Fourteen Democrat-led states sue Trump administration over canceled, Biden-era COVID relief grants

Fourteen Democratic states have joined in filing a federal complaint that attempts to recoup over $100 million in federal grants included in a Biden-era COVID-19 relief package that the Trump administration canceled last year.

The complaint was filed Friday in the U.S. Court of Federal Claims and argues the Trump Labor Department committed a breach of contract in canceling the grants – intended to modernize "outdated" IT systems in state unemployment systems. 

The bill led to $780 million being awarded to states to modernize such systems. Roughly $45 million in grants were terminated, following the Labor Department decision that was announced in May 2025.

“These grants are being terminated because they no longer effectuate the Department’s priorities for its grant funding,” the agency said in notifying states, according to a congressional notification obtained by the online news and tech information platform Nextgov/FCW.

The suit was filed by attorneys general of California, Colorado, Delaware, Maine, Maryland, Michigan, New Jersey, New Mexico, New York, Oregon, and Washington, as well as the governors of Kentucky and Pennsylvania. 

The relief and economic stimulus package at issue is the $1.9 trillion American Rescue Plan Act signed into law by then-Democratic President Joe Biden in March 202  to speed up the United States' recovery from the economic and health effects of the COVID pandemic, according to the Illinois newspaper The Herald-Whig. 

The Centers for Disease Control and Prevention declared an end to the federal government's COVID Public Health Emergency in May 2023.

"This case is a breach-of-contract action arising from the U.S. Department of Labor decision to unilaterally terminate competitive grants that were awarded," the complaint reads. "ARPA funding was appropriated during and as a result of the COVID-19 pandemic, the economic impact of which caused a historic surge in claims for unemployment insurance that strained states’ often-outdated IT systems."

Illinois Attorney General Kwame Raoul said regarding the complaint: “Congress approved this funding for states to improve the administration of their unemployment insurance programs, so they can better detect and prevent fraud and make the unemployment claims process more accessible.

"This administration claims to be focused on rooting out fraud, while simultaneously eliminating tools that help states do just that. I will continue to fight back against the Trump administration’s unlawful attempts to cancel crucial funding to states.”

The Center Square contributed to this report.