California Homelessness Budget: HHAP, Homekey, and Prop 1

California’s homeless budget has topped $24 billion in cumulative state spending since 2019, the largest state investment of its kind in the country. The 2025-26 budget added $500 million for a new round of the state’s flagship grant program and $100 million for encampment resolution, while the Governor’s proposed 2026-27 budget again includes $500 million in new grant funding alongside $126.8 million for family and disability housing programs, down $221 million from the prior year.¹ The money moves through a handful of named programs, each with its own rules about who can receive it and what it can pay for.

Where the $24 Billion Has Gone

According to an executive order issued by Governor Newsom in July 2024, cumulative state investment since 2019 exceeded $24 billion. That figure includes $4.85 billion in flexible local grants through the Homeless Housing, Assistance and Prevention program, $3.3 billion for Project Homekey, and $1 billion for encampment resolution.² The rest is spread across behavioral health facilities, family stabilization programs, disability housing, and smaller line items across multiple agencies, which is why no single budget document shows the full picture.

The state’s General Fund depends heavily on personal income tax, which supplies close to 60 percent of General Fund revenue before transfers.¹ When capital gains and high-earner income dip, homelessness funding is one of the first places reductions land.

HHAP: The State’s Flagship Grant Program

The Homeless Housing, Assistance and Prevention program is California’s largest state-funded homelessness initiative. Established under Health and Safety Code Sections 50216 through 50223, HHAP distributes flexible grants to cities, counties, and Continuums of Care, with the Business, Consumer Services and Housing Agency overseeing the program.³

Funding comes in distinct rounds appropriated through separate budget acts:

Round 1: $650 million
Round 2: $300 million
Round 3: $800 million
Round 4: $800 million
Round 5: approximately $870 million

Rounds 3 and 4 each included $20 million set aside for tribal communities and additional bonus funding tied to performance criteria.⁴ Round 5 closed with 78 grants awarded.⁵ The 2025-26 budget act (SB 131) appropriated $500 million for a new HHAP round in the 2026-27 fiscal year, with $8 million released early to allow HCD to prepare for administration.⁶

How Allocations Get Calculated

HHAP grants are not distributed equally. The formula is based on the most recent point-in-time homeless count in each jurisdiction. For Round 5, the 2023 PIT count determined each community’s share. The formula includes concentration caps: no single city can receive more than 45 percent of the total city allocation, and no single county can receive more than 40 percent of the total county allocation.⁷ When multiple eligible cities fall within the same PIT count area, the proportionate share gets split equally among them.

What the Grants Can Pay For

HHAP grants are deliberately flexible. Eligible uses include rapid rehousing with rental subsidies and landlord incentives, operating costs for affordable housing and emergency shelters, street outreach connecting people to permanent housing, services coordination including workforce and education programs, and delivery of permanent housing through methods like hotel conversions.⁸ New emergency shelters are allowed only when the jurisdiction can demonstrate a genuine gap between available beds and the unsheltered population.

The flexibility has limits. Recipients must spend at least 8 percent of their allocation on services for homeless youth. Administrative overhead is capped at 7 percent. Grantees also cannot use HHAP funds to replace existing local spending on homelessness; the money must supplement what jurisdictions are already investing.

Project Homekey

Project Homekey is California’s strategy for quickly expanding the housing supply by purchasing and converting existing buildings, particularly hotels and motels, into permanent or interim housing. The California Department of Housing and Community Development administers the program. Through multiple rounds, the state has invested $3.3 billion in Homekey, and the program has funded more than 15,000 units.²

Homekey’s appeal is speed. Traditional affordable housing development in California can take five or more years from concept to occupancy. By acquiring existing structures that already have plumbing, electrical systems, and individual rooms, Homekey projects have gotten people indoors in a fraction of that time. The program also covers rehabilitation costs. Local governments and nonprofits apply competitively, and successful applicants typically pair state capital funding with local operating subsidies to keep the units running long-term.

Proposition 1 and Behavioral Health Housing

Voters approved Proposition 1 in March 2024, authorizing $6.38 billion in general obligation bonds for behavioral health treatment facilities and housing. The bond proceeds break down roughly as follows:

$4.4 billion for behavioral health treatment and residential care facilities
$1.05 billion for permanent supportive housing for homeless veterans with behavioral health conditions
$922 million for permanent supportive housing for other individuals experiencing or at risk of homelessness who have behavioral health needs

Proposition 1 also restructured the existing Mental Health Services Act, renaming it the Behavioral Health Services Act and changing how county allocations are divided. Under the new structure, 30 percent of BHSA funds flowing to counties must go toward housing interventions for people with behavioral health conditions, with half of that housing money dedicated to individuals experiencing chronic homelessness. Counties previously had broad discretion over MHSA spending, and housing was not a mandated priority. The California State Auditor is required to report on implementation by December 31, 2029, with follow-up audits every three years through 2035.

