California Homeland Security Funding Lawsuit: Rulings and Refunds

California’s lawsuit over federal homeland security funding ended in a win for the state. Federal courts blocked the Trump administration from conditioning Department of Homeland Security and FEMA grants on cooperation with immigration enforcement, and in May 2026 the administration dropped its final appeal, permanently restoring roughly $242 million that had been diverted from California and 11 other plaintiff states. A parallel case over transportation grants ended the same way in January 2026.

What the Administration Tied to the Grants

Starting in early 2025, DHS and FEMA rewrote the standard terms attached to federal grant money. A March 27, 2025, revision required state and local recipients to certify they would cooperate with federal immigration enforcement: honoring ICE detainer requests, participating in joint operations and information sharing, and granting access to detainees for interviews. Recipients could not use funds in ways that “benefit illegal immigrants” or “incentivize illegal immigration,” and could not operate programs advancing “diversity, equity, inclusion, and accessibility.”¹

Those conditions reached more than 40 federal programs. The list included emergency management performance grants, the Homeland Security Grant Program and its Urban Area Security Initiative, firefighter grants, port and transit security grants, cybersecurity grants, hazard mitigation grants, and disaster relief.²

The administration pointed to two executive orders. One from January 20, 2025, directed DHS to keep “so-called ‘sanctuary’ jurisdictions” from receiving federal funds. A second, signed April 28, 2025, and titled “Protecting American Communities from Criminal Aliens,” directed agency heads to identify grants and contracts for suspension or termination to designated sanctuary jurisdictions.³ The Department of Transportation issued its own “Follow the Law” directive on April 24, 2025, applying similar conditions to federal transportation grants.⁴

The Lawsuits California Joined

California’s challenge was actually several coordinated cases. On May 13, 2025, Attorney General Rob Bonta led a 20-state coalition in filing two suits in U.S. District Court in Rhode Island. One targeted the DHS and FEMA conditions. The other, California v. U.S. Department of Transportation, challenged Secretary Sean Duffy’s directive tying transportation money to immigration cooperation.⁵ The attorneys general described the policy as a “grant funding hostage scheme” that forced states to detain undocumented immigrants who had not committed crimes in order to receive federal aid.⁶

A second front opened at the local level. On September 30, 2025, 29 cities and counties filed County of Santa Clara v. Noem in the Northern District of California, led by Santa Clara County and the City and County of San Francisco. The coalition included Los Angeles, Oakland, San Diego County, Sacramento, San José, and jurisdictions in Arizona and Washington. The suit challenged conditions on more than $350 million in DHS and FEMA grants covering emergency management, hazard mitigation, firefighter staffing, port and transit security, urban search and rescue, and counterterrorism.⁷ Los Angeles alone sought to protect over $56 million intended for search and rescue teams, radiation detection equipment, and firefighters.⁸

A third case, Illinois v. Noem, was filed in Rhode Island on September 29, 2025, after DHS cut funding to states it had labeled sanctuary jurisdictions. California joined that coalition too.⁹

What the Courts Ruled

The first major win came on September 24, 2025. Senior U.S. District Judge William E. Smith in Rhode Island issued a permanent injunction in State of Illinois v. FEMA, blocking DHS and FEMA from enforcing the immigration cooperation conditions across all 40 affected grant programs. Judge Smith found the conditions violated the Administrative Procedure Act and failed the Spending Clause on three grounds: they were not reasonably related to the grants’ purposes, they were coercive, and they were “unlawfully ambiguous,” leaving states unable to tell what compliance even required. Terms like “cooperation,” “joint operations,” and the ban on programs that “benefit illegal immigrants” lacked clear standards.¹⁰

Three days later, DHS escalated. On September 27, FEMA issued award notifications for the Homeland Security Grant Program that slashed funding to the plaintiff states by 49% to 51%, roughly $233 million in cuts, while states aligned with the administration’s immigration priorities received increases: North Carolina 136%, Missouri 68%, Texas 31%. The adjusted award notifications offered a four-word justification: “Adjusted per DHS directive.”¹¹¹²

With the fiscal year ending September 30, the states moved fast. On September 30, Judge Mary McElroy issued a temporary restraining order blocking the reallocation. She called the action an attempt to “hold hostage funding” meant to protect Americans, a “wanton abuse” of federal grant administration based on “political whims” that was “unconscionable and, at least here, unlawful.”⁹

On December 22–23, 2025, Judge McElroy granted summary judgment for the states. She found the HSGP reallocation was “arbitrary and capricious,” driven by states’ immigration policies rather than the risk-based criteria the law requires. The court ordered DHS to amend the awards to reflect the funding levels originally promised, restored the three-year grant performance periods that DHS had shortened to one year, and struck down a related requirement that states certify population estimates excluding deported migrants.¹³

In the local-government case, Judge William H. Orrick issued a preliminary injunction on November 21, 2025, blocking two categories of the new standard grant conditions: the “Discrimination Condition” (compliance with the administration’s interpretation of anti-discrimination law, including the DEI prohibitions) and the “EO Condition” (compliance with all current and future executive orders). Judge Orrick found both likely violated the Spending Clause and the APA, and that losing emergency funding was irreparable harm for the cities and counties. The immigration cooperation condition was already covered by Judge Smith’s permanent injunction.¹⁴¹⁵

The transportation case produced an injunction on June 19, 2025. The court held the government had shown no “plausible connection between cooperating with ICE enforcement and the congressionally approved purposes of the Department of Transportation,” noting that immigration enforcement sits with DHS, not DOT.⁴

The Money Restored to California

California’s expected $165 million Homeland Security Grant Program award had been cut to $110 million, a 33% reduction, before the court ordered restoration.¹¹ The December 2025 summary judgment ordered DHS to amend California’s award back to the original level.

