The U.S. Department of Housing and Urban Development withdrew a controversial funding policy change Dec. 8, roughly a week after Nashville and other local governments sued the agency over the shift.
HUD filed a withdrawal notice in U.S. District Court for the District of Rhode Island stating it pulled back the new grant policy to “assess the issues raised by plaintiffs in their suits” and develop a new approach. The policy would have forced governments and agencies to reapply under new conditions for funds already set for distribution by January 2026.
The agency had rescinded that funding Nov. 13, months after a mid-summer deadline required under federal law for changing how it awards Continuum of Care funding, according to the lawsuit.
District Judge Mary McElroy called the timing “intentional chaos” and criticized what she described as a “haphazard approach to administrative law.”
“These cases keep creating chaos because of the way government is failing to follow the sort of normal process,” McElroy said. “I understand changing policies; that’s not the issue. You can change the policy all you want, but there’s a mechanism for doing so and it’s not doing things an hour before court. And it’s not some of the stuff that’s been done in some of these cases.”
More than $11.8 million in Nashville funding remains in limbo. That money provides permanent housing for more than 800 people, according to court filings from April Calvin, director of Nashville’s Office of Homeless Services. The lawsuit said grants are now on track for delivery by May 1, 2026, at the earliest rather than early January.
Wally Dietz, Nashville’s director of law, said the last-minute withdrawal shows HUD recognized it couldn’t defend its position.
“The open question is whether HUD is just retreating to fight another day or is planning to reinstate the funding that was promised,” Dietz said. “We appreciate the Court’s concerns about possible gamesmanship and will continue to fight for a court order that HUD must honor prior year commitments for this fiscal year.”
Nashville Mayor Freddie O’Connell said he remains uncertain about HUD’s next steps.
“I’ve asked our Department of Law to continue working to defend our programs,” O’Connell said. “We’ll persist until we’re confident the federal government is upholding its funding obligations under the law.”
“These cases tend to be incredibly labor-intensive and incredibly wasteful financially for the government, for the courts, for the agencies and states,” McElroy said. “The last-minute sort of, ‘Oh, never mind, we’re going to withdraw this,’ are we going to see another 2025 (policy) without the proper procedure in place tomorrow?”
The judge ordered HUD attorneys to respond to plaintiffs’ motions for preliminary injunction by Dec. 15 and address the nature, timing and effect of the withdrawal.
