California Could Lose Up to $225 Million a Year in Federal Homelessness Funding Under HUD's FY2026 Overhaul

Los Angeles alone faces a projected $74.7 million annual loss — one-third of the total possible statewide loss — as California’s Housing First mandate conflicts with new federal funding priorities.

Austin, Texas, Nov. 12, 2026 (GLOBE NEWSWIRE) -- California could lose between $160 million and $225 million a year in federal homelessness funding under the U.S. Department of Housing and Urban Development's (HUD) fiscal year 2026 funding overhaul, according to a new analysis released by the Cicero Institute.

The report, titled "California's Exposure Under the FY2026 Homelessness Assistance Continuum of Care NOFO", examines the potential financial consequences of a growing clash between California state law, which requires a Housing First approach to homelessness, and new federal funding priorities that emphasize measurable outcomes such as treatment, recovery, employment, and reductions in homelessness.

The findings suggest that California’s 44 regional homelessness funding consortia, known as Continuums of Care (CoCs), will face a disadvantage when competing for federal funding, because state law will restrict their ability to pivot to some of HUD’s new priorities.

KEY FINDINGS:

• California could lose up to $225 million in federal homelessness funding annually: The analysis projects California could lose roughly a third of its $671.5 million in annual homelessness assistance funding if providers do not adapt to HUD’s new priorities. 
  
  
• Federal funding criteria are changing dramatically: HUD has capped permanent supportive housing funding at 60 percent of total rental awards, ending the previous practice of automatically renewing more than 90 percent of renewal funding. Instead, projects must compete on their merits and on how well they align with HUD’s new priorities, including integrating treatment with housing, increasing participants' incomes, and focusing on recovery from drug addiction.
  
  
• California providers could lose out on critical scoring points: HUD’s new scoring criteria award points for treatment and recovery services, mandatory service participation, policies against safe consumption sites, and more, which directly conflict with California state law. This means CoCs will need to overcome a deficit of about 25 percent of available scoring points to receive the same level of funding.
  
  
• Even partial compliance could cost California $160 million annually: If providers partially pivot toward projects aligned with HUD’s new priorities, the projected loss drops from $225 million to about $160 million. 
  
  
• Los Angeles faces the largest potential loss: LA City and County could lose $74.7 million annually, accounting for about a third of projected losses statewide. Oakland and Alameda County, San Francisco, San Jose and Santa Clara, and San Diego also face significant exposure.

HUD must announce FY2026 awards by December 1, 2026.

"This is the single largest policy change in federal homelessness assistance in more than a decade, and California is the most exposed state in the country," said Paul Webster, Senior Fellow at the Cicero Institute and co-author of the report. "California wrote Housing First into state law and braided it through every layer of its homelessness system. That lock-in now carries a price tag of up to $225 million a year. The question for state and local leaders is whether they will adapt to the new federal priorities or absorb the loss."

WHY IT MATTERS MOST FOR LOS ANGELES 

Los Angeles City and County Continuum of Care is the largest and most-funded CoC in the nation, with a $217.2 million annual renewal demand. It stands to lose more federal homelessness funding than any other region in California. These potential funding losses come as Los Angeles grapples with several high-profile federal fraud cases in its homelessness system.

In June, HUD suspended the Los Angeles Homeless Services Authority (LAHSA) from coordinating the region’s federal homelessness grants, citing financial mismanagement, oversight failures, and violations of federal regulations. In addition, LAHSA has received a billion in federal awards and has made little, if any, progress in reducing the number of homeless people in the region. 

The full report is available on the Cicero Institute's website.

Bo Herlin
The Cicero Institute
772-214-8494
media@ciceroinstitute.org