AG Davenport Sues to Regain Funding for Unemployment System Improvements

Attorney General Jennifer Davenport and a coalition of 13 other states filed a lawsuit challenging the U.S. “Accessing government services shouldn’t be a chore, and here in New Jersey we’re working hard to make government services simpler, faster, and more reliable. It is cutting off mid-stream important funding for unemployment system improvements,” said Attorney General Davenport.

“The people of New Jersey deserve services that work when they are needed most, not pointless disruption by the federal government.” The lawsuit, filed in the U.S. Court of Federal Claims, challenges the DOL’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 measures to prevent fraud. Congress created six different interrelated grant programs as part of the American Rescue Plan Act (ARPA) 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 more than $780 million to states to modernize their unemployment insurance systems. DOL reviewed and approved project plans under these grant programs 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. The NJ Department of Labor and Workforce Development (NJDOL) had three ARPA UI grants terminated in May 2025: An ARPA Unemployment Insurance Integrity Grant for $2,609,000 beginning in Fiscal Year 2023 An ARPA IT Modernization Grant for $11,250,000 beginning in Fiscal Year 2023 An ARPA Unemployment Insurance Equity Grant for $6,840,000 beginning in Fiscal Year 2023 The ARPA grants were intended to improve the technical system used to make unemployment insurance claims, move it to a cloud-based system, and hire investigatory staff to identify fraud in the unemployment insurance program. With the termination of these grants, NJDOL will be unable to make critical security updates, system improvements, and program expansions.

On May 22, 2025, the Trump Administration’s DOL sent letters to the affected states abruptly and unlawfully terminating each grant agreement. The termination letters stated the agreements “no longer effectuate …. 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.