A coalition of 12 attorneys general and two governors sued the U.S. Department of Labor over the termination of more than $45 million in grant funding intended for modernizing state unemployment insurance systems and preventing fraud.
California Attorney General Rob Bonta joined attorneys general from Colorado, Delaware, Illinois, Maine, Michigan, New Jersey, New Mexico, New York, Oregon, Wisconsin, and Maryland, along with the governors of Kentucky and Pennsylvania, in the lawsuit. Wisconsin Attorney General Josh Kaul and Maryland Attorney General Anthony Brown co-led the case.
Congress created the grants under the American Rescue Plan Act of 2021 to help states improve the technology used to administer unemployment insurance programs, detect and prevent fraud, promote equitable access, and pay benefits more quickly. The Department of Labor awarded approximately $780 million to states nationwide for the effort across six different grant programs: IT Modernization, Integrity, Navigator, Tiger Team, Equity, and Fraud Prevention grants.
On May 22, 2025, the Trump Administration's Department of Labor terminated each grant agreement, according to the lawsuit. The termination letters stated that the agreements "no longer effectuate DOL's priorities for its grant funding." The agency said this halted projects that had been approved and were in the middle of their multi-year performance periods, forcing states to reallocate funding from other sources, scale back project scopes, or cancel projects altogether.
The coalition argues that the DOL's grant terminations violated states' grant agreements. The terms do not allow the DOL to unilaterally end projects before the agreed-upon completion date simply because the administration changed its priorities, the states contend. The coalition also argues the DOL breached the implied duty of good faith and fair dealing by imposing new terms and conditions and failing to provide states with formal notice and an opportunity to object. The states are seeking monetary damages.