Labor cancels unemployment modernization grants for states

The Labor Department is terminating grant funding it gave to states to modernize their unemployment systems after the jobless aid system struggled to respond to the economic turmoil caused by the pandemic. 

“These grants are being terminated because they no longer effectuate the Department’s priorities for its grant funding,” according to a congressional notification sent Thursday and obtained by Nextgov/FCW, which said that the department would be sending states letters to terminate all grants.

Congress gave the department $2 billion for unemployment modernization as part of the American Rescue Plan Act in 2021, although it later cut that funding in half. 

During the Biden administration, the department was trying to take a more active role in the state-run system, doling out grants for projects aimed at improving equitable and timely access to benefits, preventing fraudsters from siphoning off government money and working with multi-disciplinary teams to modernize the program’s technology.

Now, Labor is undergoing a review of ARPA funding, it said, “to ensure that the use of such funds is done in the most efficient and effective manner to achieve the objectives of ARPA, and in a manner that aligns with agency and administration priorities.”

“After completing its review, the Department may consider new funding opportunities to achieve these objectives,” the notification stated. “Taking this action now allows the Department to maintain the flexibility to meet those objectives in alignment with administration and agency priorities.”

The department awarded over $780 million in grants to states, and over 225 projects funded by those grants have been completed. 

Michele Evermore — who formerly served as the deputy director for policy in the Office of Unemployment Insurance Modernization during the Biden administration — estimates that the unspent amount left, and therefore affected by the termination, could be as much as $400 million.

Among the work these grants have funded is a simplified unemployment application in New Jersey, the first update in over a decade. Other projects were meant to install guardrails to keep fraudsters from abusing the system, which struggled both to deliver benefits to those legitimately needing them and to prevent fraudsters from stealing funds during the pandemic.

Prolonged low funding levels and outdated tech contributed to the difficulties many state programs faced during that time.

“Americans remember how the pandemic crashed UI systems. States learned from those mistakes and used these investments to begin overhauling their UI systems so that, when the next recession came, they wouldn’t be caught flatfooted,” said Andy Stettner, the former director of the Office of Unemployment Insurance Modernization during the Biden administration.

Canceling the grant money, which states were meant to have access to for long-term tech upgrades through the end of 2028, he said, terminates a bipartisan commitment to a better system and will ultimately hurt taxpayers who need the benefit. 

It also runs counter to the Trump administration's focus on fraud, Stettner argued, noting “for all the talk of ‘waste, fraud and abuse,’ these are exactly the types of investments we need to be making.”

States used ARPA money to perform anti-fraud work like adding identity verification and using better data and analytics to catch fraudsters before they receive government funds.

Evermore also panned the move, saying that the recall is happening “because the funds used to accomplish this work fell into a government-wide CTRL+F sweep for the word ‘equity.’”

“The Biden administration was given a historic opportunity by Congress to fix [unemployment], but instead squandered it on bureaucratic and wasteful projects that focused on equitable access rather than advancing access for all Americans in need,” said Labor spokesperson Courtney Parella, citing equity analyses and the creation of an Office of the Unemployed Workers’ Advocate as examples of projects funded by the now revoked funding.

“We’re committed to ensuring our unemployment system is free from fraud and abuse, and we look forward to partnering with state workforce agencies on real solutions that meet the needs of American workers,” she said.

Editor's note: This article has been updated to include comment from the Department of Labor.