NYS suing Trump to recover $17M in funding cuts to unemployment insurance programs

New York State is filing a lawsuit against the Trump administration alleging the federal government illegally terminated millions in grants meant to prevent fraud in the state's unemployment insurance system.

Attorney General Letitia James announced Friday in a news release that the state is suing to recover $17 million in grants initially approved by the federal Department of Labor under former President Joe Biden.

The funds awarded to New York, provided through the American Rescue Plan Act, were intended to help state unemployment systems prevent fraud, update old technology and speed up the disbursement of benefits.

"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," James said in a statement.

Officials with the U.S. Department of Labor could not immediately be reached for comment.

In total, the state had been awarded approximately $24 million from multiple grants to make these improvements in the wake of the pandemic, which pushed the state's old system to the breaking point. The state was still owed $17 million from those grants before they were terminated, the attorney general's office said.

Unemployment insurance claims hit their peak on Long Island in April 2020 when more than 59,000 people applied for benefits, according to state data. Between March 2020 and September 2021, over 378,000 Long Islanders were beneficiaries of traditional unemployment insurance benefits.

Statewide in 2020, nearly 6.9 million unemployment insurance claims were filed with the state Labor Department, according to figures from the agency. For comparison, between 2003 and 2019, New York's Labor Department received an average of 1.1 million claims annually.

The attorney general's office is joining 13 other states in suing the federal government, arguing that the U.S. Department of Labor breached the terms of its grant agreements with state agencies that were implementing unemployment insurance improvements.

The grants for New York were awarded to support the replacement of aging computer systems, to strengthen identity verification and cybersecurity, to prevent fraudulent claims, reduce backlogs and make it easier for workers to access unemployment services, the attorney general's office said. 

In late September, the state's Labor Department announced that its yearslong effort to modernize New York's 50-year-old unemployment insurance system would go live on November 2. The upgraded system is expected to take 9 to 12 days to go fully online, the agency said. 

"This upgrade has been years in the making as we have worked hard to ensure that it delivers the results New Yorkers have been asking for and rightfully deserve," Labor Commissioner Roberta Reardon said in statement last month. 

Starting in 2021, the American Rescue Plan Act began soliciting proposals from states for program plans to improve their unemployment systems, ultimately allotting $2 billion toward the nationwide effort.

But on May 22, 2025, the federal Labor Department terminated the grant agreements, saying the funds were "being terminated because it no longer effectuates [DOL's] priorities for its grant funding," according to the lawsuit.

"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," James said.

Other states involved in suing the administration include New Jersey, California, New Mexico and Illinois, according to the announcement from James' office.