Wisconsin is taking the Trump administration to federal court over $29 million in canceled funding meant to modernize the state's unemployment insurance system, joining a coalition of 14 states that filed suit Thursday in the U.S. Court of Federal Claims. The lawsuit, led by Wisconsin and Maryland, seeks to recover more than $45 million nationwide that the U.S. Department of Labor clawed back from grants Congress originally approved under the American Rescue Plan Act.
Wisconsin Attorney General Josh Kaul and Maryland Attorney General Anthony Brown co-led the 14-state coalition of attorneys general and governors in filing the case, according to WisPolitics. The suit challenges the Department of Labor's termination of grant funds that Congress had set aside under six categories meant to help states modernize IT systems and crack down on fraud following the pandemic's administrative chaos, per the same outlet's reporting. Nationwide, the Department of Labor had awarded more than $780 million for the modernization effort before the rescissions began.
Wisconsin's own stake in the fight is sizable. The Department of Labor terminated $29 million in Wisconsin unemployment grant funding in May 2025, according to WisPolitics. Of the canceled money, $11.25 million had been earmarked specifically to build a modern web-based and mobile employer portal with secure communication channels, according to a bulletin from Governor Tony Evers' office.
Evers Says Letters Went Unanswered
Governor Evers leads the lawsuit alongside the Wisconsin Department of Justice and the Department of Workforce Development, according to WMTV 15 News. Per the Evers administration, the Trump administration terminated the funding without notice and unilaterally, and the governor sent multiple letters to federal officials — including one directly to President Trump — urging that the money be released. Evers has said those letters have gone largely unanswered, and that the administration is blocking Wisconsin from continuing to modernize its systems and prevent fraud, the station reports.
Evers has said Wisconsin made modernizing its unemployment system a top priority after the pandemic overwhelmed it, using what he described as cutting-edge technology to detect fraud, prevent overpayments, and improve efficiency and timeliness. That urgency traces back to 2020, when Wisconsin's 1970s-era COBOL legacy system blocked or dropped 93% of 41.1 million incoming calls during the initial pandemic claim surge, leaving thousands of jobless workers unable to reach the state, according to Wisconsin Watch. That same aging software also produced a costly glitch: in April 2020, a programming error caused $21.2 million in benefit overpayments to 20,135 claimants over two days, according to StateScoop, though the Department of Workforce Development later recovered $19.6 million of that amount.
A Clean Audit Record Versus Federal Fraud Concerns
Wisconsin officials have leaned on an independent paper trail to push back against the federal government's framing of the cuts as anti-fraud oversight. Between 2020 and 2023, the nonpartisan Wisconsin Legislative Audit Bureau audited the state's unemployment insurance program nine times and found zero instances of previously undiscovered fraud, per Urban Milwaukee's coverage of the Evers administration's correspondence. Evers has said the funding termination halts progress that had been years in the making, after the state was promised millions of dollars to continue its modernization work.
The friction didn't end with the May 2025 termination. In July, the Department of Labor threatened to withhold additional operational administrative funds from Wisconsin unless the state adopted revised federal unemployment oversight standards, according to a letter from Governor Evers to federal officials. Evers criticized federal officials in that letter for threatening further operational cuts while simultaneously withholding millions in previously promised anti-fraud dollars.
A Legal Precedent Already on the Books
The new lawsuit doesn't arrive in a legal vacuum. In July 2026, U.S. District Judge Indira Talwani ruled that Office of Management and Budget regulations allowing grant cancellations that no longer “effectuate agency priorities” cannot be applied retroactively to revoke grants already awarded to states, as reported by VernonReporter. The Court of Federal Claims lawsuit seeks damages over the Department of Labor's termination of Wisconsin's ARPA unemployment funds.