At the local level, Oakland identified $21 million in fire department funding at risk, Santa Clara County flagged $3.6 million, and Los Angeles protected over $56 million. The Santa Clara injunction kept those awards flowing while the broader challenges proceeded. Reuters reported the funds were also underwriting preparation for Super Bowl LX and the 2026 FIFA World Cup.¹⁶

The HSGP case closed on May 7, 2026, when the Trump administration dropped its appeal. The 12-state coalition that prevailed included California, Washington, Illinois, New Jersey, Rhode Island, Connecticut, Delaware, the District of Columbia, Massachusetts, Minnesota, New York, and Vermont, along with the governor of Pennsylvania. The $242 million in diverted funding was permanently restored.¹⁷ The transportation appeal ended earlier: the Justice Department moved to dismiss on January 13, 2026.¹⁸

What’s Still Pending

Not every piece of the litigation is final. The government’s appeal of the permanent injunction in Illinois v. FEMA, the ruling that struck down the immigration conditions themselves, remains before the First Circuit (Case No. 25-2131). Government briefing is due in July 2026.¹⁹ If the First Circuit were to reverse, the underlying conditions could return, though the specific HSGP reallocation and the transportation directive are already permanently resolved.

A newer California case is also underway. On June 17, 2026, Judge Orrick indicated he was inclined to grant a preliminary injunction in City of Fresno v. Noem, a suit by California and Oregon cities and counties challenging grant conditions imposed by DHS, the Justice Department, and the Interior Department. The judge said he saw “no problem with the plaintiffs’ causes of action” based on the unconstitutionality of the underlying executive orders.²⁰

Why the Conditions Failed Legally

Every court to rule on the merits reached a similar conclusion, drawing on the Supreme Court’s framework from South Dakota v. Dole and NFIB v. Sebelius. Grant conditions have to be clearly stated, related to the purpose of the funded program, and not so financially punitive that they coerce rather than encourage. The 2025 conditions failed on each count.²¹

The relationship problem was the most direct. Immigration enforcement has no meaningful connection to disaster relief, fire response, port security, or highway safety, which is what the grants were appropriated to fund. The Santa Clara court described the executive branch as using funding to force adherence to “unrelated federal domestic policy goals.”¹⁴ Courts also applied the APA’s “arbitrary and capricious” standard, faulting DHS for failing to explain its reasoning, ignoring the reliance interests of states and cities that had already budgeted around the grants, and mechanically incorporating executive orders without independent analysis.²²

For California recipients, the practical effect of the rulings is that the HSGP money, the transportation funding, and the local disaster-preparedness grants challenged in Santa Clara flow on their original terms. The immigration-cooperation certification is blocked nationwide, subject to the First Circuit appeal. The DEI and executive-order compliance conditions are blocked for the Santa Clara plaintiffs under the preliminary injunction, and the Fresno coalition is poised to extend similar protection to additional California jurisdictions.

1
Immigration Policy Tracking. FEMA Withholds Preparedness Grant Money Until States Account for Deportations
2
Homeland Security Today. Federal Courts Block FEMA DHS Immigration Grant Conditions Safeguarding Billions in Emergency Preparedness Funds
3
The White House. Protecting American Communities From Criminal Aliens
4
National League of Cities. District Court Issues Preliminary Injunction on Immigration Conditions for Federal Transportation Grants
5
Reuters. Twenty States Sue Over Trumps Push to Link Grants to Immigration Enforcement
6
Arkansas Advocate. 20 State AGs Sue Feds for Tying Transportation and Disaster Funding to Immigration Enforcement
7
Oakland City Attorney. Santa Clara County, San Francisco, Oakland, and Coalition of 26 Other Local Governments File Lawsuit
8
Los Angeles City Attorney. Los Angeles City Attorney Hydee Feldstein Soto Joins New Coalition Lawsuit Against Trump
9
California Attorney General. Attorney General Bonta Secures Emergency Order Halting Illegal Diversion
10
Civil Rights Litigation Clearinghouse. State of Illinois v. Federal Emergency Management Agency
11
Smart Cities Dive. States Sue DHS FEMA Cuts Sanctuary Policies
12
California Attorney General. Attorney General Bonta Seeks Emergency Court Order Prevent Diversion Critical
13
California Attorney General. Attorney General Bonta Celebrates Final Ruling Stopping Illegal Diversion Vital
14
Civil Rights Litigation Clearinghouse. County of Santa Clara v. Noem
15
Los Angeles City Clerk. City Attorney Report on Santa Clara v. Noem
16
Reuters. US Cities Sue Trump Administration Over $350 Million DHS Grants
17
California Attorney General. Attorney General Bonta Protects Critical Homeland Security Funding
18
Reuters. US Drops Appeal Order Blocking Trump Plan to Tie State Transportation Funds
19
CourtListener. State of Illinois v. Federal Emergency Management Agency
20
Courthouse News Service. California Oregon Municipalities Ask to Block Trumps DEI Immigration Grant Conditions
21
State Court Report. Sanctuary Policies Federal System
22
Governing for Impact. Funding Conditions Issue Brief