ATTORNEY GENERAL RAOUL SUES TRUMP ADMINISTRATION FOR TERMINATING FUNDING FOR UNEMPLOYMENT INSURANCE SYSTEM IMPROVEMENTS

ATTORNEY GENERAL RAOUL SUES TRUMP ADMINISTRATION FOR TERMINATING FUNDING FOR UNEMPLOYMENT INSURANCE SYSTEM IMPROVEMENTS

October 09, 2026

Chicago - Attorney General Kwame Raoul, as part of a coalition of 14 states, filed a lawsuit challenging the U.S. Department of Labor's unlawful decision to terminate millions of dollars in funding to improve states' unemployment insurance systems and prevent fraud.

"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," Raoul said. "I will continue to fight back against the Trump administration's unlawful attempts to cancel crucial funding to states."

The lawsuit, filed in the U.S. Court of Federal Claims, challenges the U.S. Department of Labor's unlawful decision in May 2025 to terminate more than $45 million in plaintiff states' remaining grant funding that was intended to assist states in modernizing unemployment insurance system technology and implementing fraud-prevention measures.

Congress created these grants in the American Rescue Plan Act (ARPA) of 2021, amid the pandemic-related surge in unemployment claims as state unemployment agencies nationwide battled widespread fraud by scammers using information obtained in data breaches to falsely claim unemployment benefits. In total, the Department of Labor awarded more than $780 million to states to modernize their unemployment insurance systems.

The U.S. Department of Labor approved project plans for each grant program, and plaintiff states directed hundreds of millions of dollars to projects that, once completed, would increase efficiency, help prevent and detect fraud and the improper use of federal unemployment insurance funds, improve system resilience, and improve claimant experience.

The Illinois Department of Employment Security, which administers the state's unemployment insurance program, had planned to use the grant funding to implement improvements such as redesigning its claims process to be more user-friendly for claimants, rewriting its materials in plain language, establishing an online portal and rolling out new anti-fraud tools. On May 22, 2025, the Trump administration's Department of Labor sent letters to the coalition states' workforce agencies abruptly and unlawfully terminating each grant agreement, claiming that the agreements no longer furthered the agency's priorities.

The grant terminations rescinded unexpended funds under the grant agreements, interrupting the unemployment insurance modernization work that the Department of Labor had approved and agreed to fund. Illinois lost more than $15 million in federal funding and was forced to leave some projects unfinished and complete others with state funds that were intended for other government functions. Raoul and the coalition argue that the Department of Labor breached the express terms of each grant agreement, failed to give the plaintiff states an opportunity to object to the terminations and acted in bad faith.

Attorney General Raoul was joined in filing the lawsuit by the 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.