New Homelessness Funding Rules Squeeze California Cities and Counties

The New Conditions

California's approach to distributing homelessness funding has shifted sharply toward accountability and conditionality. The Homeless Housing, Assistance and Prevention program, the state's primary funding source for local governments fighting homelessness, now comes with strings that many jurisdictions are struggling to meet. To access HHAP funds, cities and counties are being pressured to adopt a formal encampment policy consistent with state guidelines and to obtain a prohousing designation from state housing regulators, a special status awarded to places that go above and beyond baseline housing production standards.

The prohousing designation has proven a significant hurdle. Only about 60 of California's 541 cities and counties have earned the label so far, and those 60 jurisdictions are home to just 15 percent of the state's population. The designation requires localities to exceed baseline housing production targets, streamline permitting, and implement zoning changes that support new housing construction.

Governor Newsom has championed the accountability push. For several years, he has repeatedly used the word accountability when discussing homelessness funding, and he has gradually increased the requirements attached to state dollars. The current round of conditions also includes requirements for local matching funds and demonstrated progress on housing and homelessness metrics.

What Is at Stake

The HHAP program has been one of California's most significant homelessness investments since its creation in 2019. Over the past several years, the state awarded $1 billion per year to be divided among counties, large cities, and federally recognized regional homelessness groups known as Continuums of Care. However, the 2025-26 budget eliminated HHAP funding entirely for that fiscal year, and only $500 million was earmarked for 2026-27, half the previous annual amount and contingent on enhanced accountability requirements.

Local leaders worry that the next round of funding will require jurisdictions to have actually achieved the prohousing designation and adopted compliant encampment ordinances, rather than simply showing plans to do so. Some counties have reported that the state is holding their existing funds until they pass encampment ordinances or demonstrate concrete steps toward compliance.

San Diego's Position

San Diego is one of a handful of regions highlighted as already receiving new HHAP funds. In January 2026, Governor Newsom announced $50.9 million in HHAP Round 6 funding for San Diego County, the City of San Diego, and the local Continuum of Care. That funding is directed toward existing emergency shelters and expanded shelter capacity.

The announcement came alongside the governor's report that California saw a 9 percent reduction in unsheltered homelessness statewide, the first such drop in over 15 years. Newsom framed the new funding and accountability measures as building on that progress.

Criticism from Local Officials

Counties and cities have pushed back on the new requirements. Some argue that the conditions increase red tape and political risk without guaranteeing that state money will actually flow or that local housing markets can respond fast enough. The prohousing designation requirement has drawn particular criticism because it penalizes service providers and communities for housing shortages that are often driven by broader market conditions beyond their control.

San Jose Mayor Matt Mahan has argued that the state should focus on concrete measures of success, such as the number of people housed using state dollars, rather than process markers like a prohousing stamp. Local officials have also complained about slow disbursement timelines, noting that HHAP Round 6 was appropriated in June 2024 but grantees did not expect to receive their first payments until 2026. Without faster and more reliable funding, advocates warn, many local jurisdictions will be forced to ramp down services, disrupting staffing and the systems communities have built up over years.