Federal prosecutors this week charged three defendants in separate cases alleging fraud within Los Angeles homelessness programs, including schemes involving money allegedly funneled into a nightclub and adjacent bingo hall, and bribes allegedly connected to fake housing referrals. One of the nonprofits under scrutiny had received more than $75 million from the city’s homelessness agency, according to prosecutors.
The cases have reignited a broader argument in Washington: that the fraud allegations are a symptom of a system built with weak incentives for actually solving homelessness, rather than simply spending money in its name.
Rep. Michael Cloud, R-Texas, told Fox News Digital after a House Oversight hearing on federally funded homelessness programs in Los Angeles, Seattle and other cities that the problem runs deeper than any single fraud case.
“The only people really getting upward mobility in these programs, it would seem, is the people running the programs,” Cloud said. “And that’s not really what the program’s supposed to be about.”
Cloud argued that government too often measures success by “how much money we send out the door” rather than whether that spending is “actually helping people” or whether adequate safeguards exist to protect taxpayer dollars. He described the current system as having been “incentivized for fraud.”
“We’ve got to take those incentives out and get back to making sure that all these programs have incentives for oversight and that the dollars are managed well,” Cloud said.
Cloud also suggested some programs may inadvertently trap recipients in place. “Some programs can keep a person kind of in a cycle of dependency so that the program manager has job security, in a sense, and gets to live off the government dime,” he said.
He pointed to resistance from Democrat-led states against stronger oversight controls, citing Los Angeles Mayor Karen Bass’s decision to step down from the Los Angeles Homeless Services Authority (LAHSA) commission as one example.
A national pattern, not just LA
Cloud said Los Angeles is not an isolated case, tying the concerns to what critics have dubbed the federal “Housing First” approach — a philosophy that generally prioritizes placing homeless individuals into housing without requiring sobriety, mental-health treatment, or other stabilizing services first. While Cloud did not use that term directly in his interview, he described the underlying concern: that some programs define success in ways that leave people dependent on government rather than moving toward independence.
Housing First is a separate concept from HUD’s “Continuum of Care” structure, the local funding and coordination framework through which nonprofit providers and local governments receive federal homelessness dollars. LAHSA leads that framework in Los Angeles, which HUD says has received nearly $1 billion in federal funding over the past five years.
Earlier this year, HUD Secretary Scott Turner moved to suspend LAHSA, citing alleged failures in financial management, internal controls, and safeguards against conflicts of interest. LAHSA has challenged the suspension in court.
“The ‘housing first’ experiment failed Americans by warehousing the vulnerable without results,” Turner said in June, when HUD announced a $4.04 billion Continuum of Care funding opportunity. “This ideology promised to end homelessness. Instead, billions of taxpayer dollars were spent while homelessness increased to record levels.”
Of that funding, $1.3 billion has been set aside for new projects prioritizing transitional housing and supportive services, along with new measures intended to prevent fraud, waste, and abuse.
For taxpayers who have watched homelessness spending climb even as street populations grow in cities like Los Angeles and Seattle, the underlying question raised by lawmakers like Cloud is straightforward: are these programs designed to end homelessness, or simply to sustain themselves?
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