Two separate federal lawsuits challenging U.S. Department of Housing and Urban Development actions could reshape up to $241 million in homelessness funding across the Los Angeles region and alter spending rules, according to court documents and local officials. The legal battles center on whether the lead regional agency, the Los Angeles Homeless Services Authority, will stay suspended from a major grant competition, and whether federal regulations can cap permanent housing spending.
Legal Battle Over LAHSA’s Federal Grant Suspension
The lawsuits focus on HUD’s national Continuum of Care grant competition, which serves as the largest source of federal homelessness dollars for Los Angeles annually. Since the 1990s, HUD has required metropolitan areas like L.A. County to submit one single application for the region’s entire allocation, a process managed by LAHSA. That process shifted in June when HUD suspended LAHSA from federal grant activity pending an investigation into alleged financial mismanagement, stating the agency was barred from applying for this year’s grants.
LAHSA sued to overturn the suspension and is proceeding with its application while awaiting court guidance. U.S. District Judge David O. Carter scheduled a hearing for Aug. 6 on LAHSA’s motion for a preliminary injunction. HUD subsequently invited homeless service providers to apply directly for the funds, bypassing LAHSA, while the L.A. County Development Authority offered to apply on behalf of the region if necessary. HUD set an application deadline of Aug. 26 for the final submission.
Auditors and local officials have raised longstanding concerns regarding LAHSA’s internal controls, contract monitoring, and fund oversight, prompting HUD’s suspension. On July 2, Judge Carter directed HUD and LAHSA to propose an order temporarily maintaining the current funding process, though both sides failed to agree on terms. LAHSA urged service providers in an email last week to stay the course, while Sarah Mahin, director of L.A. County’s new Department of Homelessness and Housing, stated that the county expects further direction at or before the Aug. 6 hearing.
In a July 21 court filing, HUD stated it plans to delay any final action against the L.A. Continuum of Care until Aug. 10 or until the court rules on the preliminary injunction. If the suspension holds, HUD indicated it would grant providers an additional 30 days to submit direct applications. Furthermore, Judge Carter—who oversees a major L.A. legal settlement from an L.A. Alliance for Human Rights lawsuit regarding the city and county crisis response—ordered all parties in that settlement to appear at the Aug. 6 hearing.
Shift Away From Permanent Housing and State Challenges
A second lawsuit addresses how federal homelessness dollars can be spent. According to LAHSA, the L.A. Continuum of Care historically allocates about 90% of its more than $200 million federal funding toward permanent housing interventions, including rental subsidies under the “housing first” strategy. This approach prioritizes a stable place to live as an initial step before addressing employment, addiction, or mental illness. The Trump administration has pursued policy changes to fund fewer permanent housing beds and focus instead on drug treatment, recovery, and enforcement.
After HUD initially proposed rules capping permanent housing at 30% of local spending, the city of L.A. and other municipalities joined litigation challenging the guidance. In June, Judge Mary McElroy struck down those proposed rules while denying a permanent injunction. HUD subsequently issued new regulations capping permanent housing at no more than 60% of local spending plans.
Last month, nearly two dozen states including California sued HUD over the 60% cap, asking Judge McElroy to invalidate the rules. The National Alliance to End Homelessness projected that the proposed rules place more than 5,000 Angelenos at risk for homelessness. The states requested a ruling by Aug. 10 to allow regions time to align applications, arguing the restrictions conflict with federal law and undermine the “housing first” strategy. Conversely, the Trump administration maintains the rules emphasize mental health treatment, addiction recovery, and personal accountability.
Local officials warn that if HUD prevails, the outcome could affect a quarter of LAHSA’s annual budget and threaten one of the largest single sources of money for regional programs funded also by state, county, and city sources.
How Service Providers Are Preparing
Homeless service providers are navigating the intersecting legal battles while seeking to prevent service disruptions. More than 100 local nonprofit service providers met LAHSA’s deadline last week to submit individual applications for the collaborative application process. Organizations like Hope the Mission, a San Fernando Valley provider, reported preparedness to submit directly to HUD if necessary.
“While larger organizations have the administrative capacity to pivot quickly, we are concerned about smaller, specialized community providers who may struggle to navigate a direct HUD submission without localized technical assistance,” said Ivet Samvelyan, vice president at Hope the Mission.
Other organizations voiced concerns over the broader policy direction. Tian Martinez, a spokesperson at Union Station Homeless Services, stated that the primary concern centers on attempts to shift funding away from permanent supportive housing toward programs requiring sobriety and compliance.
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