PROVIDENCE, R.I. — U.S. District Judge Mary S. McElroy of the District of Rhode Island ruled Monday, June 30, that the U.S. Department of Housing and Urban Development (HUD) violated federal law when it issued notices overhauling funding prioritization for the Continuum of Care (CoC) program—a key federal initiative that provides billions in funding for housing and services to combat homelessness. The ruling vacates and sets aside HUD’s issuance of both the November and December 2025 Notices of Funding Opportunity (NOFO) hence restoring the prior funding framework for the CoC program.
“Although the Court determines that it must vacate HUD’s implementation of the November 2025 and December 2025 NOFOs, it rejects Plaintiffs’ request for a permanent injunction on HUD’s future implementation of the conditions contained within these NOFOs,” Judge McElroy wrote in her decision. “Although HUD may undoubtedly attempt to issue a subsequent NOFO that contains these contested conditions, the speculative nature of this impending harm does not warrant the ‘drastic remedy’ of a permanent injunction.”
Judge McElroy granted in part and denied in part cross-motions for summary judgment in State of Washington et al. v. HUD and a related case. She found that HUD’s November 2025 and December 2025 Notices of Funding Opportunity (NOFO) were arbitrary and capricious under the Administrative Procedure Act and exceeded the agency’s statutory authority. She rejected plaintiffs’ request for a permanent injunction barring future implementation of similar conditions and also denied plaintiffs’ motion to file a supplemental complaint adding claims related to timely grant processing and a June 2026 NOFO.
McElroy determined that HUD failed to adequately consider the effects of rapidly shifting away from its longstanding “Housing First” approach, which emphasizes permanent supportive housing. The agency did not properly analyze resulting funding gaps, disruptions to grantees, or potential harm to people experiencing homelessness, she wrote.
“…the record reveals that HUD did not attempt to meaningfully forecast the harm caused by the disruption these NOFOs created at any point, most notably the instability faced by individuals who would undoubtedly experience homelessness because of this breakneck transition,” wrote Judge McElroy.
HUD also missed the statutory three-month deadline to issue a new NOFO after Congress appropriated funds, violating 42 U.S.C. § 11382(b). The judge found no rational connection between the facts and HUD’s decision to implement the changes on an accelerated timeline.
“This administration’s haphazard and cruel approach to housing policy left thousands of Washingtonians at risk of having nowhere to live. Now, thanks to the hard work of our team, they have stability and hope,” Washington State Attorney General Nick Brown released in a statement. “This victory protects critical services that address our state’s housing crisis.”
AG Brown, co-leading the 18-state lawsuit, alleged during a November 25 presser that the new CoC Notice of Funding Opportunity was unlawful under the Administrative Procedure Act (APA). The lawsuit argued that the changes broke federal laws meant to provide stable housing without strict limits or unfair conditions, HUD lacked rationale to its shift from “Housing First” approaches, and that HUD undermined Congress by redirecting funds with its new policies.
Local governments and nonprofits nationwide can now administer Continuum of Care grants under the prior funding framework, following Monday’s win for AG Brown.
Changes to Continuum of Care NOFO grant that the states object to were:
- Reversal of housing First Policies and funding caps: HUD has shifted away from prioritizing “Housing First” models—which provide stable housing without preconditions like sobriety or income requirements also known as “low barrier housing”—by capping permanent housing funding at only 30% of Continuum of Care funds—down from nearly 90% for funds expiring in 2026. It also reduces “Tier 1” funding (essentially guaranteed renewal funding for existing projects) from 90% to 30% of available funds, changes the point system for grant awards to disadvantage permanent housing and services for people with mental disabilities or substance use disorders, and threatens to cancel thousands of existing projects. The lawsuit claim, this change will evict tens of thousands of formerly homeless individuals and families back into homelessness, undermining the program’s goal of providing stable, long-term housing.
- Prohibiting funding based on transgender preferences: The NOFO imposes a condition that denies funding to applicants who “acknowledge the existence of transgender and gender-diverse people,” which the states argue discriminates against LGBTQ+ individuals.
- Penalizing jurisdictions policies that do enable homelessness: The NOFO deducts points from applicants based on their location in jurisdictions that do not enforce certain administration-favored policies, such as bans on public camping. This, the states argue, penalizes areas with alternative approaches to homelessness, regardless of their effectiveness.
Washington state receives approximately $120 million in Continuum of Care grants annually, with most of it going to the five counties with the greatest need for housing services – King, Pierce, Snohomish, Spokane, and Clark counties. The remaining $25 million is distributed by the state to Washington’s other 34 counties, which are largely rural.
HUD, under Secretary Eric Scott Turner and the Trump Administration, implemented the changes to the FY 2025 Continuum of Care (CoC) Notice of Funding Opportunity primarily to overhaul what they describe as failed policies from the previous Biden and Obama administrations. HUD positions these reforms as a “monumental” shift to better steward public resources to deliver outcomes, and rejecting what they call “laziness or ignorance” in prior funding practices.
According to Secretary Turner, the prior emphasis on “Housing First” models—which provide permanent housing without preconditions—was seen as ineffective, leading to a 33% increase in homelessness despite record funding levels. Instead, the changes aim to redirect funds toward transitional housing programs and initiatives that promote self-sufficiency, accountability, and “transformational results” for vulnerable populations.
In a November 14 post on X, Secretary Turner stated that Biden-era policies allocated only 1% of CoC funds to transitional housing, alleging that “Housing First” policies do not encourage personal growth or independence, effectively “warehousing” individuals without addressing root causes to that person’s homelessness.
With regards to capping Teir 1 funding to 30%, Turner stated that according to HUD research, up to 90% of “competitive” funds were automatically renewed, which indicates to him that this lacked oversight and led to potentially funding “unaccountable programs” or “slush funds.”
The NOFO scoring criteria, now vacated following Judge McElroy’s ruling, prioritized CoCs and organizations that align with Trump administration policies, such as enforcing bans on public camping and avoiding acknowledgment of transgender or gender-diverse individuals in applications.
For the Trump administration, it can appeal the ruling to the U.S. Court of Appeals for the First Circuit or to issue a new NOFO that complies with statutory deadlines and APA requirements.
Author: Mario Lotmore
