Wisconsin, 13 other states sue U.S. after Trump administration kills jobless pay upgrade grants

Wisconsin and 13 other states have sued the Trump administration for canceling $45 million in federal grants to modernize their unemployment insurance systems after the COVID-19 pandemic strained state jobless pay programs.

The grants were awarded from the 2021 American Rescue Plan Act enacted in the first year of President Joe Biden’s administration. Five months after President Donald Trump took office, the U.S. Labor Department canceled the grants in May 2025, according to the lawsuit filed late Thursday in the federal Court of Claims.

“Wisconsin’s working to bring state government into the 21st Century, including modernizing our systems to help streamline services and prevent fraud, and right now, President Trump and his administration are blocking us from continuing to do that important work. That’s unacceptable,” said Gov. Tony Evers in a press release Friday announcing the lawsuit.

Wisconsin and Maryland are the lead plaintiffs in the multi-state lawsuit, joined by California, Colorado, Delaware, Illinois, Kentucky, Maine, Michigan, New Jersey, New Mexico, New York, Oregon and Pennsylvania.

The U.S. Department of Labor did not respond immediately Friday to a request for comment on the lawsuit. 

Early in the COVID-19 pandemic, as business shutdowns spiked unemployment claims in Wisconsin, the unemployment insurance system hit major snags that led to widespread complaints. Similar problems surfaced across the country.

The Evers administration blamed the state computer system used for processing claims, and in 2021 lawmakers authorized a major overhaul of the system.

The federal law originally provided $2 billion for states to invest in improvements to their unemployment insurance systems for “fraud prevention, equitable access, and timely payment to eligible workers,” in the words of the legislation. A 2023 federal law, while Biden was still president, reduced the program to $1 billion, including $500 million that had not yet been obligated.

Grants to the states included funding to modernize state unemployment insurance computer systems; grants to address program integrity, including improved verification for applicants, reducing improper payments, recovering overpayments and preventing fraud; grants to help jobless pay applicants better navigate the application process and reduce obstacles for accessing benefits; grants focused on improved equity in programs, such as a Wisconsin website to combat the misclassification of workers; and other fraud prevention grants.

On May 22, 2025, the U.S. Department of Labor terminated all the grants in “boilerplate letters” stating that “each grant agreement was ‘being terminated because it no longer effectuates [the Labor Department’s] priorities for its grant funding,’” according to the lawsuit.

The terminations canceled more than $45 million in funds that the 14 states had been counting on, including $29 million that Wisconsin had been promised, Evers’ office said.  

Evers wrote several times in 2025 and again in early 2026 to the Trump administration protesting the cancelation of Wisconsin’s grants and urging their restoration.

According to Evers’ office, the lost funds interrupted Wisconsin’s projects for a web-based employer portal equipped with secure communications to reduce improper payments and fraud; additional fraud detection and prevention tools; communication improvements with employers and unemployment insurance applicants; and identity authentication and other application modernization projects.

After the COVID-19 pandemic, “we made modernizing our unemployment system a top priority, and while we’ve seen tremendous results, our work is not done,” Evers said Friday in his announcement.

“Projects of this scale require careful planning, and the Trump Administration’s sudden decision to terminate this funding is halting progress on work that’s been years in the making,” Evers said. “The Trump Administration’s decision to obstruct millions of dollars that Wisconsin was promised to continue our efforts defies logic. If the Trump Administration is serious about fighting fraud, they wouldn’t be withholding critical resources that should be helping states like Wisconsin do just that.”

Department of Workforce Development Secretary-designee Amy Pechacek said the work underway at the agency aimed to improve customer service as well as combat fraud.

“Terminating funding for this project pulled the rug out from us and required us to cancel our vendor contract before the final product could be delivered, resulting in a serious setback for Wisconsin,” Pechacek said.

The lawsuit charges that the Labor Department’s “unilateral terminations breached the express terms of Plaintiffs’ Grant Agreements, which allowed for termination only in narrow, specified circumstances.”

The lawsuit declares that the grant agreements never stated that they could be terminated “due to changes in agency priorities that occurred after the grants were executed” — and federal law would not have allowed for that possibility, the suit states.

“By unilaterally cancelling the Grant Agreements without any lawful justification, DOL breached the express terms of the Grant Agreements and violated the covenant of good faith and fair dealing,” the lawsuit states.