Billions in new spending.  Little to show for it. 

 In Los Angeles, a court-ordered audit concluded the city couldn’t properly track or verify results for roughly $2.3 billion in homelessness spending from 2020–2024.  In several programs, more people returned to homelessness than exited to permanent Housing.

Worse, money often sits idle or remains unaccounted for.

In FY2023–24, nearly half of L.A.’s $1.3 billion homelessness budget went unspent due to fragmented systems and sluggish execution—an extraordinary failure in the face of an urgent crisis.

When a billion-dollar system can’t say what it bought—or leaves hundreds of millions unspent—the crisis isn’t just on spreadsheets.  It’s in the streets.

The Perverse Incentive: Count “Throughput,” Not Self‑Sufficiency

Much of California’s public funding system rewards activity metrics—intakes, bed nights, enrollments—over durable exits to stable Housing, independence, and self-sufficiency.  Highlighting these issues can inspire (or compel) policymakers to recognize their role in ensuring proper outcome accountability and motivating change.

Los Angeles’ audit found contract payments made without verifying services, inconsistent exit reporting, and a median permanent Housing exit rate of approximately 22%.  At sample sites, 47.8% of exits resulted in a return-to-homelessness pattern that can renew funding without demonstrating long-term outcomes.

“If grants reward the number of people processed—not the number of people stabilized—then the ‘system’ is working exactly as designed.”

Why “Housing First Mandates” Became a Fault Line

California Law establishes Housing First as the default model for state-funded homelessness programs, explicitly prohibiting prerequisites such as sobriety or treatment participation as a condition of Housing.  Providers also cannot evict solely for substance use absent other lease violations.

The evidence base is mixed—and often talks past itself:

• Support: Multiple rigorous studies and federal reviews (including VA research and a Lancet‑family journal analysis) find Housing First significantly improves Housing stability and can reduce costly crisis‑service use, particularly for people with serious mental illness.
• Caveats: Critics note that community-level homelessness has not declined where Housing First is dominant, and they argue that the model under-delivers on recovery, Employment, and social integration without complementary policies.  [

California’s legal architecture leaves little room for “sober‑living” or “treatment‑first” options—even when participants want them.  That’s starting to shift; lawmakers introduced bills to allow state funding for sober Housing alongside low-barrier options, a recognition that one size doesn’t fit all.

A San Diego Case Study: The Cost of Non-Conformity

North County’s Solutions for Change illustrates the bind.  The nonprofit’s sobriety and work-training requirements conflict with Housing First criteria, thereby limiting access to public funds traditionally used for transitional or supportive Housing.  In 2024, Carlsbad moved to buy a Solutions-owned apartment building and forgive an old city loan after the nonprofit couldn’t secure compliant financing—explicitly citing Housing First funding rules in staff reports.

(Transparency note: The organization has also faced recent audit scrutiny over internal financial practices—showing that accountability must cut both ways, public and private.)

The Federal Whiplash: Policy Signals Keep Changing

The post-2024 federal environment brought turbulence.  HUD announced a sharp pivot away from permanent supportive Housing toward transitional models with work- or service-based requirements, triggering lawsuits and warnings that up to 170,000 people could lose access to supportive Housing.  A federal judge later blocked HUD’s initial restrictions while litigation proceeds, underscoring the instability providers face when priorities swing.

What “Profitable” Really Means in Government

No one’s pocketing profits in the classic theft sense.  But homelessness can become institutionally profitable when:

• Budgets and headcounts grow regardless of results.
• Vendors get paid before verification.
• Politically safer inputs (blankets, motel rooms, temporary beds) are funded faster than hard outcomes (12–24‑month Housing retention with improved health, income, or sobriety for those who choose it); and
• Data opacity prevents taxpayers from seeing which programs work.

In any event, this exercise falls within the classification of waste, fraud, and abuse.  And the bureaucracies attached are always there for more grant money, as they expand in size, pretending to do good with someone else’s money.  Free money comes with the privileges of entitlement!

Fragmented governance and poor data quality weaken oversight, making systemic reforms essential to enhance accountability and ensure results.

Outcome-based funding reforms can motivate policymakers to prioritize long-term results, inspiring confidence in meaningful change.

1) Pay for verified outcomes using standardized, auditable definitions to close accountability gaps and incentivize results directly.

2) Open the gap: fund a portfolio of pathways. 

Preserve low-barrier Housing First units and create state-funded lanes for voluntary sober living, therapeutic communities, and work-first models, so clients can choose the path that best fits their goals.  Pending California proposals to support sober Housing are a sensible middle ground.

3) Require “verification before payment.”

Adopt strict “no pay without proof” rules for service invoices, with randomized site audits and standardized unit‑cost reporting.  (The L.A. audit’s core finding was the absence of this very discipline.)

4) Measure more than Housing: track well-being and earnings. 

Add reportable indicators on behavioral health engagement, Employment or benefits uptake, and returns to homelessness at 6/12/24 months.  California’s HDIS and System Performance Measures provide a framework to expand these outcome vectors.

5) Consolidate accountability. 

 Los Angeles is actively weighing control of funding flows—and even restructuring the regional authority—to restore fiscal and performance oversight.  Whatever the governance models, clarity about who is accountable for outcomes is non-negotiable.

“Stop paying for promises.  Start paying for proof.”

Somehow, with the American entitlement culture, the homeless prefer to remain unhoused in wealthy enclaves like San Francisco and Los Angeles.  If we relocate them to small towns and semi-rural areas, they may be motivated to exit the entrenched entitlement system.  Paying to house them in a high-end area is ill-advised and will ensure that they remain, as it becomes a retirement lifestyle funded by taxpayers.  Call it what it is!

Bottom Line

Homelessness in California didn’t become “profitable” because anyone likes failure.  It became an institutionally comfortable maze of rules, contracts, and compliance rituals that reward motion over progress.  The remedy is not a single ideology but a rebuild of incentives: data you can trust, payments for documented stability, and plural pathways—including sober options—so people can choose how to rebuild their lives.  Do that, and the “profits” will finally accrue where they should: to formerly homeless Californians who stay housed, healthy, and free.