The federal case asks whether the Trump administration can shift a larger share of Continuum of Care grants toward transitional housing and services, a dispute with direct relevance in Morris County, where recent HUD awards support permanent housing and rapid-rehousing projects.
MORRISTOWN, N.J. — New Jersey has joined a multistate federal lawsuit seeking to block the Trump administration’s latest changes to a major homelessness-assistance program, arguing that new U.S. Department of Housing and Urban Development funding rules unlawfully threaten permanent housing projects and could destabilize services for thousands of people.
The complaint, filed July 7 in U.S. District Court for the District of Rhode Island, challenges HUD’s fiscal year 2026 rules for the Continuum of Care program, the federal government’s principal competitive grant system for community-based homelessness responses. New Jersey Attorney General Jennifer Davenport joined other state attorneys general and the governors of Kentucky and Pennsylvania in suing HUD and Secretary Scott Turner. The case is docketed as State of Washington et al. v. U.S. Department of Housing and Urban Development et al., No. 1:26-cv-00439.
“The Trump Administration is trying once again to evict thousands of people, despite a court order holding its previous attempt unlawful,” said Attorney General Davenport. “The drastic changes that HUD is attempting to impose on this grant program would increase homelessness and send over 1,300 New Jerseyans back to the streets. This is not right.”
At the center of the dispute is whether HUD may redirect a substantial portion of available funding toward new transitional-housing and supportive-service-only projects while using scoring criteria that favor treatment, recovery services and participation in supportive services. The states contend that the changes conflict with federal law, were imposed without required notice-and-comment procedures and are arbitrary and capricious under the Administrative Procedure Act. Those assertions are allegations in the lawsuit and have not been resolved in the new case.
The coalition is asking the court to declare the challenged conditions unlawful, set them aside and prevent HUD from implementing them. The complaint argues that the new structure could reduce or eliminate funding for existing permanent-housing projects, potentially forcing state and local governments to absorb additional housing, shelter and service costs.
State officials cite an estimate from the National Alliance to End Homelessness that the changes could put housing for at least 97,000 people nationwide at risk, including more than 1,300 people in New Jersey. The nationwide figure is also cited in the federal complaint; the projection is an advocacy organization’s estimate rather than a court finding.
Morris County has a direct stake in the federal program
The litigation has a clear local connection for Morristown-area residents because Morris County operates its own HUD-recognized Continuum of Care, identified as NJ-509. Continuums of Care coordinate regional homelessness responses and compete for federal funding on behalf of local housing and service projects. Morris County also maintains a local CoC structure for planning and funding decisions.
HUD’s May 21, 2026 award report listed $1,887,102 for the Morris County Continuum of Care. The listed projects included two permanent supportive-housing renewals, a youth rapid-rehousing renewal, a JBWS rapid-rehousing renewal, the Keys to Housing Consolidated Program, coordinated entry and planning funds.
That figure should not be read as an estimate of how much Morris County would lose under the challenged 2026 rules. The lawsuit does not provide a Morris County-specific projection of residents or dollars at risk. Rather, the recent award record illustrates that local homelessness programs depend on the same federal funding system now at issue in court.
HUD describes the CoC program as a nationwide competition intended to support community-wide efforts to reduce homelessness, quickly rehouse people, connect them with mainstream programs and improve self-sufficiency. The agency formally published the fiscal year 2026 funding notice on June 1, with applications due Aug. 26.
States challenge a $1.3 billion funding set-aside
The complaint focuses in part on a $1.3 billion set-aside for new projects that prioritizes transitional housing and supportive-service-only programs. The states argue that making those funds unavailable for permanent-housing projects effectively limits permanent housing to about 68% of roughly $4.04 billion in available CoC funding. That 68% characterization is the plaintiffs’ calculation and legal theory, not a judicial finding.
HUD’s own 2026 funding notice confirms a deliberate policy shift. The agency states that 88% of the 2024 national CoC award went to permanent housing and 1% to transitional housing, and says it intends to expand opportunities for other components of the program. HUD argues that a broader mix of transitional housing, treatment, supportive services and other interventions is needed to improve self-sufficiency and address underlying causes of homelessness.
In public materials issued before the 2026 notice, HUD similarly said it planned to rebalance the program by increasing investment in transitional housing and supportive services, including street outreach, addiction treatment, job training and mental-health care. The agency has criticized the existing emphasis on Housing First and harm-reduction approaches and says communities need a wider range of interventions.
The states dispute both the legality and the implementation of that shift. Their complaint argues that federal law prioritizes renewal of qualifying projects and that HUD cannot use a funding notice to add restrictions that effectively displace existing permanent-housing programs. They also challenge new scoring provisions that reward some treatment and service-participation models, contending that HUD changed longstanding policy without the procedural steps required by law.
The legal disagreement therefore extends beyond whether permanent or transitional housing is preferable as policy. The court is being asked to determine whether HUD stayed within authority granted by Congress and followed legally required procedures when structuring the 2026 competition.
Lawsuit follows a June ruling against earlier HUD changes
The new case comes days after a separate ruling involving HUD’s fiscal year 2025 Continuum of Care notices. On June 29, U.S. District Judge Mary S. McElroy set aside HUD’s November and December 2025 funding notices, finding that the agency had acted arbitrarily and capriciously in their implementation. The court also concluded, as an alternative basis, that HUD had exceeded statutory authority by missing a congressionally prescribed deadline for issuing the notices.
That earlier decision is significant but does not automatically decide the new lawsuit. McElroy denied the plaintiffs’ request for a permanent injunction against future implementation of the contested conditions, reasoning that such future harm was speculative at that stage. The judge also declined to add a challenge to the June 2026 notice to the older litigation, expressly leaving plaintiffs free to file a separate case. The July 7 complaint is that separate challenge.
The distinction matters because the current litigation concerns a newly issued 2026 funding structure, even though the states argue that it revives aspects of the policy direction challenged in 2025.
For Morris County, the immediate effect remains uncertain while the case proceeds. HUD’s current 2026 competition is active, and the federal agency continues to administer a program that recently directed nearly $1.9 million to the county’s Continuum of Care. The broader question now before the federal court is whether HUD’s effort to redistribute funding among permanent housing, transitional housing and service-focused programs complies with the statutes and administrative procedures governing that system.