Fourteen Democrat-led states sue Trump administration over canceled COVID relief grants
On Friday, October 10, 2026, fourteen Democrat-led state governments filed a complaint in the U.S. Court of Federal Claims alleging that the Trump administration unlawfully cancelled federal COVID‑19 relief grants authorized by the 2021 American Rescue Plan Act.
The lawsuit seeks to recover over $100 million in grants that were terminated after the Labor Department announced the cancellations in May 2025. The grants, part of a $780 million allocation to modernize state unemployment insurance IT systems, were intended to help states detect fraud, streamline claim processing, and improve service delivery.
Attorneys general from California, Colorado, Delaware, Maine, Maryland, Michigan, New Jersey, New Mexico, New York, Oregon, Washington, and the governors of Kentucky and Pennsylvania signed the complaint. They contend the cancellations breach federal contract law because the funds were lawfully awarded under the American Rescue Plan Act, a $1.9 trillion stimulus package signed by President Joe Biden in 2021.
According to the complaint, the Labor Department justified the terminations by stating the grants no longer aligned with departmental priorities. The states argue that the funding was expressly appropriated to address the surge in unemployment claims caused by the pandemic and that the abrupt withdrawal undermines the very purpose of the legislation.
Illinois Attorney General Kwame Raoul, quoted in the filing, emphasized that Congress approved the money to improve unemployment insurance programs, enhance fraud detection, and make claim processes more accessible. He warned that the Trump administration’s actions “unlawfully cancel crucial funding to states” and vowed to continue fighting the decision.
The American Rescue Plan Act’s unemployment modernization grants were designed to replace outdated technology that struggled under historic claim volumes during the pandemic. While the Centers for Disease Control and Prevention declared an end to the federal COVID public‑health emergency in May 2023, many state unemployment systems continue to rely on legacy platforms.
Legal experts note that the case will hinge on whether the Labor Department had statutory authority to rescind competitively awarded grants after they were made. The states argue that once Congress appropriated the funds and the Department awarded them, any unilateral termination violates the contract‑like nature of federal grant agreements.
The federal court will schedule a hearing in the coming weeks, and the parties have indicated that the litigation could set a precedent for how future administrations handle stimulus‑related grant programs.
