Trump Slashes Homeless Funds as Blue States Push Back

What Happened

Twenty states and the District of Columbia are challenging the Trump administration over its decision to reshape how federal homelessness funds are distributed. The lawsuit aims to stop changes to the Continuum of Care program, which was expanded under President Obama. It has funneled billions into permanent housing projects in major cities.

Under the new rules, the Department of Housing and Urban Development has capped that category at 30% of total grant spending for 2026. The goal is to redirect funds toward local programs that show measurable progress in reducing homelessness. It is not just for those that rely on permanent housing models, which the administration argues have failed to deliver long-term results.

States suing over the change include New York, California, Illinois, and other left-leaning jurisdictions that have historically received large shares of CoC funds. Their lawsuit claims the administration is overstepping its authority by imposing limits that Congress did not explicitly authorize. They argue the cuts could put an estimated 170,000 people at risk of losing their housing.

Also under scrutiny is a new set of eligibility requirements. The updated rules exclude organizations that promote gender ideology or operate outside the administration's community accountability framework. That has drawn criticism from progressive groups. They argue the policy discriminates against nonprofits serving transgender or nonbinary individuals.

The legal challenge, filed in Rhode Island federal court, seeks an injunction to block the changes before the 2026 grants are distributed.

Why It Matters

The lawsuit highlights a fundamental disagreement over the best strategy to address homelessness. Federal funding has prioritized big-city permanent housing models that house individuals with few conditions for over a decade. The current administration is now questioning whether this approach is effective. This is due to the ongoing challenges of urban homelessness.

Supporters of the previous model have argued that housing-first keeps people off the street and reduces strain on emergency services. Critics, and now the Trump administration, point to data showing that homelessness has surged in many of the cities that adopted these policies. Los Angeles, New York, and San Francisco have spent billions. Encampments, drug use, and violent incidents remain widespread.

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The new approach is performance-based. HUD will now weigh a locality’s results, not just its population, when awarding funds. It will also favor programs that demonstrate accountability, treatment pathways, and success in getting people off the streets and into productive lives. It is not just for those that provide housing.

This also puts pressure on city governments and large nonprofits to show results. Cities that have long treated homelessness as a budget line item without visible improvement may see funding dry up. This reallocation could open the door for smaller or more disciplined local organizations to compete for grants. This is especially true in areas that emphasize recovery, personal responsibility, and enforcement.

How It Affects You

For taxpayers, the proposed change aims to improve returns on federal spending. It targets results after years of rising costs and limited visible progress under previous strategies.

If successful, this could usher in a return to a more conditional model of assistance. Resources would be tied to accountability, rehabilitation, and demonstrated progress. For residents in cities overwhelmed by encampments and disorder, the change might bring more responsive programs. These programs may reduce visible homelessness.

However, the lawsuit could stall the policy before it is implemented. If the courts side with the states, cities with poor performance may continue receiving large sums regardless of outcomes. The status quo of worsening homelessness despite higher spending could remain in place.

Ultimately, the debate centers on which approach delivers real solutions to homelessness, how resources are allocated, and what success looks like.