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Inside the multi-state fight against Federal funding caps
On November 25, 2025, Vermont Attorney General Charity Clark joined a coalition of 20 states in a major lawsuit against the U.S. Department of Housing and Urban Development (HUD) and the Trump Administration. Filed in federal court, the lawsuit challenges new federal rules that threaten to upend how homelessness services are funded across the nation.
For over two years, Vermont has grappled with an acute housing crisis. Now, state officials argue that a sudden shift in federal policy—moving away from the “Housing First” model toward a punitive “Treatment First” approach—could destabilize the state’s safety net and lead to mass displacement.
This explainer breaks down the lawsuit, the policy changes at the center of the dispute, and what this means for Vermont residents.
The Core Conflict: Housing First vs. Treatment First
To understand the lawsuit, one must understand the philosophical shift occurring in Washington.
For the past two decades, federal homelessness policy has been guided by a bipartisan consensus known as “Housing First.” This model posits that stable housing is a basic need that should be met immediately. Once a person is housed, they are better positioned to address issues like substance use or mental health. Data cited by the National Low Income Housing Coalition indicates this model creates housing retention rates of 85-90% and reduces the use of expensive emergency services like ERs and jails, a finding supported by HUD’s own archives.
The incoming administration, influenced by the Heritage Foundation’s “Project 2025” and the Cicero Institute, has declared this model a failure. They advocate for a “Treatment First” approach (sometimes called “Housing Fourth”). Under this model, housing is viewed as a reward for sobriety and compliance. Proponents argue that unconditional housing enables addiction and public disorder, a concern echoed by appointees like Secretary Scott Turner.
This ideological shift was operationalized in July 2025 via Executive Order 14321, titled “Ending Crime and Disorder on America’s Streets.” As analyzed by KFF, the order directs agencies to prioritize funding for programs that mandate treatment and enforcement.
The Mechanics of the Change: Why Funding is at Risk
The legal battle focuses on the “Notice of Funding Opportunity” (NOFO) for the Continuum of Care program. This is the primary federal grant system for homelessness, distributing nearly $4 billion annually according to the National Low Income Housing Coalition.
Attorney General Clark’s complaint alleges that the FY2025 NOFO introduces mathematical changes that make it nearly impossible for existing Vermont shelters and housing programs to survive.
1. The 30% Cap
Previously, there was no cap on how much grant money could be used for Permanent Supportive Housing (PSH)—long-term housing with support services. In Vermont, PSH accounts for nearly 80% of the federally funded portfolio, according to an analysis by the National Alliance to End Homelessness.
The new rules cap PSH funding at 30%.
- The Impact: To comply with this rule, Vermont’s housing coalitions would theoretically have to defund and shut down approximately half of their existing housing units to meet the new math. The lawsuit argues this creates a “fiscal cliff” that guarantees mass evictions, a risk highlighted by the National Alliance to End Homelessness.
2. The Tier 1 Reduction
Federal grants are divided into “Tier 1” (safe, likely to be renewed) and “Tier 2” (competitive, high risk).
- Old Rule: 95% of a state’s existing programs were protected in Tier 1.
- New Rule: Only 30% of programs are protected in Tier 1.
- The Impact: This forces 70% of Vermont’s homeless service providers to compete annually for their survival against new criteria that favor the Administration’s “Treatment First” priorities, a concern raised by the National Association of Counties.
Social and Cultural Mandates
Beyond the math, the lawsuit challenges new requirements regarding gender and immigration that conflict with Vermont state law.
The “Biological Sex” Requirement
The new funding rules disqualify programs that use definitions of sex other than “binary biological sex.” This contradicts HUD’s own existing “Equal Access Rule,” which requires federally funded housing to be open to all, regardless of gender identity.
- The Vermont Conflict: Vermont state law explicitly prohibits discrimination based on gender identity. Local shelters are now in a “double bind”: if they comply with federal rules to get funding, they violate state civil rights laws; if they comply with state laws, they lose federal funding. This creates barriers for vulnerable populations, including youth, as noted by the Metro Denver Homeless Initiative.
The “Sanctuary City” Penalty
The new rules penalize applicants located in “Sanctuary Jurisdictions”—areas that limit cooperation with federal immigration enforcement. The lawsuit argues that a city’s immigration policy has no relevance to the effectiveness of a homeless shelter, making this penalty an illegal attempt to coerce local governments.
The Legal Argument: “Rule by Memo”
The Attorney General is not just arguing that these policies are bad, but that they are illegal. The lawsuit rests on three main legal pillars:
- Violation of the Administrative Procedure Act (APA): Major changes to federal regulations usually require a “notice-and-comment” period where the public and states can weigh in. The lawsuit alleges the Administration bypassed this legal requirement, effectively rewriting the law through a funding memo.
- Arbitrary and Capricious: Under the law, agencies must provide a reasoned explanation when they reverse course on factual findings. The complaint argues HUD ignored 20 years of evidence supporting “Housing First” without providing new data to the contrary.
