Overview
HUD tried to rewrite the rules of America’s biggest homelessness grant program in the middle of the funding cycle—then acted surprised when states and cities ran to court. On December 19, Judge Mary McElroy told HUD: stop. Not later—now.
The stakes aren’t abstract. The plaintiffs say the new conditions would shove money away from permanent housing and threaten housing stability for roughly 170,000 people. Under the injunction, HUD has to run the Continuum of Care competition under the old rules while the lawsuit grinds on—buying time for local providers, and blocking a federal attempt to reshape homelessness policy by contract.
Key Indicators
People Involved
Organizations Involved
HUD funds and regulates core federal housing and homelessness programs, including Continuum of Care.
CoC is the backbone grant program funding local homelessness housing and services nationwide.
A multistate coalition is challenging HUD’s ability to impose major CoC conditions without proper authority or process.
Democracy Forward is litigating on behalf of cities and nonprofits to block HUD’s new CoC conditions.
NACo pressed HUD to avoid CoC funding gaps that would hit county-run homelessness systems.
Timeline
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Judge blocks HUD from changing CoC grant conditions
LegalJudge McElroy issues a preliminary injunction, forcing HUD to process funds under prior conditions for now.
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HUD withdraws the NOFO—then promises to reissue it
StatementFacing lawsuits, HUD pulls the notice but signals the policy fight is not over.
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States sue: HUD can’t cap permanent housing and add new gatekeeping conditions
LegalA coalition of states and D.C. files suit, arguing HUD is defying Congress and risking mass displacement.
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HUD drops a new FY2025 CoC funding notice—and triggers a panic
Rule ChangesHUD’s NOFO reprioritizes funding, alarming jurisdictions dependent on permanent-housing renewals.
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Cities sue over new HUD CoC grant conditions
LegalLocal governments challenge what they call ideological, unlawful conditions appended to HUD homelessness grants.
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White House tells agencies to purge “gender ideology” from grantmaking
Rule ChangesExecutive action sets a government-wide push to reshape grant conditions around culture-war priorities.
Scenarios
HUD Loses on the Merits, Court Permanently Bars the Overhaul
Discussed by: Plaintiff states and local-government coalitions; legal coverage framing the case around McKinney-Vento and the APA
If the judge concludes HUD’s new framework conflicts with McKinney-Vento’s structure and was rolled out unlawfully, the preliminary injunction becomes a long-term block. HUD would be forced back to a renewal-heavy model emphasizing permanent housing, and future changes would have to go through a slower, more defensible process (or Congress would have to rewrite the statute).
HUD Reissues a “Softened” NOFO and Tries Again—This Time With Better Lawyering
Discussed by: HUD’s public signals to revise and reissue; stakeholder briefings tracking a modified NOFO timeline
HUD’s most likely off-ramp is a reissued notice that keeps some new priorities but avoids the sharpest caps and the most legally vulnerable restrictions. The fight would shift from “this is blatantly unlawful” to “is this still effectively coercive and inconsistent with congressional design,” and plaintiffs could seek to extend or expand the injunction.
Appeals Court Narrows the Injunction, Restoring Parts of HUD’s Plan
Discussed by: Appellate-risk commentary in legal reporting; prior grant-conditions cases often turning on scope and remedy
HUD could appeal and argue the injunction is too broad, especially after withdrawing the NOFO. If an appellate panel buys that argument, it might keep protections for existing renewals while letting HUD implement some revised scoring or eligibility rules. That would create a patchwork: providers avoid the worst cliff, but still face a reshaped competition and new compliance risk.
Congress Forces a Truce: Mandates Renewals or Clarifies the Rules in Statute
Discussed by: Local-government associations and policy stakeholders urging congressional backstops to prevent funding gaps
If delays threaten a real funding lapse in early 2026, Congress could step in with directive language—ordering renewals, extending expiring grants, or clarifying that permanent housing remains the priority. That wouldn’t end the cultural fight, but it would move the battleground from HUD’s grant paperwork to Capitol Hill’s appropriations and authorizing power.
Historical Context
Sanctuary-city grant condition fights (Byrne JAG)
2017-2020What Happened
The Trump administration tried to attach immigration-enforcement conditions to DOJ public-safety grants. Cities sued, arguing the executive branch can’t rewrite Congress’s grant program by adding new, coercive conditions.
Outcome
Short term: Multiple courts blocked key conditions for various plaintiffs, limiting enforcement.
Long term: The episode became a template for how courts police agency attempts to leverage grants for unrelated policy goals.
Why It's Relevant
CoC is the same playbook—use grant terms to force local compliance—now aimed at homelessness policy.
NFIB v. Sebelius and the “gun to the head” theory of conditional spending
2012What Happened
The Supreme Court upheld most of the Affordable Care Act but ruled Congress went too far by threatening states with the loss of all Medicaid funding if they refused expansion.
Outcome
Short term: Medicaid expansion became optional for states rather than mandatory.
Long term: NFIB became the modern anchor for challenges claiming grant conditions are coercive or transformative.
Why It's Relevant
Plaintiffs cast HUD’s midstream CoC rewrite as an abrupt, high-stakes ultimatum—policy change by financial threat.
South Dakota v. Dole and the boundary rules for federal grant conditions
1987What Happened
The Supreme Court upheld conditioning a slice of highway funds on states adopting a higher drinking age, while outlining limits: clarity, relatedness, and non-coercion.
Outcome
Short term: States moved toward a uniform drinking age to avoid funding losses.
Long term: Dole became the basic test courts cite when governments fight over grant “strings.”
Why It's Relevant
This HUD case is a modern argument about whether the new “strings” are related, lawful, and imposed the right way.