Minnesota housing programs sit on hundreds of thousands of federal dollars, citing new immigration, gender requirements
City officials say they have reshuffled funds rather than meet “vague,” “punitive” and potentially illegal HUD rules
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Two Minnesota cities have delayed spending federal housing funds because they’re unsure they can meet new grant requirements from the Department of Housing and Urban Development. These new rules include validating participants’ immigration status, housing transgender people according to their assigned gender at birth, and a ban on diversity, equity, and inclusion initiatives.
Cities and the nonprofits they fund say they are shifting resources this year to maintain normal operations as staff at the federal Department of Housing and Urban Development have refused to answer questions to aid with compliance.
The city of Moorhead typically uses HUD funding to finance a home rehabilitation loan program as well as snow removal for elderly and disabled residents. But the city hasn’t yet spent the hundreds of thousands of dollars it received last year from HUD because officials aren’t sure how to satisfy the identity verification requirement. Instead, city officials said, it has temporarily relied on money left over from the 2024 grant cycle as well as program income from loan repayments.
The city also delayed funding two new programs this year: one developing supportive housing for people with disabilities, and another related to career and workforce readiness.
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Moorhead faces a difficult choice: change the way its federally funded programs operate, discontinue certain programs or seek out other funding sources.
“Our staff is analyzing the recent HUD requirements,” mayor Shelly Carlson’s office said in a statement, and will “recommend to the City Council how to expend the community development funds in a manner that complies with the law and has the least adverse impact on the programs that benefit our residents.”
The city of Eden Prairie is also sitting on funds from HUD, according to community services manager Paja Xiong, who said the funds had arrived several months later than normal and that the city is waiting for further guidance from the agency.
Similarly, a spokesperson for the Minnesota Department of Human Services said the agency is “taking a cautious approach to awarding and spending” fiscal year 2025 grant funds. “The lack of guidance and clarity surrounding the requirements makes it difficult to administer the funds in a timely and efficient way. It consumes significant staff time and resources in planning and adapting to unclear and changing federal expectations which are neither in statute nor federal regulations,” the spokesperson said.
Staff at all three agencies said they’d had little luck getting clarity from HUD officials.
A HUD spokesperson did not address the immigration status, gender or DEI rules in an emailed statement, but said the agency “stands by our objective to overhaul America’s failed homelessness system.”
What are the new requirements, and why are they a problem?
HUD grant recipients are now required to submit the identities of the people they serve to the federal government through a program run by the U.S. Citizenship and Immigration Services, with the stated goal of ensuring federal funds only benefit legal residents. The program’s expansion under the Trump administration has drawn criticism from privacy and voting rights advocates, who say it risks disenfranchising eligible residents and poses data security risks.
Many local governments administer their housing grants through contracts with nonprofits, which can’t access the federal databases.
“[This] seems punitive to both the subrecipients and the individuals they serve,” wrote Xiong in an August 2025 email to HUD, just before the government shutdown. She asked if nonprofits could be exempted from the requirement or if the city could verify people’s immigration status another way. Xiong said no one ever responded.
Similarly, Moorhead city officials reached out to HUD staff asking if they could use alternative means to verify identity and immigration status, such as tax returns, social security numbers or RealID — some of which are already required for programs operated by the city. A HUD staffer eventually told Tanya Kunza, the city’s community development administrator, that the agency didn’t intend to provide further guidance.
Other new policies are also challenging local governments and nonprofits. Applicants are now less likely to be selected for many federal grants if they are located in cities and states that do not enforce a ban on public camping. HUD has also sought to defund “housing first” programs and banned drug use on grant recipient properties, essentially prohibiting recipients from housing active drug users.
Beth Hogler, the CEO of The Link, a North Minneapolis-based nonprofit that provides housing and related services to vulnerable youth in the Twin Cities, said the restrictions on harm reduction are “a problem, because that’s a known best practice in our field.”
Holger said that a lack of stable housing affects peoples’ mental health and school attendance. It has downstream effects for communities, too: it’s associated with increased rates of crime, emergency room use and incarceration. “And those things actually end up costing more than providing housing to people.”
In a statement, a HUD spokesperson said these changes would improve a system “which has relied almost exclusively on permanently warehousing the homeless at exorbitant taxpayer cost while ignoring root causes.”
“Communities can partner with HUD to deliver housing paired with vital mental health and substance abuse services to help build a brighter future for our most vulnerable,” the spokesperson said.
The Link has multiple contracts with HUD, which expire in May and October. To continue receiving federal funding past that point, The Link will have to re-apply under the new rules, which also require increased partnership with law enforcement, a requirement Hogler called “vague.”
“We are already partnering with law enforcement in the best interest of safety of the participants that we serve,” she said.
Holger said her organization still plans to apply for federal funds, but it will take a strategic approach to using them if they’re granted. “When it comes to the immigration verification requirement, we can still serve people outside of HUD funding and not enter their names. We have a lot of different funding sources for our shelter and housing programs. So that’s what The Link is doing, and I can’t speak for any other housing or shelter program, but I think a lot of places are probably doing that.”
The requirement that transgender people be housed according to their assigned gender at birth conflicts with Minnesota state law, which considers disregarding a trans person’s gender identity a form of discrimination illegal under the Minnesota Human Rights Act.
An attorney consulted by The Link advised that Minnesota state law trumps HUD rules, so The Link will continue to house transgender people according to their identified gender.
The organization is bracing for the possibility that it won’t receive any HUD funding once existing contracts expire.
“We’re planning for the worst,” Holger said.
Is any of this legal?
In May 2025, eight counties and cities across the country, including Minneapolis and Hennepin County, sued Scott Turner, the Secretary of Housing and Urban Development, to stop the new restrictions. Dozens more local governments across the country have since joined the suit, King County v. Turner. A federal judge in Washington state granted a preliminary injunction, exempting the named plaintiffs, including those in Minnesota, from the new federal funding requirements while the case is pending before the Ninth Circuit Court of Appeals.
But the hundreds of other cities, counties and state agencies in Minnesota and nationwide that receive HUD funding and aren’t part of the lawsuit are still bound by the new rules.
Paul Lawrence, the lead attorney, said he sees this case as an example of executive overreach.
“It is Congress — not the executive, not the President — that gets to establish the criteria for getting federal funds,” Lawrence said in an interview.
He said he’s also troubled by the requirement that governments certify they aren’t using federal funds for “DEI,” a term the Trump administration has defined broadly, and could use to target local governments with lawsuits.
“What the federal government is trying to say here through these grant conditions is that you have to help us enforce federal law. You need to, for example, let us know if you know that somebody is an undocumented immigrant, and that will facilitate our ability to come in and enforce federal laws against that individual,” Lawrence said. “The Constitution reserves a lot of authority to the state and local governments, and one of the things that is not permitted is for the federal government to require states, cities, and counties to enforce federal law.”
The HUD spokesperson said the agency will “respect and adhere to current judicial directives” regarding the grants, while reserving the right to appeal.
This story has been updated to include additional details from the city of Moorhead and a response from the Department of Housing and Urban Development.
