This article is made possible through Spotlight PA’s partnership with NOTUS, a nonpartisan news organization that covers government and politics with the fresh eyes of early career journalists and the expertise of veteran reporters.
The Department of Labor’s historic threat to withhold funding from states’ unemployment insurance programs didn’t quite land with the weight the government apparently intended: Several states told NOTUS they didn’t know much about the Trump administration’s new directive.
The Labor Department announced it sent out a letter Wednesday, signed by acting Labor Secretary Keith Sonderling, telling states that “for the first time in modern history” — their emphasis — the federal government would cut states off from administrative funding if they didn’t do more to address waste, fraud and abuse in their unemployment systems.
The missive, which name-checked six states run by Democratic governors, including California, New Jersey, New York, and Pennsylvania, but no red states, blamed the Biden administration for allowing “widespread fraud” in the programs.
It’s unclear whether states received the message.
A spokesperson for the Virginia Employment Commission said they couldn’t yet comment on the letter, as “we are currently trying to determine whether and where the letter was received within the Commonwealth and have not yet reviewed the correspondence directly.”
New Jersey’s Department of Labor and Workforce Development asked for more information from NOTUS on the directive. “We don’t have insight on this yet,” a spokesperson said.
The Labor Department didn’t respond to NOTUS’ request for clarification on whether it had actually sent out the warnings on Wednesday, when the agency put out an associated news release.
The confusion could stem from the fact that the department’s letter is addressed to state governors, not the state offices that run jobless aid programs.
Some states did get the memo. Andrea Cyr, a spokesperson for the New York State Department of Labor, said the state was “aware of the letter.”
“The State has implemented several updates since the pandemic to fight fraud and abuse and we continue to work with our law enforcement partners to pursue criminals and hold perpetrators accountable while continuing to make sure workers receive the benefits to which they are entitled under law efficiently,” Cyr said in a statement.
The Trump administration has prioritized rooting out “waste, fraud and abuse” in social services. This latest threat to take away a main source of funding used to operate an unemployment insurance program is unprecedented, and it could affect the distribution of benefits.
“It would be a disaster,” said one former high-level executive in a state labor office, who asked for anonymity out of fear the Trump administration would target their state. “I don’t know how states would operate.”
The jobless aid system did struggle to ward off fraudsters looking to cash in on expanded benefits during COVID-19 pandemic — the beginning months of which happened during the first Trump administration.
Quantifying the exact number of benefits doled out to fraudsters during the crisis is difficult, but the Government Accountability Office has pegged $60 billion as a conservative estimate.
There is no single federal unemployment insurance system. Rather, states run individual programs, following guidelines set by the federal government.
The federal government also covers states’ administrative costs through taxes on employers. Most states rely completely on the federal government for the money to operate the program.
So far, the Labor Department hasn’t told states what they would need to do to prevent that funding being taken away. Wednesday’s letter says that the department will send specific directives in the coming days.
“We are officially putting governors on notice,” Sonderling said in a statement. “This department is no longer afraid to use every lever available to ensure taxpayer money is protected.”
Some see the letter as political bluster until proven otherwise, said the former state-level executive, noting that most states didn’t receive any advanced warning on the coming threat. A spokesperson at Maryland’s Department of Labor noted that Sonderling was praising the state’s anti-fraud work just yesterday.
“The Trump Administration continues to govern by press release – blasting notes to the media and providing states with no information while threatening them,” a spokesperson for Illinois Gov. JB Pritzker told NOTUS. “If they were serious about protecting taxpayers, they wouldn’t be eliminating resources used to modernize systems and strengthen fraud prevention.”
Last May, the Labor Department terminated millions in grant funding it had previously given to states to modernize their jobless aid systems. A spokesperson for Pennsylvania’s Department of Labor and Industry said those cuts hit funding that helped states root out fraud.
Pennsylvania was among the states listed in the Labor Department’s letter as having “egregious systemic issues.” The spokesperson rejected the characterization, calling Pennsylvania a “national leader… despite USDOL’s sudden and arbitrary termination in May 2025 of vital federal grants used in part to combat fraud.”
Typically, issues with how states are running their unemployment programs go through a back-and-forth process with the Labor Department’s regional offices to ensure compliance.
The federal government has the authority to shut off administrative payments to states that aren’t following all of DOL’s rules for how to operate the program, although “it just doesn’t happen,” said Michele Evermore, who worked at Labor during the Biden administration.
That’s in part because the Labor Department only has the ability to withhold the entirety of this administrative funding, which would cause maximum pain for states.
The last time a state even came close to losing funding was in the 1970s, even though most states are occasionally out of line with one of the department’s many rules, Evermore said. Many currently aren’t meeting standards for how long a person should have to wait to receive their benefits, for example.
The department’s letter specifically called out New York and California, but lumped together fraud and other mistakes in the payment process that makes a payment “improper,” like paperwork errors. Left off the letter was Florida, which ranks No. 2 on a Department of Labor website listing improper payment rates across states.