Fourteen Democrat-Led States Sue Over Canceled Biden-Era Unemployment System Grants

Fourteen Democratic-led states sued the Trump administration Friday in the U.S. Court of Federal Claims, seeking to recover more than $100 million in grants awarded under the 2021 American Rescue Plan Act to modernize state unemployment insurance computer systems.

The complaint, filed by attorneys general from California, Colorado, Delaware, Maine, Maryland, Michigan, New Jersey, New Mexico, New York, Oregon, and Washington, plus the governors of Kentucky and Pennsylvania, alleges the Labor Department breached contracts when it canceled the grants in May 2025. The $1.9 trillion Biden-era package had directed roughly $780 million toward such modernization projects. The department notified states that the grants “no longer effectuate the Department’s priorities for its grant funding.”

States argue they reallocated other funds or scaled back projects after the termination. The suit frames the dispute as a contract claim in the Court of Federal Claims rather than a broader policy challenge. The Labor Department’s decision followed its determination that the remaining COVID-era priorities no longer aligned with current administration goals.

The American Rescue Plan Act was signed by then-President Joe Biden in March 2021 as pandemic relief and economic stimulus. Unemployment system modernization was one of many line items. Similar disputes over the wind-down of COVID-era funds have produced other litigation between Democratic-led states and the Trump administration on different grant streams.

The Court of Federal Claims handles monetary claims against the United States. No immediate ruling is expected. The Labor Department has not yet issued a detailed public response beyond the prior termination notices.