HUD Cuts Lifeline to L.A.’s Fraud-Plagued Homeless Authority as California’s $37 Billion Experiment Faces Reckoning

The letter arrived on a Thursday morning in June, announcing the end, at least for now, of the federal government’s faith in the agency Los Angeles built to solve homelessness. The Department of Housing and Urban Development (HUD) suspended the Los Angeles Homeless Services Authority’s funding effective immediately, citing false statements, steered contracts, and a pattern of financial mismanagement uncovered by the agency’s inspector general.The suspension is the sharpest rebuke yet delivered to a homelessness bureaucracy that has absorbed billions of taxpayer dollars over two decades while the crisis it was created to end only deepened around it. HUD Secretary Scott Turner said in a statement that the department would “fund results, not corrupt failure,” underscoring that hundreds of millions of dollars had been funneled to the Los Angeles authority with little accountability even as homelessness climbed.The Los Angeles Homeless Services Authority pushed back, reportedly calling the cut “a blatant attempt to pull yet more resources from Los Angeles” and warning it could put formerly homeless people back on the street. That fight moved to federal court, and on August 13, the agency celebrated a partial win. United States District Judge David O. Carter issued a preliminary injunction blocking the suspension, ruling HUD’s move “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.”The order restores the homeless services authority access to roughly $241 million in federal funding for the current fiscal year. However, it doesn’t resolve the fraud allegations, which head toward trial as early as February 2027. Judge Carter was not kind to either side. “For decades, LAHSA and HUD have been in a joint partnership in failure,” he wrote in his order. Los Angeles County Supervisor Kathryn Barger underscored the judge’s impartial tone. “Judge Carter’s ruling is fair, measured, and recognizes two realities that must be addressed simultaneously,” calling the order a balance between “preserving short-term stability” and “a clear path toward accountability and meaningful structural change.” HUD’s move, now on hold, is not the first time the agency built to coordinate homelessness policy for the nation’s second-largest city has found itself stripped of funding in the past 18 months. By the time HUD acted, Los Angeles County had already moved to revoke the authority of its power and budget, pulling more than $300 million in annual funding and hundreds of staff positions from LAHSA last April, and shifting the work to a newly created county department. Roughly 284 LAHSA employees lost their jobs at the end of June as that transition took full effect.How LAHSA Lost Washington’s TrustA court-ordered review found LAHSA could not account for how it had spent $2.5 billion in city funds over four years. Separately, the agency has received nearly $1 billion in federal money since 2021 — funding now at the center of HUD’s fraud allegations. A city audit found roughly $513 million in homelessness funding that had not been budgeted as spent, and investigators found LAHSA lacked documentation to verify the existence of nearly 2,300 housing sites it was supposed to be overseeing.The agency did not adopt its own written conflict-of-interest policy until late September of last year, despite certifying compliance with such rules for years. The same jurist who would later block HUD’s suspension, Judge Carter, had already accused the city of evading accountability months earlier, when a court-appointed special master flagged “obvious fraud” after LAHSA renewed a contract for an 88-bed shelter operating at roughly half capacity.“LAHSA, as the largest and highest funded of any of the continuums of care, is also perhaps the one with some of the worst financial management, contract administration and outcomes of the 400-plus continuums of care across the country,” the senior fellow at the Cicero Institute, Paul Webster, tells The New York Sun. “The court-ordered auditors characterized LAHSA’s finances as ‘a bowl of spaghetti,’ with poor and missing records, contracts paying for nothing, and cronyism and nepotism.”The credibility of the agency was tested further when its former chief executive, Va Lecia Adams Kellum, resigned after committing more than $2 million in federal funds in violation of conflict-of-interest rules, according to HUD’s account of the investigation.Los Angeles isn’t an outlier in the Golden State. A 2024 audit found California had spent nearly $24 billion on homelessness and housing programs between the 2018 and 2023 fiscal years, and couldn’t say with any confidence whether it worked. State Auditor Grant Parks put it plainly: the state never collected the data it would need to know why the crisis kept getting worse despite the money.That number is already out of date. The Legislative Analyst’s Office now counts roughly $37 billion in state spending on housing and homelessness since the 2019-20 fiscal year scattered across nine agencies running more than 30 programs. Lawmakers on both sides of the aisle have said the same thing about that sprawl: nobody can actually tell what any of it is buying.A political strategist who advises on government affairs sees the HUD decision as overdue.