Major Threats to Federal Homelessness Funding

Posted & filed under Blog, Resources.

Update: This post was updated in early January 2026 to reflect relevant legal and procedural updates.

Overview

The HUD Continuum of Care (CoC) Program is the federal government’s largest investment in homelessness solutions, distributing approximately $3.6 billion annually to housing projects and homelessness services across the country.  On November 14, HUD announced an off-cycle funding competition that introduced a major realignment of HUD’s policy priorities, directing resources away from evidence-based practices. 

Multiple stakeholders around the country filed lawsuits to block these changes, and on December 23, 2025, the US District Court for the District of Rhode Island issued an order that rescinds the 2025 CoC Notice of Funding Opportunity (NOFO) discussed in this post. As of early January, HUD is negotiating with the plaintiffs on a plan for how and when funding will flow to projects that are set to be renewed in 2026, though some funding gap is still likely. Despite these developments, the harmful policies described below are widely expected to shape the next NOFO that HUD will release in August of 2026.

These proposed changes represent the biggest policy shift on homelessness in decades. It will have enormous impacts for hundreds of thousands of currently and formerly homeless Americans, and the organizations and public agencies that serve them. 

This fact sheet ends with recommendations for interventions at the state and local levels to mitigate harms and increase the resilience of proven solutions, as well as federal advocacy strategies that could still have an impact.

New HUD Funding Notice Will Quickly Upend CoC Programs

HUD’s 2025 CoC NOFO represents a major departure from the evidence-based programs and established, bipartisan homelessness policy of recent decades in six key ways:

  1. Major funding delays: The withdrawal of the new NOFO injects even more uncertainty into HUD’s timeline and creates unavoidable funding gaps for many projects as soon as January or February 2026. The CoC program was on a two-year funding cycle, so HUD’s imposition of a 2025 NOFO in the middle of that cycle was already disruptive. Jurisdictions were not expecting a new competition this year, let alone one with totally different priorities and an accelerated timeline.
  2. Drastically reduced funds for existing programs: Historically, the CoC program has been designed to protect the stability of existing housing programs. About 90 percent of funding has flowed through a non-competitive process that supports renewals for core interventions such as permanent supportive housing and rapid rehousing. Only a small share of funding has been nationally competitive, typically reserved for new, experimental, or lower-performing projects. Under the proposed NOFO, that balance is reversed. Only 30 percent of CoC funding would remain protected for existing programs, with the majority of funds subject to national competition. Once funding is lost under this structure, communities are unlikely to recover those dollars during the current administration, making losses effectively permanent. Combined with the new scoring criteria discussed below, this change represents a huge threat to established programs and best practices in the Bay Area and California.
  3. Permanent Housing—previously 90% of Bay Area funds—will be capped at 30%. CoCs must shift funding from existing permanent housing projects that exceed this cap toward new projects that are aligned with the administration’s new policy priorities. The sole exception is transitional housing renewals. New projects require mandatory participation in supportive services. Historically, CoC funds have been used for permanent housing because they were viewed as a stable, long-term source, as opposed to State funds, which are appropriated annually and therefore less reliable.
  4. New priorities dismantle Housing First and reward criminalization. Competitive funds will now be scored based on mandatory participation in supportive services, the presence of on-site substance use treatment, and sobriety—all of which move away from the Housing First model. The NOFO also rewards involvement of law enforcement and practices that criminalize unsheltered homelessness, both of which can cause or worsen trauma and disconnection from services.
  5. CoCs will now be barred from activities related to racial equity, gender affirmation, or harm reduction, and must cooperate with federal immigration enforcement. These new requirements will likely preclude or hinder Bay Area CoCs from successfully competing for funds and will undo years of progress on equitable practices. HUD can also reject or modify renewal grants based on past activities that contradict these new requirements, which may mean Bay Area CoCs lose dollars even if they comply with requirements going forward.
  6. New priorities violate California law, jeopardizing State funding.  Mandating client service participation and sobriety are directly at odds with California’s Housing First law, which requires any state-funded housing project to adhere to Housing First principles. Federal CoC grants require providers to ‘match’ awards with outside funding, and many service providers rely on state grants for this purpose. By complying with new HUD requirements, CoCs risk losing state funding. This conflict could imperil the financial viability of existing housing projects and create cascading legal and financial effects throughout regional and state permanent housing systems.

Impacts in the Bay Area 

The total projected funding loss for permanent housing in the Bay Area is anticipated to be at least $125 million, displacing more than 7,000 individuals. This will significantly impact small, independent rental property owners, as well as larger-scale permanent supportive housing operators. It will also exacerbate existing racial disparities in homelessness. 

To learn more about the specific impacts on the Bay Area and see interactive maps, read our Data Spotlight: Regional Impacts of Threatened Federal Homelessness Funding. 

What’s Next

Given the December 8th withdrawal of the NOFO, there is a high degree of uncertainty about what’s next, and All Home will continue to track and lift up the impacts to our region. Regardless of the outcome, it is clear that this proposal isn’t just another funding cut—it signals a seismic shift in policy for years to come. 

All stakeholders need to understand that this is a concerted effort to reduce federal investment in permanent housing in favor of short-term, conditional assistance. Furthermore, the goal posts will continue moving in ways that demand ethical compromise in exchange for federal funding. 

When combined with impending federal cuts to housing vouchers, Medicaid, SNAP benefits, ACA premiums, and more, these changes will further destabilize—and even endanger the lives of—hundreds of thousands of the Bay Area’s most vulnerable residents. More people will be pushed out of their housing, and it will be even harder to exit homelessness than it is today. Just as California was beginning to see progress in slowing the rise of homelessness, we are now likely to lose ground in 2026. 

The following recommendations can help mitigate harm and make homelessness solutions in California more resilient and effective in light of these threats. Some reflect how Bay Area local governments and advocates are already responding. 

  • California Legislature and Newsom Administration: Provide emergency funding and policy guidance
    • Provide flexibility to use unspent HHAP funds to backfill immediate permanent housing losses. 
    • Restore HHAP allocation to $1 billion in 2026, and designate an additional $500 million in a supplemental “emergency fund” to backfill losses. 
    • Issue guidance on how to resolve conflicts between state requirements and new federal rules.
  • Local Communities: Identify local revenue to backfill funding losses
    • Tap county general reserve funds, local tax measure funds (to the extent possible), Prop 1, and CalAIM to preserve permanent housing.
  • Federal Partners: Coordinate education and prevent future disruption
    • Protect against future disruption by prohibiting mid-cycle grant revisions, requiring minimum lead time to respond to program changes, or similar statutory guardrails.
    • Coordinate regular meetings with Congressional representatives over the next 6 months to explain the real impacts that these changes will have on the lives of their constituents (e.g., seniors, victims of intimate partner violence, families, veterans, people with significant disabilities) and the ripple effects on the larger homelessness response system.
    • Call on Congress to codify homelessness policy guidance that encourages a Housing First approach and other established best practices that have previously enjoyed decades of bipartisan support.