Wisconsin and 13 other states sued the Trump administration in federal court Thursday, arguing the U.S. Department of Labor unlawfully canceled grants intended to modernize state unemployment insurance systems. The cancellations affected more than $45 million the states expected to receive, including $29 million promised to Wisconsin, Gov. Tony Evers’ office said Friday, Oct. 9, 2026. Wisconsin and Maryland are leading the case, filed in the U.S. Court of Federal Claims. California, Colorado, Delaware, Illinois, Kentucky, Maine, Michigan, New Jersey, New Mexico, New York, Oregon and Pennsylvania also joined. The states say the grant agreements allowed termination only under limited circumstances and did not permit the department to cancel them because its priorities had changed. The grants originated in the 2021 American Rescue Plan Act, which set aside $2 billion for states to improve unemployment systems, including through fraud prevention, more equitable access and faster payments. Congress reduced the program to $1 billion in 2023, including $500 million that had not yet been committed. On May 22, 2025, the Labor Department sent letters ending all the grants, saying they no longer aligned with its funding priorities, according to the lawsuit. Wisconsin’s planned work included a secure online portal for employers, improved fraud-detection tools, better communications with employers and applicants, and upgrades to identity verification and the application process. The state’s Department of Workforce Development also had been developing a website to address worker misclassification. The pandemic exposed weaknesses in Wisconsin’s unemployment system as business closures drove a surge in claims and applicants reported delays. In 2021, state lawmakers authorized a major overhaul of the system. Evers said the canceled federal funding interrupted work that began in response to those problems. “Terminating funding for this project pulled the rug out from us and required us to cancel our vendor contract before the final product could be delivered,” said Amy Pechacek, secretary-designee of the state Department of Workforce Development, calling the loss a serious setback. Evers said the state’s modernization effort was intended both to streamline services and prevent fraud. The lawsuit argues the department’s cancellations breached the grant agreements and violated the government’s obligation to act in good faith. The U.S. Department of Labor did not immediately respond to a request for comment Friday.