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.

Maryland Democratic Gov. Wes Moore spent a few minutes sorting donated food before signing an executive order in late October declaring a state of emergency to allow for distribution of food aid. As the federal government reopens, questions remain about how states will be reimbursed for the costs they incurred. (Photo by Bryan P. Sears/Maryland Matters)

Though Congress ended the record-setting federal government shutdown, many questions remain for states that were already wading through seismic federal changes.

One major uncertainty: whether and how states will be reimbursed for the costs they incurred, as they have been in previous shutdowns. And for the longer term, the shutdown offered a glimpse into the funding challenges facing states. They’ll have to rely more on their own money and staff to keep federal programs going even at a time when many face their own budget problems.

That’s a top concern for the federal food stamp program, known as the Supplemental Nutrition Assistance Program, or SNAP. Amid conflicting federal guidance during the shutdown, states reacted in different ways: Some issued partial benefit payments, others sent aid to food banks to keep people from going hungry.

But even after the government reopening restores SNAP aid, other challenges loom. The major tax and spending law enacted this summer tied SNAP funding to state error rates, which measure the accuracy of benefit payments. Advocates fear the shutdown will increase error rates because of conflicting federal guidance.

Air travel, SNAP benefits, back pay at issue as federal government slowly reopens

“States are really worried,” said Crystal FitzSimons, president of the Food Research & Action Center, a nonprofit working to address poverty-related hunger.

And states have been rushing to inform rural residents, veterans and older adults that they will soon be forced to meet work requirements or lose SNAP benefits. It’s just the first in a wave of cutbacks to the nation’s largest food assistance program required under the One Big Beautiful Bill Act that President Donald Trump signed in July.

FitzSimons said the shutdown highlighted the importance of SNAP and how “untenable” many of the upcoming changes will prove for states. For now, states are working to get benefits to people immediately, and then will focus more on questions of reimbursement and ongoing changes to SNAP.

“The hope is that states will be able to move quickly and then turn their attention to all the changes,” she said.

While public attention has centered on the shutdown chaos in recent weeks, more fundamental changes are occurring outside the spotlight, said Eric Schnurer, founder and president of Public Works, a consulting firm specializing in government performance and efficiency.

“The ground is shifting under their [states’] feet even as this goes on,” he said. “Even if the Trump administration and his policies were to pass on in another three years, there are serious structural changes in the relationship between state and federal government.”

Since taking office, the Trump administration has stripped states and cities of billions of dollars that Congress approved for education, infrastructure and energy projects. And the president’s One Big Beautiful Bill Act mandates deep cuts to social service programs, including Medicaid and food stamps.

Under the law, states will be required to pay a greater share of administering SNAP in the coming years. That requirement, along with eligibility changes, could result in millions of Americans losing benefits.

“I think the public in general got a taste of what that might look like over the past month,” Schnurer said, referencing the shutdown’s first-ever disruption to SNAP benefits.

State-federal strain

The legislation to reopen the government approved by Congress and signed by the president this week says that states shall be reimbursed for expenses “that would have been paid” by the federal government during the shutdown.

“So that sounds promising for states,” said Marcia Howard, executive director of Federal Funds Information for States, which analyzes how federal policymaking impacts states.

But it’s unclear how that language will be interpreted. For example, states that sent money to food banks for emergency food assistance are less likely to be made whole compared with states that sent funds through existing federal programs like SNAP, she said.

California dedicated $80 million in state funds and deployed the National Guard to food banks across the state. But Virginia launched a temporary state-level version of the federal food stamp program.

Previous administrations have been more flexible with federal funds, making it easier for states to receive funding or reimbursement, Howard said.

“This administration is really more holding states’ feet to the fire perhaps than other administrations have. So I think they’ll be less permissive in who and how they reimburse,” she said.

It could take weeks or months before states know the full fallout from the shutdown, especially with food assistance.

“[States] did such different things, and I think there’s going to be a fair bit of back-and-forth: should this be covered? Should this not be covered?” Howard said.

The shutdown and its aftermath underscore the ongoing strain between state and federal governments, said Lisa Parshall, a professor of political science at Daemen University in New York.

Federal uncertainty can cause state leaders to be more cautious about their own budgets — similar to how an economic downturn can decrease consumer spending, she said.

“There’s a delay of services, there’s a diminishment of capacity and partnership, and those things might be harder to quantify when you’re talking about what is the cost of the shutdown,” she said. “But I think those are real costs.”

And the end of the shutdown does not extinguish those tensions.

“In some ways, even though the shutdown is over, things are not going to go back to ‘normal,’” she said.

More changes coming

Aside from spending cuts and new administrative costs, Trump’s July law made major tax code changes poised to cost many states, said William Glasgall, public finance adviser at the Volcker Alliance, a nonprofit that supports public sector workers.

Most states use the federal tax code as a basis for their own income tax structures, so changes at the federal level can trickle down to state tax systems or states can choose a different structure to avoid those changes.

Last month, a Massachusetts budget official said federal tax changes would cost the state $650 million in revenue this budget year.

So even with the government back open, states have to plan for some level of unpredictability, Glasgall said. And the future of entire agencies like the Department of Education remain up in the air, he noted.

“So there’s still a lot of uncertainty, even with this bill,” he said.

On Wednesday, state budget analysts briefed Maryland lawmakers on the $1.4 billion budget gap they could face as they head into the 2026 legislative session.

That figure does not include the fallout from the federal government shutdown, which may not be known for months, according to Maryland Matters.

In late October, Democratic Gov. Wes Moore declared an emergency and directed $10 million in state funds toward food banks and pantries. Earlier this month, he announced $62 million in state funds would be deployed directly to SNAP recipients.

Rhyan Lake, a Moore spokesperson, told Stateline that Maryland expects the federal government to reimburse the state for its SNAP expenditures during the shutdown.

But lawmakers are still gearing up for a hit from major federal changes.

In addition to cuts from Trump’s domestic tax and spending law, Maryland has lost about 15,000 federal jobs, budget officials said. But many federal workers who took buyouts were paid through September. And the shutdown caused a pause in federal employment data, potentially concealing the true impact.

State Sen. James Rosapepe, Democratic chair of the joint Spending Affordability Committee, said he’s worried the state has only seen the beginning of its federally induced fiscal challenges. He also noted that this week’s shutdown-ending legislation only assures the government remains open through January, meaning another shutdown could be just a couple months away.

“We’re less than a year into the administration, and the effects of things they’ve already done don’t seem to have flowed through yet to the data that we have, which leads me to believe that the worst is yet to come,” he said.

Stateline reporter Kevin Hardy can be reached at khardy@stateline.org.