.

At a moment when tight housing markets are pushing record numbers of people into first-time homelessness, local providers, who stand to lose grants, warn that HUD’s policy reversal will function more like a mass eviction than a funding shift — sending tens of thousands of people back into shelters, onto waiting lists, or directly onto the streets.

Losing trust in the system

In Orlando, Florida, many residents are experiencing homelessness for the first time. Shelters are full and a recent law in Florida allows police to arrest people for sleeping outdoors.

Are, of the Homeless Services Network of Central Florida, said the proposed HUD changes would eliminate more than 500 permanent housing subsidies that her organization offers in the Orlando area alone.

For providers, these subsidies cover the rent for units where people already live. If HUD defunds them, tenants would lose support, landlords would stop receiving payments and people would be evicted unless local governments backfill the funds, she said. And most local governments can’t afford to, she added.

Central Florida has built a system that uses data to focus on high-need individuals and keep them housed — in long-term rental units paired with voluntary support services — at a lower cost than mandated hospitalizations or treatment, Are said. HUD’s abrupt policy reversal would unravel years of progress and leave communities with “no place to put people.”

“Our permanent supportive housing costs about one-twentieth of what inpatient institutional programs cost in this region, and the outcomes are far better,” she said.

Nashville, Tennessee, had expected stable homelessness funding until HUD overhauled the rules “out of [the] blue” and at a time when it would be hard for providers to plan for sudden changes, said Wally Dietz, legal director for the Metropolitan Government of Nashville and Davidson County.

When Congress approved a two-year cycle for fiscal years 2024 and 2025, localities were told they wouldn’t have to reapply for money, he said. That changed this fall.

“Nashville was given 60 days, spanning Thanksgiving and Christmas, to rewrite and resubmit its entire homelessness funding application, which is something the city typically prepares for a full year,” Dietz said.

If the changes to Nashville’s funding go through, not only will people lose their housing, he said, but a 20-year infrastructure will crumble and the164 landlords who partnered with the city will lose faith once rent aid stops flowing.

“Once evicted, people will not reengage with the system, and trust will be impossible to rebuild,” Dietz said.

Nashville is among a handful of localities, including Boston, San Francisco and Tucson, Arizona, that filed a joint lawsuit Monday to block the rule changes, accusing HUD of bypassing Congress. The suit, whose plaintiffs also include the National Alliance to End Homelessness and the National Low Income Housing Coalition, was filed in U.S. District Court in Rhode Island.

“If the administration wants to overhaul homelessness policy, it has to go through Congress,” Dietz said. “That gives cities time to prepare, to testify, to budget. But we didn’t get that chance.”

Stateline reporter Robbie Sequeira can be reached at rsequeira@stateline.org.