Oregon AG Rayfield sues U.S. Department of Labor over canceled federal grants
(KTVZ) -- Oregon Attorney General Dan Rayfield has filed a lawsuit in the U.S. Court of Federal Claims against the U.S. Department of Labor over the cancellation of more than $45 million in federal unemployment grants.
The legal action, brought by a coalition featuring attorneys general from 12 states and the governors of Kentucky and Pennsylvania, challenges the federal government's May 2025 decision to terminate grant agreements nationwide.
Congress established the grant programs under the American Rescue Plan Act after the COVID-19 pandemic caused an unprecedented surge in unemployment claims that exposed outdated state technology systems. Under the program, Oregon was awarded $12,282,800 to modernize benefit delivery and strengthen fraud prevention measures.
Oregon Rayfield stressed the importance of maintaining funded benefit systems for displaced workers.
“If an Oregonian loses their job, they need to be able to navigate the unemployment system, receive benefits on time and trust that the system is protected from fraud,” Rayfield said. “A strong unemployment system means a worker who was just laid off can still pay rent and buy groceries while looking for their next job. We're not going to let the Trump Administration get in the way of strengthening a program that Oregon workers rely on.”
Nationwide, the U.S. Department of Labor distributed more than $780 million across six specific grant categories: IT Modernization, Integrity, Navigator, Tiger Team, Equity and Fraud Prevention. Federal officials reviewed and approved individual state plans while establishing multiyear project schedules.
The Oregon Employment Department received $12,282,800 across the Integrity, Navigator, Tiger Team and Equity programs. State officials used the funding to partner with community organizations, improve translation and identity authentication services, create an Equitable Access to UI unit and assist debt collection operations.
Federal officials sent letters on May 22, 2025, terminating the grants on the grounds that the projects no longer aligned with administrative priorities. Unspent funds were recalled, forcing Oregon to close its Equitable Access to UI unit, end community outreach partnerships, cancel select service projects and divert funds from other accounts.
The lawsuit alleges the U.S. Department of Labor violated grant terms by terminating funding mid-project, applied improper regulations, introduced unauthorized conditions and failed to provide required notice or dispute procedures. Oregon seeks monetary damages alongside attorneys general from California, Colo., Del., Ill., Maine, Md., Mich., N.J., N.M., N.Y. and Wisconsin, as well as the governors of Kentucky and Pennsylvania.