How the Money Reaches Local Communities

After the Legislature appropriates funds and the Governor signs the budget, the State Controller’s Office issues warrants or electronic transfers to move the money from the state treasury to local recipients.⁹ HHAP grants are distributed as advances rather than reimbursements, so local agencies receive the money upfront and then spend it rather than fronting costs and waiting to be repaid.⁵

Recipients fall into three categories: large cities that meet population and homelessness thresholds, the 58 counties, and regional Continuums of Care.³ CoCs are regional planning bodies that coordinate homeless services across a defined geographic area. In practice, a mid-sized city might receive a direct HHAP allocation, its county receives a separate allocation, and the regional CoC covering both gets a third. Local jurisdictions are expected to keep state funds in separate accounts from their general revenue to maintain a clear audit trail.

State dollars are not the only source. California also receives federal Emergency Solutions Grants, Housing Choice Vouchers under Section 8, and Low-Income Housing Tax Credit financing, which flow directly to local housing authorities and Continuums of Care under separate federal rules. Those programs supplement the state budget rather than counting inside the $24 billion figure.

The Housing First Rule Attached to Every Dollar

Every dollar of HHAP funding must be spent in compliance with California’s Housing First policy, which is codified in the Welfare and Institutions Code. Housing First treats permanent housing as the starting point for stabilizing someone’s life, not as a reward for completing treatment. Under the statute, tenants cannot be rejected based on sobriety, treatment history, criminal convictions unrelated to tenancy, or poor credit. Participation in services is voluntary and cannot be a condition of keeping a lease.

This is where practical tension shows up in the budget. Local agencies sometimes push for more emergency shelter and transitional housing funding, but the Housing First framework steers state dollars toward permanent solutions. New shelters can only be funded through HHAP when a jurisdiction demonstrates a measurable gap between available beds and unsheltered residents, effectively making shelter expansion the exception rather than the default use of funds.⁸

Recent Cuts and Fiscal Pressure

The $24 billion cumulative headline masks a rougher recent reality. When California’s budget deficit widened in 2024, homelessness programs absorbed steep reductions. The 2024-25 enacted budget cut $260 million in HHAP Round 5 supplemental funds, reverted $142 million in unused administrative funding across HHAP and other programs, reduced Behavioral Health Bridge Housing by $250 million, pulled back $450.7 million from the Behavioral Health Continuum Infrastructure Program across two fiscal years, delayed $80 million for the Bringing Families Home program, and reverted $50 million from the Housing and Disability Advocacy Program.¹⁰

Those cuts happened even as the homeless population ticked upward. California’s 2024 point-in-time count found approximately 187,000 people experiencing homelessness on a single night, accounting for 28 percent of the entire national homeless population. The national count rose 18 percent that year; California’s increase was 3 percent. The state has pointed to the gap as evidence that its investments are bending the curve. Critics counter that spending $24 billion and still seeing an increase is hardly a success story.

Accountability and Clawbacks

The California Interagency Council on Homelessness oversees implementation of Housing First guidelines and coordinates resources across state agencies.¹¹ Cal ICH uses the Homeless Data Integration System to track service patterns, identify inequalities, and assess statewide progress.¹²

The accountability framework has gotten more aggressive in recent rounds. Communities receiving new HHAP funding must demonstrate they have a compliant housing element under state housing law. They must also obligate and spend down prior awards before receiving new funds. The Governor’s office has announced mechanisms to claw back funding from local governments that fail to show measurable progress in reducing homelessness.¹³ Earlier rounds gave local agencies wide discretion and minimal consequences for underperformance. The state is now tying future money directly to results.

Encampment Spending After Grants Pass

The U.S. Supreme Court’s June 2024 decision in City of Grants Pass v. Johnson reshaped the legal landscape around encampment enforcement. The Court held that enforcing generally applicable laws regulating camping on public property does not violate the Eighth Amendment’s prohibition on cruel and unusual punishment.¹⁴ That overturned the Ninth Circuit’s earlier framework, which had effectively prevented cities from clearing encampments when shelter beds were unavailable.

Governor Newsom responded within weeks by issuing Executive Order N-1-24, directing all state agencies to adopt policies for addressing encampments on state property. The order requires at least 48 hours’ notice before a non-emergency removal, contact with service providers to offer outreach, and collection and storage of personal property for at least 60 days.² The 2025-26 budget backed this up with $100 million for a fifth round of Encampment Resolution Funding, which pays for the outreach, services, and temporary housing that local governments offer as part of encampment closures.⁶ Cities that want to clear camps without legal risk still need to show they have offered services and shelter alternatives, and that costs money.

1
California Department of Finance. Governor’s Budget Summary 2026-27 Revenue Estimates
2
Office of the Governor. Executive Order N-1-24
3
California Legislative Information. California Health and Safety Code 50216
4
California Interagency Council on Homelessness. HHAP Grantee Data Snapshot 2024
5
State of California. Homeless Housing, Assistance and Prevention Program Round 5
6
Legislative Analyst’s Office. Housing, Homelessness and Local Government
7
California Department of Housing and Community Development. HHAP-5 Allocations
8
California Legislative Information. California Health and Safety Code 50220.5
9
California Department of General Services. State Administrative Manual 8403 Disbursement Methods
10
California Department of Finance. 2024-25 Enacted Budget Summary Housing and Homelessness
11
California Interagency Council on Homelessness. California Interagency Council on Homelessness
12
California Interagency Council on Homelessness. Frequently Asked Questions HDIS
13
Office of the Governor. Governor Newsom Announces Stronger Accountability Measures
14
Supreme Court of the United States. City of Grants Pass v Johnson