In August a federal judge in Providence threw out the Trump administration’s 2026 funding plan for the Continuum of Care program, the $4 billion federal grant that pays for housing and services for homeless people. Massachusetts, Boston and Cambridge were among the plaintiffs, and they won. On Wednesday the First Circuit put that ruling on hold and let the Department of Housing and Urban Development proceed with the plan while the appeal runs.
Two days earlier a judge in Boston struck down $600 million in teacher-training cuts, and we explained why winning that case does not bring the money back. The housing decision is a different kind of loss, and it is worth being precise about the difference. In the teacher case the states won the merits and cannot get the remedy. In the housing case the First Circuit is saying the states may not have the merits either.
What HUD did
The Continuum of Care program has funded homelessness services since 1987 through grants to states, local governments and nonprofits. For most of its history it has run on a “housing first” model that places people in permanent housing without preconditions such as sobriety or employment, then wraps services around them.
In June HUD announced the 2026 competition, more than $4 billion, with a change. It set aside $1.3 billion for transitional housing and “supportive service only” projects. HUD Secretary Scott Turner said “housing alone will not solve” homelessness and that the department would “put recovery first.” Plaintiffs said the shift would pull money from permanent housing and put tens of thousands of formerly homeless people at risk of losing it.
This was HUD’s third attempt at the change. Two earlier funding notices tried to cap renewal funding for housing-first programs. Both were blocked by courts for violating the Administrative Procedure Act. In April the First Circuit refused to stay one of those rulings. The 2026 notice used a set-aside rather than a cap.
What Judge McElroy held
Twenty-two states, the District of Columbia and a coalition of advocacy groups and cities sued in the District of Rhode Island. On August 7 Judge Mary McElroy granted summary judgment to the plaintiffs and set aside the entire 2026 notice.
Her reasoning ran through a specific provision of the McKinney-Vento Act, 42 U.S.C. § 11386b(d). That subsection directs the Secretary to “provide bonuses or other incentives” to geographic areas that use funding for activities “proven to be effective at reducing homelessness.” It lists what counts as proven, and then, in subparagraph (C), allows the Secretary to add “any other activity determined by the Secretary, based on research and after notice and comment to the public, to have been proven effective.”
McElroy found that the $1.3 billion set-aside worked as an incentive for applicants to adopt HUD’s preferred programs. If it was an incentive, and transitional housing and service-only projects were not among the activities the statute already lists, then the statute required notice and comment before HUD could offer it. HUD had not done that. The judge vacated the notice but declined to bar HUD from trying again.
What the First Circuit said
The stay order is three pages. The panel, Judges Montecalvo, Aframe and Dunlap, applied the standard from Nken v. Holder, 556 U.S. 418 (2009), which asks whether the applicant is likely to succeed on the merits, whether it will be irreparably harmed without a stay, and where the balance of harms and the public interest lie.
On the merits the court did not hedge. HUD “has made a strong showing that it is likely to succeed” on its challenge to the district court’s holding. That holding “turned on the district court’s determination that the set-aside constitutes a ‘bonus or other incentive'” under § 11386b(d). The panel wrote: “We conclude that HUD is likely to succeed on the argument that the set-aside is not a ‘bonus or other incentive[]’ as that term is used in § 11386b(d).”
On harm the court pointed to a deadline. Under the 2026 appropriations act, HUD has until December 1 to make Continuum of Care awards. “Although HUD is likely to succeed on the merits, it would be unable to implement the NOFO in a timely manner, thereby creating funding gaps, unless a stay enters.”
That is the entire order. There is no analysis of what a “bonus or other incentive” is, or of why a $1.3 billion set-aside for a category of project is something else. That reasoning will come in the merits decision.
Why this is a different loss from the teacher case
In the teacher-training case the Supreme Court’s April 2025 stay in Department of Education v. California signaled that district courts cannot order the government to keep paying grant money, because claims for money under a grant agreement belong in the Court of Federal Claims under the Tucker Act. The states won on administrative law and lost the remedy on jurisdiction.
Here the question is the statute. The district court’s holding depended on reading a set-aside as an “incentive.” The First Circuit thinks that reading is probably wrong. If the panel holds that way after full briefing, the states lose on the merits, the notice stands, and there is no procedural defect for HUD to cure. The August win was built on a single statutory word, and the appeals court has now said it doubts the word carries the weight.
There is a common thread, and it is worth naming. States have been winning notice-and-comment cases against this administration because agencies moved fast and skipped procedure. Those wins are durable when the procedure was plainly required. They are fragile when the requirement has to be found in a specific provision that an appeals court can read the other way.
What happens now
HUD can run the 2026 competition on its own terms and make awards by December 1. Applicants in Massachusetts continuums of care who built proposals around the vacated notice will need to reassess against the set-aside.
The appeal continues. The First Circuit has not decided the case, only the stay. If it ultimately affirms Judge McElroy, awards made under the notice would face the question of what happens to money already committed, which is the unwinding problem that makes a stay so consequential in grant litigation.
The plaintiffs could seek rehearing of the stay or go to the Supreme Court, though the emergency docket has not been a friendly venue for states in grant cases this year. The more likely path is to brief the merits and argue that a set-aside of nearly a third of the appropriation, aimed at steering applicants toward specific project types, is an incentive in every sense the statute uses the word.
We track the Commonwealth’s active cases against the federal government in our running tracker, which we are updating with this order.
What is the Continuum of Care program?
A HUD grant program, in place since 1987, that funds housing and services for homeless people through local planning bodies called continuums of care. The 2026 competition is worth more than $4 billion.
What did the First Circuit decide?
It granted HUD a stay pending appeal, meaning the district court’s ruling vacating the 2026 funding notice is suspended and HUD can proceed with the competition while the appeal is decided.
Did the First Circuit rule that HUD’s plan is legal?
No. It ruled that HUD is likely to succeed in arguing the set-aside was not subject to notice and comment. The merits decision comes later.
Is Massachusetts a party?
Yes. The Commonwealth is a plaintiff in the states’ case, and Boston and Cambridge are plaintiffs in the companion case brought by cities and advocacy groups.
What is the December 1 deadline?
The date by which the 2026 appropriations act requires HUD to make Continuum of Care awards. The court treated the risk of missing it as irreparable harm to HUD.
Stay order read in full: State of Washington v. HUD, Nos. 26-1922 and 26-1923 (1st Cir. Sept. 16, 2026). District court background from Reuters (Nate Raymond, September 16), JURIST (September 17) and Smart Cities Dive (August 10). 42 U.S.C. § 11386b read at the Legal Information Institute. Judge McElroy’s August 7 opinion was not retrieved directly; its reasoning is described as reported and as characterized in the First Circuit’s order. Nken v. Holder verified on CourtListener. General information about federal and Massachusetts law, not legal advice.