A homeless person sleeps on a bench near the National Mall after U.S. President Donald Trump federalized the Metropolitan Police Department under the Home Rule Act and deployed National Guard to assist in crime prevention in the nation’s capital, in Washington, D.C., U.S., August 15, 2025. REUTERS/Elizabeth Frantz

By Daniel Wiessner

(Reuters) -A group of U.S. states filed a lawsuit on Tuesday seeking to block President Donald Trump's administration from placing new restrictions on more than $3 billion in grant funding used to provide permanent housing and other services to homeless people.

Officials from 20 mostly Democratic-led states and Washington, D.C., said changes the U.S. Department of Housing and Urban Development announced to its Continuum of Care program this month violate federal law and are illegally targeted at LGBTQ people and other communities that are not aligned with the Trump administration's policy priorities, in the lawsuit in Rhode Island federal court.

The lawsuit seeks to block HUD from placing new conditions on receiving the grants, including a cap on the amount of funding that can be used for permanent housing and a ban on funding for groups that focus on transgender communities.

Otherwise, states and nonprofit groups will be left to scramble to reshape their programs or risk losing funding, cutting off housing and services for thousands of people, according to the lawsuit.

"Instead of investing in programs that help people stay safe and housed, the Trump Administration has embraced policies that risk trapping people in poverty and punishing them for being poor," the states said in the lawsuit.

PROGRAM CREATED IN 1987

HUD did not immediately respond to a request for comment.

New York Attorney General Letitia James, a Democrat, said in a statement that communities across the country depend on the program to provide housing and other resources to their most vulnerable members.

“These funds help keep tens of thousands of people from sleeping on the streets every night," James said.

The states that joined New York in the lawsuit include California, Illinois, and Arizona.

Congress created the Continuum of Care program in 1987 to provide resources for states, local governments and nonprofits to deliver support services to homeless people, with a focus on veterans, families, and people with disabilities.

The program has long been based on the "housing first" approach to combating homelessness, which prioritizes placing people into permanent housing without preconditions such as sobriety and employment. Along with housing, the grants fund childcare, job training, mental health counseling and transportation services.

The Trump administration has criticized the housing-first approach, and HUD this month said it was overhauling the grant program to focus on transitional housing initiatives with work requirements and other conditions. HUD has also barred grant recipients from using the funding for activities that promote diversity, equity, and inclusion, elective abortions, or "gender ideology," or interfere with the administration's immigration enforcement agenda.

Trump, a Republican, has also urged states and cities to clear out homeless encampments and direct people to substance abuse and mental health treatment facilities.

The changes could cause more than 170,000 people to lose their housing, according to the states' lawsuit. The states claim the Trump administration cannot impose its own conditions on funds that Congress said should be distributed based solely on need.

(Reporting by Daniel Wiessner in Albany, New York, Editing by Alexia Garamfalvi and Rod Nickel)