Ninth Circuit protects billions in federal funding to cities and counties

The Ninth Circuit U.S. Court of Appeals today affirmed in large part a lower court decision that prevents the Federal Administration from imposing political conditions on federal housing and transportation grants. The decision in Martin Luther King, Jr. County, et al. v. Scott Turner, et al. safeguards billions of dollars in federal funding to local jurisdictions across the country.

The City and County of San Francisco and a coalition of seven other local governments first filed the lawsuit in May 2025, challenging the Federal Administration’s attempt to force local governments to adopt its political agenda or risk losing critical funding from the U.S. Department of Housing and Urban Development (HUD) and Department of Transportation (DOT).

On June 3, 2025, U.S. District Court Judge Barbara J. Rothstein issued a preliminary injunction order in the case preventing the Federal Administration from imposing the illegal conditions on DOT and HUD grants. The Federal Administration appealed the preliminary injunction order to the Ninth Circuit, which heard oral argument earlier this year.

“These grants provide billions in funding that help support some of our City’s most vital services, including health care, transportation, housing,” said San Francico City Attorney David Chiu. “These grant conditions are not only illegal, but they also have nothing to do with the purpose or performance of these grants. Cities should not be forced to choose between their values and critical funding. We are grateful the courts have continued to rule in our favor, ensuring cities continue to receive the funding that makes it possible to provide services to our residents.”

Background
HUD and DOT issued grant agreements last year that included new conditions that are not authorized by Congress and unlawfully attempt to impose the Federal Administration’s anti-immigrant, anti-LGBTQ+, anti-choice, and anti-equity policy preferences on grant recipients.

HUD provides San Francisco approximately $240 million in grant funds to expand affordable housing opportunities, maintain housing stability, reduce displacement, and provide housing and emergency shelter services to homeless residents. This funding includes approximately $50 million in Continuum of Care funds to address homelessness.

The illegal conditions also appeared in the $2 billion of grant funding San Francisco receives from departments overseen by the DOT, including the Federal Transit Administration, Federal Highway Administration, and Federal Aviation Administration.

The Ninth Circuit’s ruling upholds the preliminary injunction order and prevents HUD and DOT from imposing or enforcing the illegal grant conditions on Plaintiff jurisdictions and from rescinding, withholding, cancelling, or otherwise interfering with Plaintiffs’ grant agreements on the basis of those conditions. The Court found: “The majority of the conditions far exceed the limited authority set out by Congress and superimpose onerous requirements well after the government already awarded grant funds.”

The Court also recognized the impossible choice created by the illegal conditions, stating Plaintiffs “confront a classic Hobson’s choice: sustain unrecoverable losses to comply with the government’s conditions, or refuse to submit, and risk losing the grant funds in their entirety.”

The Ninth Circuit directed the District Court to narrow the preliminary injunction order in one minor aspect, ordering that anti-discrimination law, as it is traditionally interpreted by federal courts, can be enforced for programs in which a jurisdiction has received funding. Plaintiffs offered this narrowing in the appeal, which the Court adopted without vacating any part of the preliminary injunction.

San Francisco and its coalition partners have also sued the U.S. Department of Health and Human Services in this lawsuit over similar grant conditions, and secured a further preliminary injunction on August 12, 2025. San Francisco relies on approximately $325 million in non-Medicaid and non-Medicare HHS grant funding, which supports early childhood development, disease prevention, and mental health services. The Federal Administration has separately appealed this injunction to the Ninth Circuit.

The lawsuit alleges the grant conditions that HUD, DOT, and HHS attempted to impose violate the Spending Clause, Separation of Powers, and Fifth Amendment of the Constitution as well as the Administrative Procedure Act.

San Francisco is joined in the lawsuit by 74 other local jurisdictions, housing authorities, and transit districts from across the United States. Several jurisdictions in the lawsuit are represented by Public Rights Project (PRP) and Pacifica Law Group, which both served as co-counsel in the case.

The case is Martin Luther King, Jr. County, et al., v. Scott Turner, et al., U.S. Court of Appeals for the Ninth Circuit, Case No. 25-3664. View a copy of the decision.