New Jersey sues Trump administration over HUD funding changes, saying more than 1,300 residents could lose housing

Lawsuit argues HUD is attempting to revive funding restrictions a federal judge already blocked

New Jersey joined a coalition of states Tuesday in suing the Trump administration over changes to the nation’s largest homelessness grant program, arguing the new rules could force more than 1,300 New Jersey residents out of permanent housing and back onto the streets.

New Jersey Attorney General Jennifer Davenport and attorneys general from 21 other states, along with two governors, filed the lawsuit in federal court in Rhode Island, asking a judge to block the U.S. Department of Housing and Urban Development from implementing new funding conditions for the federal Continuum of Care program.

“The Trump Administration is trying once again to evict thousands of people, despite a court order holding its previous attempt unlawful,” Davenport said in a statement. “The drastic changes that HUD is attempting to impose on this grant program would increase homelessness and send over 1,300 New Jerseyans back to the streets. This is not right.”

The lawsuit comes less than two weeks after the same federal court ruled in favor of the states in a separate challenge to HUD’s fiscal year 2025 homelessness funding competition. According to the complaint, HUD responded by issuing a new funding notice for fiscal year 2026 that attempts to accomplish many of the same policy changes the court had already found unlawful.

At the heart of the dispute is the “Continuum of Care” program, the federal government’s primary source of funding for homelessness services. The program distributes more than $4 billion annually to local governments and nonprofit organizations that provide permanent supportive housing, rapid rehousing, rental assistance, and other services for people experiencing homelessness, including veterans, families with children, seniors, and people with disabilities.

The states argue Congress intentionally designed the program to prioritize stability by renewing existing permanent housing projects whenever they continue to meet program requirements.

According to the complaint, Congress structured the law so housing providers could continue serving people “whose lives depend on it” and so “millions of formerly chronically homeless individuals and families are not evicted back to homelessness.”

The lawsuit alleges that the Trump administration is now attempting to reverse that approach without following federal law.

For more than two decades, HUD has embraced a “Housing First” model that prioritizes placing people into permanent housing without requiring them to first complete substance abuse treatment, mental health counseling, or other supportive services. The complaint notes HUD’s own strategic plan concluded that a “considerable research literature” shows Housing First “improves housing stability, physical and mental health, and a variety of quality-of-life measures while also yielding cost savings through reduced need for emergency health services.”

The states argue the new funding rules abandon that longstanding policy.

According to the complaint, HUD’s fiscal year 2026 funding notice reserves roughly $1.3 billion for transitional housing and supportive service projects. While the agency does not explicitly cap spending on permanent housing, the lawsuit argues the set-aside effectively limits permanent housing funding to about 68% of available dollars.

Historically, well over 80% of Continuum of Care funding has supported permanent housing projects, according to the complaint. The states argue the reduction would eliminate funding for existing housing programs that Congress intended to protect.

The complaint says the consequences would be severe.

According to estimates from the National Alliance to End Homelessness cited in the lawsuit, at least 97,000 people nationwide who currently live in federally funded permanent housing could lose that housing if the changes take effect. More than 1,300 of those residents live in New Jersey.

The lawsuit warns that HUD’s actions would result in “tens of thousands of formerly homeless individuals and families being evicted back to the streets, with states and local governments left to pick up the pieces.”

The coalition also challenges new scoring criteria that reward applicants for requiring participants to engage in substance abuse treatment, mental health treatment, or other supportive services.

The states argue that those provisions move away from Housing First by encouraging providers to condition housing on participation in services rather than making housing available first.

According to the complaint, the changes would ripple far beyond people directly losing housing.

States argue reductions in permanent supportive housing would increase pressure on emergency shelters, hospitals, behavioral health providers, jails, child welfare agencies, and other publicly funded services. The complaint also argues that affordable housing developments financed with state, local, and private dollars often rely on predictable federal Continuum of Care funding to remain financially viable.

The lawsuit also contends the new rules conflict with other federal housing programs.

For example, providers receiving certain grants that serve domestic violence survivors are prohibited from requiring clients to participate in supportive services as a condition of receiving housing. Yet HUD’s new scoring system rewards applicants who impose those requirements.

That leaves providers facing what the lawsuit describes as “the impossible choice” of disadvantaging their applications for Continuum of Care funding or risking compliance with other federal housing programs.

The coalition argues HUD violated the federal Administrative Procedure Act by fundamentally changing the grant program without first going through the public notice-and-comment process required under federal law. It also contends the agency exceeded its authority because Congress directed HUD to prioritize renewing permanent housing projects and because the agency failed to adequately explain its abrupt reversal of decades of Housing First policy.

The complaint argues HUD’s actions are “arbitrary and capricious” because the agency abandoned its own previous findings supporting Housing First while failing to consider what would happen if thousands of people lost permanent housing and states were forced to absorb the resulting costs.

The lawsuit asks the court to declare the new funding conditions unlawful and block HUD from enforcing them while the case proceeds.

Joining New Jersey in the lawsuit are Arizona, California, Colorado, Connecticut, Delaware, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Mexico, New York, Oregon, Rhode Island, Vermont, Virginia, Washington, Wisconsin, the District of Columbia, and the governors of Kentucky and Pennsylvania.