Attorney General Bonta Files Lawsuit Against the Trump Administration for Terminating Funding for Unemployment Insurance System Improvements

OAKLAND — California Attorney General Rob Bonta, alongside a coalition of 12 attorneys general and two governors, today filed a lawsuit challenging the U.S. Department of Labor’s (DOL) unlawful decision in May 2025 to terminate more than $45 million in grant funding that was intended to assist the plaintiff states in modernizing unemployment insurance system technology and implementing measures to prevent fraud. 

“Unemployment insurance is a cornerstone of the American safety net. It is what stands between working families and financial collapse when an individual loses their job. Congress deliberately made a bipartisan investment in modernizing the unemployment systems that Americans depend on,” said Attorney General Bonta. “Yet, the Trump Administration decided to yank away these approved funds that would help states improve fraud prevention, replace antiquated technology, enhance cybersecurity, and ensure that workers can access the benefits they need. We’re filing this lawsuit to hold the administration accountable for breaking the law by pulling back Congressionally approved funding, which places essential public infrastructure, and the workers who rely on it, at unacceptable risk.”  

Congress created the grants as part of the American Rescue Plan Act of 2021, amid the pandemic-related surge in unemployment claims. The goal of the program is to improve the technology used to administer states’ unemployment insurance programs to better detect and prevent fraud, promote equitable access, and pay benefits in a timely fashion. In total, the DOL awarded approximately $780 million to states to modernize their unemployment insurance systems and fight fraud.  

Six different grants were offered to states through the program: 

• IT Modernization Grants, to develop resilient unemployment information technology systems that can continuously adapt to changing conditions and integrate evolving fraud prevention technologies.
• Integrity Grants, to strengthen unemployment insurance program integrity through ID verification.
• Navigator Grants, to help eligible workers learn about and apply for unemployment insurance benefits (i.e. navigate the unemployment insurance program) and support states in delivering timely benefits.
• Tiger Team Grants, to implement recommendations from multi-disciplinary experts in the areas of fraud prevention, equitable access to benefits, and payment timeliness.
• Equity Grants, to help eliminate barriers to access, improve timeliness of payments, and ensure equity in fraud prevention activities.
• Fraud Prevention Grants, to guard against improper payment reduction and assist overpayment recovery and other fraud prevention and detection efforts.  

The DOL reviewed and approved project plans under each grant program and set multi-year agreed-upon performance periods in which the projects were to be completed. Plaintiff states directed hundreds of millions of dollars in grant funding to projects that, once completed, would increase efficiency, help prevent and detect fraud and the improper use of federal unemployment insurance funds, improve resilience when the system experiences surges in claims, and improve the customer experience.  

On May 22, 2025, the Trump Administration’s DOL sent letters to the coalition's state workforce agencies that abruptly and unlawfully terminated each grant agreement. The termination letters stated that the agreements “no longer effectuate DOL’s priorities for its grant funding.” The grant terminations rescinded unexpended funds under the grant agreements, interrupting the unemployment insurance modernization work that the DOL had approved and agreed to fund. Consequently, approved projects were halted in the middle of the performance periods. States have had to reallocate funding from other sources, scale back project scopes, or cancel projects altogether. The terminations have wasted funds and squandered opportunities to increase efficiencies for unemployment insurance system workers, employers, and administrative staff.   

In the lawsuit, the coalition argues that the DOL's grant terminations violated states’ grant agreements. The terms of the grant agreements do not allow the DOL to unilaterally terminate the grant projects prior to the end of the performance period simply because the administration has changed its priorities. The coalition also argues the DOL breached the implied duty of good faith and fair dealing by wrongfully imposing new terms and conditions, relying on an erroneous and bad faith interpretation of relevant regulations and of authorizing statutes, and failing to provide states with formal notice and an opportunity to object to their grant terminations. The coalition is seeking monetary damages as part of the lawsuit.  

This lawsuit was co-led by Wisconsin Attorney General Josh Kaul and Maryland Attorney General Anthony Brown and joined by Attorney General Bonta and the attorneys general of Colorado, Delaware, Illinois, Maine, Michigan, New Jersey, New Mexico, New York, and Oregon, as well as the governors of Kentucky and Pennsylvania.