Federal Hearing Probes Alleged Misuse of Homeless Funding in Los Angeles

LOS ANGELES — A federal hearing is underway in downtown Los Angeles to determine whether the city breached a 2022 settlement agreement to create thousands of shelter beds for its homeless population, amid allegations of mismanaging over $513 million in unspent homelessness funds. The proceedings, overseen by U.S. District Judge David O. Carter, have drawn intense scrutiny as the city grapples with a persistent homelessness crisis, with over 45,000 unhoused individuals in Los Angeles and 75,000 countywide, according to the 2024 homeless count.

The hearing stems from a landmark lawsuit filed in March 2020 by the LA Alliance for Human Rights, a coalition of downtown business owners, residents, and property owners. The group accused the city and Los Angeles County of failing to adequately address the homelessness crisis, particularly the lack of accessible shelter beds and services. The lawsuit alleged that local governments violated their legal obligations to provide safe and humane solutions for unhoused residents, allowing encampments to proliferate in areas like Skid Row and under freeway overpasses.

In April 2022, the city reached a settlement with the LA Alliance, committing to spend $2.4 billion to $3 billion over five years to create up to 16,000 shelter beds or housing units, enough to accommodate 60% of the homeless population in each of the city’s 15 council districts. The agreement required the city to meet specific milestones for “encampment engagement, cleaning, and reduction” and to provide transparent reporting on progress. A separate settlement with the county in 2023 pledged $1.24 billion to provide 3,000 mental health and substance use disorder beds, 6,700 beds for those near freeways or seniors, and expanded outreach services.

The LA Alliance contends that the city has failed to uphold its end of the settlement. According to court filings, the city reported 2,137 encampment reductions in a three-month period in 2024, but this figure was later corrected to 1,688 reductions over six months, raising questions about accuracy. The alliance argues that many reported reductions lacked “permanent meaning,” as unhoused individuals were not consistently moved into shelter or housing, as mandated by the court.

A November 2024 report by the Los Angeles City Controller intensified concerns, revealing that the city had not spent at least $513 million in allocated homelessness funding. In fiscal year 2023-24, the city budgeted $1.28 billion for homelessness programs, including Mayor Karen Bass’ Inside Safe initiative, contracts with the Los Angeles Homeless Services Authority (LAHSA), safe parking programs, and street medicine teams. However, the unspent funds raised alarms about inefficiencies and oversight.

Adding fuel to the fire, a court-ordered audit released in March 2025 by Alvarez & Marsal found significant flaws in the city’s homelessness programs. The audit described LAHSA’s operations as “disjointed,” with inadequate data systems and financial controls. It noted that LAHSA routinely approved invoices from service providers without verifying whether services were delivered, and lacked standardized methods to track shelter bed availability. “These findings are not just troubling — they are deadly,” said Elizabeth Mitchell, an attorney for the LA Alliance.

The ongoing hearing, which began this week, has seen Mayor Karen Bass and City Council members Nithya Raman and Monica Rodriguez subpoenaed to testify before Judge Carter. Carter, known for his hands-on approach to the crisis, has expressed frustration with the city’s lack of transparency and slow progress. He has previously criticized LAHSA for offering “meaningless” promises and warned that he may appoint a receiver to oversee the city’s homelessness response if accountability does not improve.

Testimony has focused on the city’s failure to verify the creation of shelter beds. The March 2025 audit could not confirm over 1,400 of the 4,000 beds the city claimed to have opened, casting doubt on reported progress. The city has acknowledged opening 4,600 additional beds, primarily through Proposition HHH-funded permanent supportive housing, but has not detailed plans to meet the remaining one-third of its 13,000-bed commitment by July 2027.

The hearing has also spotlighted broader systemic issues. Diane Rafferty of Alvarez & Marsal described “heart-breaking” conditions during field visits to shelters, noting understaffing and inadequate training for handling clients with severe mental health or substance use issues. One shelter, budgeted for four case managers, had only two for 130 clients, highlighting resource gaps.

The hearing coincides with increased federal scrutiny of Los Angeles’ homelessness spending. In April 2025, U.S. Attorney Bill Essayli announced the formation of the Homelessness Fraud and Corruption Task Force to investigate potential fraud involving federal funds. Essayli cited the March 2025 audit’s findings and toured Skid Row with Judge Carter to assess conditions firsthand. “Taxpayers deserve answers for where and how their hard-earned money has been spent,” Essayli said.

The Los Angeles Homeless Services Authority, which manages over $700 million in annual contracts, has faced particular criticism. In March 2025, LAHSA’s oversight was described as compromised, with the same team approving payments and monitoring performance, potentially masking service deficiencies. Following a county decision to withdraw $350 million in annual funding, LAHSA’s executive director, Va Lecia Adams Kellum, resigned, and the agency is effectively being dismantled. The county plans to create a new department to manage homeless services, while the city is exploring direct contracts with providers.

Los Angeles’ struggles reflect broader challenges across California, where over 181,000 people are homeless on any given night, two-thirds of whom are unsheltered. The state has invested $27 billion in homelessness programs since 2019, yet a 2024 state audit found it impossible to track outcomes due to poor data collection. In Los Angeles, critics argue that the focus on temporary shelters over permanent housing has perpetuated the crisis. The LA Alliance has called for a “full-scale overhaul” of the system, emphasizing independent oversight and measurable outcomes.

Mayor Bass, who has prioritized homelessness since taking office in 2022, defended her administration’s efforts, noting a rare decline in the 2024 homeless count. Her Inside Safe program has moved thousands indoors, but critics argue it lacks sufficient permanent housing options. Bass has called for increased state and federal funding, citing a draft report estimating that $2 billion annually is needed to achieve “functional zero” homelessness by 2032.

The hearing is expected to continue through the week, with Judge Carter likely to rule on whether the city breached its settlement and what penalties or oversight measures may follow. The LA Alliance has previously sought fines of $6.4 million for noncompliance, though Carter opted for an audit instead. The potential appointment of a receiver looms large, which could shift control of homelessness spending to a court-appointed third party.

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