Attorney General James Sues to Protect Funding for Unemployment Benefit System Upgrades
NEW YORK – New York Attorney General Letitia James today joined a coalition of 13 other states in suing the Trump administration for unlawfully canceling grants awarded to states to improve their unemployment insurance systems. The grants, funded by the American Rescue Plan Act, were intended to help states prevent fraud, update outdated technology, and make it easier for workers who lose their jobs to receive benefits quickly. However, after awarding the funding and approving the states’ plans, the U.S. Department of Labor (DOL) abruptly canceled the grants. Attorney General James and the coalition are suing in the U.S. Court of Federal Claims to recover the funding that DOL unlawfully took from states.
“When someone loses a job, they should be able to count on unemployment benefits to help pay for rent, groceries, and other basic needs,” said Attorney General James. “The federal government promised states funding to make these systems faster, safer, and more reliable, but then pulled the money after the work was already underway. A change in political leadership does not give the administration permission to break its agreements and make it harder for workers to get the benefits they are entitled to under the law.”
During the COVID-19 pandemic, unemployment systems across the country were overwhelmed by an unprecedented surge in claims. Many states were forced to rely on outdated technology that caused delays and made systems harder to use. In response, Congress included $2 billion in the American Rescue Plan Act to help states improve the administration of unemployment benefits. The DOL allocated this funding to states through grants supporting projects to replace aging computer systems, strengthen identity verification and cybersecurity, prevent fraudulent claims and improper payments, reduce backlogs, and make unemployment services easier for workers and employers to navigate.
On May 22, 2025, DOL sent letters to states immediately canceling their grants. The letters said only that the projects no longer matched the department’s priorities and did not explain what those priorities were or why the projects no longer qualified. A DOL spokesperson later criticized the grants for focusing on “equitable access” to unemployment benefits, even though Congress specifically directed DOL to use the funding to promote equitable access, as well as to prevent fraud and ensure workers receive timely payments.
The coalition argues that DOL broke its binding agreements with the states. The grant terms allowed DOL to cancel the funding only in limited circumstances and did not give the agency the right to terminate the grants simply because the new administration has changed its political priorities. The coalition also argues that DOL acted unfairly and violated its duty to deal in good faith by imposing new terms after the grant agreements were executed and states had already begun the work, as well as by failing to give states a meaningful opportunity to challenge the cancellations.
Attorney General James and the coalition are asking the court to return the unlawfully terminated balance of funding and award damages, allowable interest, fees, and costs.
Joining Attorney General James in filing the lawsuit are the attorneys general of California, Colorado, Delaware, Illinois, Maine, Maryland, Michigan, New Jersey, New Mexico, Oregon, and Wisconsin, as well as the governors of Kentucky and Pennsylvania.
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