By: Richard L. Smith
New Jersey has joined 13 other states in a federal lawsuit challenging the Trump administration’s decision to cancel millions of dollars in funding intended to improve unemployment insurance systems and strengthen protections against fraud.
According to a statement released by the New Jersey Attorney General’s Office, Attorney General Jennifer Davenport and the coalition are challenging the U.S. Department of Labor’s termination of more than $45 million in remaining federal grants.
The lawsuit, filed in the U.S. Court of Federal Claims, argues that the federal government improperly canceled funding previously approved to help states modernize outdated unemployment systems, improve access to benefits and detect fraudulent claims.
In New Jersey, the Department of Labor and Workforce Development lost three grants totaling approximately $20.7 million. The funding was designated for technology upgrades, cloud-based improvements and additional investigators to identify unemployment fraud.
The grants were established under the American Rescue Plan Act of 2021 following a surge in unemployment claims during the COVID-19 pandemic.
Federal officials notified affected states in May 2025 that the grants were being discontinued because they no longer aligned with the administration’s funding priorities.
New Jersey officials argue that the cancellations disrupted ongoing projects and could prevent important security improvements and system upgrades.
“Accessing government services shouldn’t be a chore,” Davenport said, criticizing the federal government’s decision to withdraw funding while modernization efforts were underway.
The coalition maintains that the Department of Labor violated its grant agreements by ending funding before the approved projects were completed.
The states are asking the federal court to address what they contend was an unlawful termination of funding intended to make unemployment services more efficient, secure and accessible.
The lawsuit remains pending.