HUD Withdraws Controversial Homelessness Funding Change Hours Before Court Hearing

The U.S. Department of Housing and Urban Development (HUD) on Monday temporarily withdrew a disputed notice of funding opportunity about 90 minutes before a scheduled court hearing over changes to the agency’s Continuum of Care program.

The rescinded notice would have sharply reduced the share of Continuum of Care funds available for permanent housing—from roughly 90 percent under prior guidance to a 30 percent cap—and redirected most dollars toward temporary transitional programs that could include work or service requirements. The change, first reported by POLITICO, also included provisions critics say could allow HUD to restrict funding for organizations that publicly acknowledge transgender or nonbinary people.

Legal Challenge and Last-Minute Withdrawal

Two lawsuits prompted the hearing: one filed by a coalition of 21 state attorneys general and governors, and another brought by 11 local governments and nonprofit organizations. According to a court filing, HUD said it pulled the notice "to assess the issues raised by Plaintiffs in their suits and to fashion a revised [notice of funding opportunity]."

"This sort of haphazard approach to administrative law is the problem," U.S. District Judge Mary S. McElroy said at the hearing, criticizing the agency for the late action. She ordered the government to submit new arguments next week addressing the last-minute withdrawal.

Agency Response and Internal Reaction

A HUD spokesperson said the department will "reissue the funding notice as quickly as possible with technical corrections," and emphasized the agency's goal of making resources available to grantees that support vulnerable populations while pursuing what it called reforms to homelessness assistance programs.

Two HUD employees who spoke anonymously told reporters that staff had been preparing to open the application process under the new terms and were surprised by the sudden withdrawal. The agency said it will provide an updated notice soon and work to address the legal concerns raised by plaintiffs.

Hassan Kanu contributed to this report.