NC wants out of mental health settlement as federal disability protections weaken

By Taylor Knopf

North Carolina is asking a federal court to end 14 years of oversight over how the state cares for — and houses — people with severe mental illness. The request comes just months after the Trump administration rolled back federal guidance on a decades-old landmark legal decision that North Carolina’s settlement and oversight was based on.

On Sept. 11, North Carolina and the U.S. Department of Justice filed a joint motion asking the federal district court to terminate its oversight of the Transitions to Community Living settlement agreement — an initiative aimed at moving adults with serious mental illnesses out of institutions like adult care homes and into community housing settings with services and supports, if they wished. 

The 2012 settlement was reached after the DOJ found that North Carolina was violating the rights of people with mental illness to live in the least restrictive setting possible — a right guaranteed under the 1990 Americans with Disabilities Act and later reinforced by the Supreme Court’s 1999 Olmstead decision. Instead, the state was compelled through various means to keep them segregated in adult care homes and other institutional settings. 

“I want to be clear that our commitment to community living is not contingent on a settlement agreement,” said N.C. Health and Human Services Secretary Devdutta Sangvai in a news release. “North Carolina will remain a place where everyone can thrive in the setting that is right for them.”

The settlement agreement has been modified six times as the state has struggled to meet its major requirements; the latest version was set to end in July 2027. The state is asking a judge for an early termination, claiming that it’s met the major requirements with the agreement’s terms.

“There are areas where the state is improving. There are categories that they are very close to meeting, and there are others where, no, they have not met them,” said Marti Knisley, the settlement’s independent monitor. She’s spent years reviewing the state’s data and interviewing health providers and people for whom the settlement provides housing and services, while producing annual reports and helping the state reach compliance. 

Her latest report, published in January 2026, paints a much more complicated picture. She found the state failed to meet some major requirement goals, including moving the targeted number of people out of adult care homes, and failed to provide some of the community-based mental health service requirements, which she called a “cornerstone” of the settlement agreement.

“Without systemic change, the State will again fall short of meeting this requirement in FY 2026 and likely FY 2027,” Knisley wrote in her report. 

“The State’s ongoing failure to meet requirements also contributes to community and social isolation, lack of personal support, and lack of assistance from natural supports to prevent crises for people in services,” Knisley wrote. “Individuals institutionalized for a time or intermittently over time have difficulty overcoming their negative symptoms and restoring their functioning lost through isolation, inactivity, and negative perceptions they have of themselves and that others have of them.”

So why is the state moving to end the settlement oversight now? The answer may have more to do with recent moves in Washington, D.C., than what’s happening on the ground in North Carolina. 

Ending unnecessary segregation

This summer, the DOJ issued a memorandum rescinding long-standing guidance on how it interprets the Olmstead decision, which has shaped the enforcement of the rights of people with mental illness and developmental disabilities, including in North Carolina’s own settlement, for years.

Olmstead v. LC, a 1999 U.S. Supreme Court decision, further explains what the Americans with Disabilities Act should mean for people with disabilities. 

Signed into law by President George H.W. Bush, the Americans with Disabilities Act prohibited the discrimination against people with disabilities that prevented them from engaging in everyday activities and places. It ensures that they have the right to access places of employment, grocery stores, voting booths and any other community spaces. 

The Olmstead decision took the ADA a step further, determining that people with disabilities also have the right to live in the community — and not be forced to live in institutions — and that services should be provided to them in the least restrictive environments possible.

“Unnecessary segregation of persons with mental disabilities perpetuates unwarranted assumptions that such persons are unfit for or unworthy of participating in community life,” the justices wrote.

The landmark legal case was brought on behalf of Lois Curtis, a woman with developmental disabilities living in a Georgia mental institution. The defendant, Tommy Olmstead, was the commissioner of the Georgia Department of Human Resources at the time. Curtis believed she would be better off living in the community with support, but authorities in the state failed to provide her with assistance in the community, leading her to cycle in and out of institutions. 

Curtis’ win changed the trajectory of her life. She became a disability advocate, prolific artist and eventually ended up living in her own apartment, with some support from the state.

Curtis’ win also changed the lives of so many others, as the Olmstead decision applies across disability types, including intellectual and developmental disabilities, age-related and acquired disabilities, traumatic brain injury, mental health disabilities, substance use disorder–related disabilities, sensory and mobility impairments, and chronic illness.

The practical application of the Olmstead decision meant that states had to build and fund community-based services — including supportive housing options, a direct support workforce, transportation and employment supports — so that living in a congregate setting or institution wasn’t the default or only option for people with severe mental illness and disabilities. 

This was no small task, and some states are still working to comply with the Olmstead decision 27 years later.

Re-interpreting the law

The Olmstead decision is not a law in itself; it’s the Supreme Court’s interpretation and explanation of an existing law. In the wake of Olmstead, the federal government issued guidance for states with tools and examples for how it should be implemented. 

That guidance is what the current administration’s Department of Justice is rolling back, explained Disability Rights North Carolina attorney Corye Dunn. The current DOJ has a more narrow view of how Olmstead should be applied. 

