Why It Matters
A CRS report released in mid-July detailed sweeping changes to how the federal government distributes homelessness assistance, but a court has left the program in limbo after striking down the underlying funding rules.
The Department of Housing and Urban Development's Continuum of Care program, which funds housing and services for people experiencing homelessness, faced a judicial setback just weeks after rolling out its fiscal 2026 funding announcement. A lawsuit challenging the new rules was filed on July 2, and a court vacated the funding notice on August 7 for violating the Administrative Procedure Act, the same legal ground that sank the prior year's version.
As of mid-August, HUD had not issued a replacement notice, leaving roughly 400 local homeless assistance coalitions without clarity on how to compete for federal dollars.
The fiscal year 2026 notice represented a departure from the "housing first" approach used in prior years, instead prioritizing treatment, recovery services, and employment outcomes.
Congress imposed its own constraints on HUD's discretion. The fiscal year 2026 Consolidated Appropriations Act required HUD to select projects totaling not less than 60 percent of Annual Renewal Demand for each applicant, directly constraining HUD's tiering structure. That statutory floor protects existing grantees from being starved of funds, but it also limits room for new initiatives.
The fiscal year 2026 Consolidated Appropriations Act directed HUD to noncompetitively renew grants for fiscal year 2025.
The Big Picture
The fiscal year 2026 Continuum of Care funding totaled $4.04 billion, with approximately $1.3 billion proposed for new grants. That represented a meaningful shift in allocation strategy. The notice directed new funding toward Transitional Housing and Supportive Services Only projects rather than Permanent Supportive Housing and Rapid Rehousing, the dominant models in prior years.
HUD described the fiscal year 2026 notice as an "overhaul" of federal homelessness assistance, and the scoring rubric bore that out. The notice proposed up to 20 points for providing treatment and recovery services and up to 12 points for increased client income from employment only, compared with prior years when participation in treatment or services was not required. Applicants could earn up to 8 points for requiring client participation in supportive services.
The notice also gave HUD broad discretion to make award decisions outside the formal review and scoring process, considering factors including reasonableness of estimated costs, readiness to conduct work, likelihood of achieving expected benefits, preference for lower indirect costs, desire for a broad range of recipients, and geographic dispersion.
On the bonus front, HUD proposed increasing the Continuum of Care bonus from up to 12 percent of Final Pro Rata Need in fiscal year 2024 to up to 15 percent in fiscal year 2026, while introducing minimum and maximum dollar caps of $500,000 and $5 million for most coalitions, unlike prior years.
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