A federal judge has stopped the Department of Housing and Urban Development from moving $1.3 billion out of permanent supportive housing, ruling that the agency broke the law not in what it wanted to do but in how it tried to do it. On Friday, August 7, Judge Mary S. McElroy of the US District Court for the District of Rhode Island vacated HUD's June 1, 2026 Notice of Funding Opportunity, which had set aside the money for transitional housing programs [1].
McElroy's ruling turned on process. She found that HUD's notice violated the McKinney-Vento Homeless Assistance Act by skipping the notice-and-comment step, the public rulemaking process federal agencies must run before making a change of this kind [1]. The decision did not resolve whether transitional housing is better or worse policy than permanent supportive housing. It found that HUD did not have the authority to reroute the funding the way it did, without first opening the change to public comment.
That distinction is the whole case. Transitional housing is time-limited, meant to move people toward stability over a set period. Permanent supportive housing pairs a lasting home with services and does not put a clock on how long a resident can stay. HUD's June notice would have pulled $1.3 billion toward the transitional model. The coalition that sued did not ask the court to declare one model superior; it argued that the agency had to follow the McKinney-Vento Act's procedures before shifting the money, and the court agreed [1].
The suit was brought by a coalition of 21 state attorneys general plus 2 governors [2]. According to the Arizona Attorney General's office, the funding cap would have put roughly 1,800 Arizonans' housing at risk, part of about 97,000 people nationally in permanent supportive housing who faced losing it [2].
Rhode Island Attorney General Peter Neronha, whose office secured the order, tied the ruling to the people the money reaches. "Those experiencing homelessness are in dire need of support, and slashing funding for permanent housing would have caused tens of thousands of people to lose their homes," he said [1].
For now, the vacatur keeps the $1.3 billion pointed where it was, and it leaves HUD with a narrower path. If the agency wants to move the money toward transitional housing, the ruling says it has to run the public-comment process the law requires first. What the court did not do was end the underlying policy fight over which kind of housing federal dollars should favor. It ruled that the fight has to go through the front door.