“For years, local agencies have received large sums of federal money with minimal consequences for poor results or alleged fraud,” the managing director at Nestpoint Associates, John Thomas, tells the Sun. “HUD’s move suggests the federal government is no longer willing to write blank checks to systems that fail to reduce homelessness.”The numbers behind the fights over funding and accountability translate into something far grimmer on the ground. The county’s Department of Public Health counted 2,208 deaths among people experiencing homelessness in 2024 — roughly six a day. That’s after the county plateaued in 2021 and then reached its first year-over-year decline since it began tracking the number in 2014. Between 2019 and 2021, the mortality rate had climbed 56 percent, driven largely by fentanyl.Nationally, the homeless trend has moved in the opposite direction from what the federal grants are meant to produce. HUD’s most recent Annual Homelessness Assessment Report found that 745,652 people were homeless on a single night in January, a 27 percent increase since 2013. Mr. Turner, releasing the report, argues that the data show that a decade of “Housing First” policy, which prioritizes moving people directly into permanent housing without preconditions like sobriety or treatment, failed to cut the number of people living on the street meaningfully.The Fight Over Housing FirstNot everyone, however, accepts that Housing First, an approach that has anchored California’s response to the crisis for the better part of two decades, is the villain of the story. “Housing First has been shown in multiple experiments in the United States, Canada, France and elsewhere to be a successful intervention for people with serious mental illnesses, long histories of homelessness, and often co-occurring substance use disorders,” a professor emerita and research professor in the Department of Human and Organizational Development at Vanderbilt University, Marybeth Shinn, tells the Sun. “The VA has successfully used Housing First to cut homelessness among military veterans by over half from its high point,” Ms. Shinn points out.Ms. Shinn cautions against judging any city’s spending by the persistence of the problem, saying that misreads how homelessness occurs in the first place. “Criticizing homeless service systems because there is still homelessness is a little like criticizing fire departments because there are still fires,” Ms. Shinn continues. “The primary predictor of variation in rates of homelessness across cities is rent. California has a big homelessness problem because rents are so high.”Mr. Webster disputes that reading of the evidence entirely. “For nearly 20 years the data shows that despite more and more funding and more housing for homeless people, homelessness has increased across the country,” he tells the Sun. “This has occurred because Housing First is built on a faulty assumption that people with complex behavioral health, mental illnesses, and histories of crime will accept free housing and leave homeless encampments.”Two Decades Into A Ten-Year PromiseThis year’s reckoning carries a bitter sense of timing. In 2006, a coalition of Los Angeles city and county leaders released “Bring L.A. Home,” a plan declaring a 10-year campaign to end homelessness across the county. Two decades later, the county’s homeless population is several times larger than it was when that plan was written.Los Angeles County and Washington, D.C., differ on who is right and who is wrong. LAHSA’s 2025 point-in-time count found homelessness had dropped four percent countywide, the second straight year the number has fallen. Mayor Karen Bass pointed to her Inside Safe encampment-clearing program and the county’s Pathway Home initiative as the reason. None of it has stopped HUD from arguing that Los Angeles still can’t show its spending is buying results.For Mr. Thomas, accountability isn’t a talking point, it is a critical component of the checklist.“Real accountability would require transparent outcome metrics, not just spending totals, independent audits, performance-based funding and consequences for failure,” Mr. Thomas says. “Agencies should be required to track how many people permanently leave homelessness and what share of funding reaches actual services versus overhead. Without clear results and real penalties for failure, the system will continue to absorb billions while the problem worsens.”

HUD Cuts Lifeline to L.A.’s Fraud-Plagued Homeless Authority as California’s $37 Billion Experiment Faces Reckoning

HUD Cuts Lifeline to L.A.’s Fraud-Plagued Homeless Authority as California’s $37 Billion Experiment Faces Reckoning

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