- Impoundment: The plaintiffs argue that by creating rules that make it impossible to spend the money Congress appropriated, the Executive Branch is illegally “impounding” (withholding) funds.
Why This Matters for Vermont
While this is a national lawsuit, the stakes in Vermont are uniquely high due to the state’s specific economic and housing landscape.
- High Reliance on Federal Funds: Unlike larger states like New York, which have massive state-funded housing budgets, Vermont relies heavily on federal dollars. Approximately 45% of Vermont’s dedicated permanent supportive housing beds are funded by the specific grants being targeted, per National Alliance data and local reports.
- No “Exit” Strategy: The “Treatment First” model relies on people “graduating” from transitional housing into the private rental market. However, Vermont has a rental vacancy rate of roughly 1-2%, one of the lowest in the nation, according to the Vermont Housing Finance Agency.
- Cost Shift: If federal funds are cut and tenants are evicted, the financial burden shifts to the state. The lawsuit contends that costs will spike in emergency rooms and correctional facilities—services that are significantly more expensive than supportive housing, a reality underscored by the Vermont Coalition to End Homelessness.
What Happens Next
The Immediate Timeline
The filing of the lawsuit is the first step. The coalition of Attorneys General has requested a preliminary injunction. If granted by the Federal District Court of Rhode Island, this would “freeze” the new rules, forcing HUD to process grants under the old 2024 standards while the legal case proceeds.
If the Lawsuit Fails
If the court allows the new rules to stand, Vermont housing providers will face the new funding application deadline in early 2026. At that point, local Continuums of Care would be forced to make difficult decisions about which programs to cut to meet the 30% cap.
The Humanitarian Risk
Housing advocates warn that without court intervention, 2026 could see a wave of program closures. For the thousands of Vermonters currently in federally subsidized supportive housing, this would mean the loss of their homes and a likely return to homelessness or reliance on emergency shelters that are already at capacity, as detailed in the 2025 State of Homelessness in Vermont Report.
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Categories: Housing, National News, State Government
If legislators opened their homes to these people the problem would be solved immediately with no state funds needed.
How many legislators have taken in one homeless person?
Where is the compassion?
Lead by example, not with our money.
As you imply, democrats and progressives are very generous people, but they are typically only generous with OPM…other people’s money.
When we “help” the homeless with no strings attached it only makes the problem worse. Homelessness is big business and that’s what Trump is ending.
Yes Warren that’s right!! We have President Trump to THANK for bringing some long awaited common sense to the chaotic mess made by the Elected Dems/Leftists/Progs in Vermont.
The Vermont Government Dems/Leftists/Progs have this matter and many others upside down in SO ……….. MANY WAYS!!
Vermont’s Elected Officials ignore the common sense consequences of giving repeated handouts with no requirements from the recipients and they wonder why Vermont’s homelessness grows!
Vermont’s Elected Officials ignore the Supremacy of Federal Immigration Laws as a sanctuary state that welcomes and harbors illegal aliens paid for by Vermont Taxpayers and Federal Programs!
Vermont chooses to have “NO RESIDENCY REQUIREMENT” for persons arriving in the state and seeking handouts for all manner of services and then wonders why homelessness is growing more and more out of control!
NOW …… another lawsuit by our embarrassing and Lawless Vermont Attorney General Charity Clark using Vermont Taxpayer Resources to sue our Federal Government, because our U.S. Government refuses to continue enabling Vermont’s Overall Sick Condition and actions of Lawlessness and Chaos!
GO TRUMP!! PLEASE MAKE THEM ALL LEGALLY ACCOUNTABLE!!
🤯 Bernie mittens Sanders has free bedrooms at his “homes” whose paying!!
Don’t you think 🤔 I do!!
🤡 Becca Ballint will take the ass wipers.
I bet, she has enough toilet paper.
Don’t you think 🤔 I do!!
You can’t convince me that having 15-20 MILLION Illegal aliens in this country has anything to do with the Nationwide housing crisis! They have to sleep somewhere, and the homeless/addicted US citizen is not the entire issue!
The end of section eight housing vouchers will evict a million people from these goat herder housing units and the owners of these units will go bankrupt.
Who builds the housing?
Which former governor has a family business in housing?
PS- Who could THAT be?
Yes Tyler! Good point!
Our young people have been told that honest hard work is beneath them; they shouldn’t get dirt under their nails; they need to take the government college loans, go into debt for tens of thousands of dollars and go to college in order to get a job.
We now have a seriously high shortage of the Builders, Electricians, Plumbers, HVAC, Welders, Etc, that are needed to build housing and also many young people in high debt without access to decent jobs.
Scott is not a former governor, yet.
And the TRUTH has finally been spelled out for all to see!
“Housing First” ADMITS that the state: has grappled with an “acute housing shortage”.
