The Los Angeles Homeless Services Agency (LAHSA) is at a crossroads, facing a significant challenge from the U.S. Department of Housing and Urban Development (HUD). A recent suspension has cast uncertainty over millions of dollars in federal homelessness funds, prompting LAHSA to consider legal action.

The suspension, announced in a June 11 letter, has left LAHSA officials scrambling to understand the full extent of the impact. The agency’s governing body, the LAHSA Commission, voted unanimously to authorize legal action, although the specifics of the lawsuit remain unclear.

Uncertainty Over Federal Funds

The initial letter from HUD was notably vague, leaving LAHSA’s interim CEO, Gita O’Neill, to express concerns about the uncertainty it created. “The wording in this initial letter was quite vague and left a lot of uncertainty about which funds would be impacted by suspension,” O’Neill stated at a recent commission meeting.

LAHSA officials estimate that about $115 million in grants awarded for fiscal year 2026 are awaiting HUD’s final signature and are now in limbo. O’Neill warned that the agency’s broader exposure could be as high as $150 million, including executed and unexecuted contracts spanning fiscal years 2026 through 2026.

HUD’s New Directive

In a follow-up letter dated June 18, HUD clarified that LAHSA would be barred from applying for federal homelessness grants on behalf of the region. This is a significant shift, as LAHSA has traditionally served as the collaborative applicant for the Los Angeles Continuum of Care, a role that involves distributing funds to local providers.

The Continuum of Care grant program is a major source of federal homelessness dollars. In 2026, HUD awarded over $220 million to the Los Angeles Continuum of Care, with more than $77 million going directly to LAHSA. Since 2026, the federal agency has allocated $944 million to the L.A. Continuum of Care.

HUD’s letter suggested that another body could be designated as the collaborative applicant or that eligible entities could submit their grant requests directly to HUD. This proposal represents a major structural change, as it would allow individual shelter and housing operators to seek federal money independently.

LAHSA Under Scrutiny

LAHSA, a joint-powers authority created by the city of Los Angeles and Los Angeles County, has been under increased local scrutiny. An L.A. County auditor-controller report in found that LAHSA paid contractors late and failed to secure repayment agreements for some. A court-ordered review revealed that Los Angeles failed to properly track billions in homelessness spending, largely due to dysfunction at LAHSA.

Last year, L.A. County officials voted to pull more than $300 million a year from LAHSA and manage its own homelessness dollars through a new homelessness department at the county. HUD’s suspension comes amid these ongoing challenges, with the agency casting its actions as a move towards overdue accountability.

“Taxpayers will no longer bankroll an organization that puts its own self-interests ahead of the Americans it was created to serve,” HUD Secretary Scott Turner stated when announcing LAHSA’s suspension this month. HUD has accused LAHSA of repeatedly certifying financial controls and conflict-of-interest safeguards it did not have.

LAHSA has responded by hiring accounting firm KPMG to overhaul its finances, with recommendations expected to be presented publicly in July. Local leaders, including L.A. Mayor Karen Bass, have criticized HUD’s suspension, calling it counterproductive.