Court vacates FY 2026 Continuum of Care grant changes

Key Takeaways

On August 7, a federal judge issued a ruling determining that the U.S. Department of Housing and Urban Development (HUD) acted unlawfully when it included a $1.3 billion set-aside in the Notice of Funding Opportunity (NOFO) for the fiscal year (FY) 2026 Continuum of Care (CoC) Program Competition released on June 1. The decision requires that HUD rescind the NOFO entirely.

The CoC program is the primary federal funding source for local efforts to prevent and end homelessness, and the lawsuit brought by several homelessness advocates argued that a $1.3 billion set-aside for new transitional housing and supportive services projects was unfounded and would cause many existing projects to lose funding. Many of the selection criteria provisions were also determined to be unlawful, including requirements to follow Executive Orders and restrictions on diversity.

What was in the NOFO?

Under the NOFO, 60 percent of total funding would be considered “protected” under Tier 1, renewed on a non-competitive basis to ensure continuity of existing CoC operations. The remaining 40 percent would be awarded through a competitive process. Under the current program framework, nearly 90 percent of program funds are protected renewal funds. Additionally, renewal projects may have been subjected to audits or ongoing evaluations, increasing the importance of strong performance reporting, compliance and financial oversight.

The NOFO also placed renewed emphasis on short-term transitional housing paired with wraparound supportive services, reflecting broader administration efforts to reform homelessness intervention models. While there was no specific "cap" on any particular project components (such as permanent supportive housing), there was a $1.3 billion set-aside for Tier 2 projects with explicit priority for transitional housing and supportive service projects. 

The notice also included provisions limiting the consideration of diversity, equity and inclusion (DEI) initiatives and race-based factors in program administration. HUD introduced new merit and risk review criteria, including potentially subjective factors such as "self-sufficiency." 

What’s next?

HUD is considering legal options, including an appeal, and acknowledged that the submission deadline is no longer applicable. Counties should continue monitoring HUD communications for another revised FY 2026 CoC NOFO. In the meantime, counties and their CoC partners should assess how the court’s decisions may affect local funding plans and remain prepared to adjust applications once HUD provides additional guidance. NACo will continue tracking developments and provide updates as more information becomes available.