For decades, the DOJ has also acted as the backstop for enforcement of the Americans with Disabilities Act, as was the case with North Carolina’s 2012 settlement and subsequent oversight.

“It signals to us what the federal government is and is not willing to do to protect the rights of people with disabilities,” Dunn said. “So while it doesn’t tell us what the law is, it does tell us what the administration’s plans are.

“I think that any state or any entity that does not want to comply with the integration mandate may feel emboldened by this move,” she added. 

Dunn said leaders within the state need to work to preserve the good things that came from the Olmstead settlement agreement and keep moving forward.

Earlier this month, Gov. Josh Stein and 17 other Democratic governors pushed back on the DOJ’s new position on Olmstead in a joint letter to U.S. Attorney General Todd Blanche, urging him to “not to turn back the clock on generations of progress.”

“[…]People with disabilities and their families are terrified about moving backwards — or worse — becoming institutionalized against their will — after decades of advocacy,” the governors wrote. “We simply cannot risk reversing the progress this country has made in ensuring Americans with disabilities have meaningful choices about where and how they live their lives.

“Community integration is not an abstract legal concept,” the letter continued. “It means having a home, being able to work, attend school, shop, worship, build relationships, and participate in an ordinary civic life.”

Personal impact

This rings true for North Carolinians such as Bryan Dooley, who has cerebral palsy and has received disability services through a waiver to the state’s Medicaid plan, called the Innovations Waiver, for most of his life. Dooley works at Solutions for Independence, helping people like himself live independently where they choose.

“Combined with the support of my large family and many friends, these [Innovations Waiver] services have allowed me to remain included in my community. I have been able to attend school, graduate from college, work, advocate, build relationships, and serve in leadership roles,” he told a group gathered by the NC Council on Developmental Disabilities for a virtual meeting held last month about Olmstead.

“Our right to live in the community should not depend on luck, geography, family resources, or the ability to survive years on the waiting list,” he continued.

Currently, 21,449 people are on the waitlist, which has an average wait time of 12.29 years before receiving waiver services. Orange County has the longest wait times in the state, nearly 17 years.

Dooley said he fears the impact that the rollback of Olmstead guidance, combined with Medicaid cuts in the One Big Beautiful Bill, will have on the disability community.

“Olmstead is only meaningful when the services needed to support community living are adequately funded and protected,” he said. “Medicaid is the foundation of home and community-based services for millions of people with disabilities. Cuts to Medicaid could mean fewer services, longer waiver waiting lists, greater pressure on an already unstable direct support workforce, and more people being placed in or isolated in their homes.”

He implored those on the call to work to codify Olmstead protections in North Carolina state law. 

“The promise of Olmstead will not be fulfilled until community living is a genuine and adequately supported choice for everyone,” Dooley said. “We have a choice, and I hope North Carolina chooses to lead.”

Future funding

Despite the uncertainty, state officials on the same call as Dooley maintained that the work of the settlement will continue.

“This is something we firmly believe in,” said Deborah Goda, director for Olmstead/ Transitions to Community Living with the N.C. Department of Health and Human Services. “It’s our intent to continue this work because people need to be with people and need to be able to live their lives. So we will continue to press on.”

Kelly Crosbie, DHHS’s director of mental health, was candid about the constraints the state has worked under.

“I’m proud of the work that we’ve done […] using the limited resources that we have,” Crosbie told the group. “I’m very grateful to y’all […] for how much you do to advocate for additional funding from the General Assembly. It’s just desperately needed.”

She also credited the pressure legal action has had on securing state funding.

“I’m grateful to Disability Rights for every time they sue us,” Crosbie said. “I know that sounds weird, but sometimes it is the only leverage that we have. It really helped us get money from the General Assembly for the [Transition to Community Living Initiative].”

The latest state budget, signed into law this summer, allowed for a total of $97.5 million in state and federal funds toward the Transitions to Community Living Initiative for fiscal year 2026-27. 

Without the federal government’s oversight of this initiative, NC Health News asked Sen. Jim Burgin (R-Harnett), a leader on mental health issues within the state legislature, about the future of funding for supportive housing and community based services for this population. 

“I’ve been through four budget cycles. You know how many times we’ve discussed that settlement in the budget process? None,” Burgin said. “Every discussion has been what can we do to help people and to help their issues and to provide better services.”

Burgin pointed to the legislature’s $835 million investment in the 2023-24 budget, which raised reimbursement rates for direct service providers who care for people with disabilities, as an example of that commitment.

“As long as I’m there, we’re going to continue to support doing the right thing and making sure that people have the necessary services that they need,” he said. “I don’t want anybody dropping through the cracks, and that’s why we’ve been pushing for more Innovation Waivers.”

Burgin acknowledged that some people with disabilities will always rely on state-funded services, and he urged advocates to keep showing up at the General Assembly.

“They need to be out. They need to be seen. They need to be coming to the legislature. They need to be participating,” he said. “And they need to remind all of us that there is a greater calling for all of us to serve people.”

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