And now this federal policy that redirects funding toward TREATMENT of addictions and of serious mental health illnesses of homeless populations would “jeopardize” the seemingly endless stream of money that was placing these people into “permanent supportive” housing (ultimately paid for via your TAX dollars) and may cause this organization to have to cease purposefully attracting & enabling droves of impaired homeless people from all around the nation and the world into VT for the myriad of “free” services at the ready.
The “workforce” housing (the latest catchphrase for low-income housing) isn’t intended for working class Vermonters – it is for the homeless, compromised, and illegal alien/migrant demographic which has been welcomed & encouraged & enabled into the state by your politicos-on-a-mission that never cease to be elected to “serve” in this Green MT. State.
First of all ~~ if Vermont ENDED ~~~ its “No Cause Eviction” Law
we would have a lot less homeless people living on the streets. These mega-corporations come in here & build these oppressive looking metal structures with zero thought of aesthetics … Burlington is about to become the ugliest city in the world … (these 400-600 sq ft apartments are being called “Packem’ and Stacken’ homes by the WEF-literate — who know where we are headed — i.e., down the path of Globalism where we will “Own NOTHING & Be Happy ” ? These 600 sq ft apartments are charging $2000/month is OUTRAGEOUS … Who can afford this with the wages most make? It’s criminal … And Bernie with all his communist liberal compassionate ideology ?? Never a peep out of his mouth about this brutal : “No Cause Eviction” Housing Law … I KNOW for a fact – these apartments kick out tenants who signed a lease 5+ years ago – (I know of 2 single women this happened to) — JUST SO THEY CAN RAISE THE RENTS! The owners can then make an additional $400/month getting a new tenant in to sign a lease at present day “market value” … after they kick innocents out on the streets … This “No Cause Eviction” Law is a Public Health Crime. It needs to end now.
Dear Maureen,
Do you own any apartment house(s) in Vermont? You seem to be speaking from a tenant’s perspective, but what about the landlord’s position? There are reasons why landlords are less apt to be Vermonters and rents are getting higher and higher.
Speaking from the responsibilities and experiences of rental housing ownership, there are less and less Vermonters who want to be landlords, because of ALL the costs and other issues that have to be taken on. Vermont’s exorbitant real estate taxes and the costs of building and liability insurance are very high on the list of negative issues for landlords. Vermont’s high electricity and heating/cooling costs are also a large part of Vermont’s housing reality.
Vermont’s overall attitude of lawlessness, no consequences for actions, and “softness on crime” leaves landlords with no ability to control lawless and/or unruly tenant behaviors. Making medical and recreational Marijuana legal in Vermont has created another layer of housing issues with non-compliant, out of control tenants.
Vermont’s high state budget spending, too high public school spending, very high real estate taxes, high energy costs, oppressive building policies, sanctuary/illegal harboring policies, no residency requirement to receive taxpayer handouts, high insurance costs, and lawlessness/soft on crime attitude have ALL contributed to the present housing environment in Vermont.
Landlords are not villains. They are working with the real circumstances that exist in Vermont. If the Dems/Libs/Progs continue to be elected and in charge of our Vermont State Government and Policies we will only see this worsen.
Regarding the ~ “TREATMENT FIRST” ~ Agenda (versus finding these poor & troubled / victims of a corrupt system a HOME) ~ THIS is just another evil capitalistic endeavor & ruse to make more $$$ Billions for the Hospital Industrial Complex … which we all ought to know by now, is ruled by a “Sick-care” Model – (there is NO MONEY in Health) … I’ve myself, worked on Detox-Units as an RN for over a decade and EVEN the PATIENT’S know it is all a money making SCAM for the “Sick-Care Industry” … 12-Step programs help way more than any hospitalization stay – to the tune of what 10-20k ? & 12-STEP Meetings are FREE … Let Burlington set up Free Transport by the busload to 12-STEP Meetings before we feed the HIC more billions of our tax dollars … Trump is just making more Billions for his Zionist friends, like Larry Fink @ CEO of Blackrock, who plans on buying up every home in America. The For-Profit Sick-Care Industry does NOT need our tax-dollars … but the humans living in this country do. People First, Corporate Profits should be LAST. Personally, I would not set foot in a hospital unless I get run over by a car.
Dear Maureen,
How are we helping homeless drug/alcohol addicted persons by putting them in housing while they are still addicted and unable to function? How are they expected to keep their housing, and other costs if they aren’t able to work and earn money to pay their bills?
Are you saying that drug/alcohol treatment plans don’t work? I know many people they have helped. How does free housing help them to be responsible and self-sufficient and/or to find a healthy path and purpose?
Vermont’s choice to close the facilities available for the mentally disabled has only created more homeless. Vermont’s policy of “no residency requirement” to receive taxpayer funded handouts in Vermont has also greatly increased the homeless population. We give for free with no strings, so they come. How does this policy help anyone?