Illinois Attorney General Kwame Raoul has joined a coalition of 14 states in suing the Trump administration over what they call the unlawful termination of funding meant to improve state unemployment insurance systems and prevent fraud.
The lawsuit, filed in the U.S. Court of Federal Claims, challenges the U.S. Department of Labor's decision in May 2025 to terminate more than $45 million in the plaintiff states' remaining grant funding, according to the attorney general's office. The funding was intended to help states modernize unemployment insurance technology and put fraud-prevention measures in place.
"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 in the release. "I will continue to fight back against the Trump administration's unlawful attempts to cancel crucial funding to states."
Congress created the grants in the American Rescue Plan Act of 2021, during the pandemic-related surge in unemployment claims, as state agencies battled widespread fraud by scammers using information from data breaches to file false claims, the release says. In total, the Department of Labor awarded more than $780 million to states to modernize their systems.
The department approved project plans for each grant, and states directed hundreds of millions of dollars to projects meant to increase efficiency, detect fraud, improve system resilience and improve the claimant experience, according to the office.
What Illinois planned
The Illinois Department of Employment Security, which administers the state's unemployment insurance program, had planned to use the grant money to redesign its claims process to be more user-friendly, rewrite materials in plain language, establish an online portal and roll out new anti-fraud tools, the release says.
The attorney general's office says that on May 22, 2025, the Department of Labor sent letters to the coalition states' workforce agencies terminating each grant agreement, claiming the agreements no longer furthered the agency's priorities. The terminations rescinded unexpended funds and interrupted work the department had approved and agreed to fund, the release says.
Illinois lost more than $15 million in federal funding and was forced to leave some projects unfinished and complete others with state funds intended for other government functions, according to the office. Raoul and the coalition argue the Department of Labor breached the terms of each grant agreement, failed to give states a chance to object and acted in bad faith.
According to the Illinois Department of Employment Security's newsroom, the state had previously received multiple federal modernization grants, including an $11.25 million award in 2023 aimed at fraud defense and improving access for claimants.
Raoul was joined in 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.