Five U.S. states filed a federal lawsuit after the Trump administration froze more than $10 billion in childcare and family assistance funding, citing concerns about fraud in state welfare systems. The legal challenge sets up a high-stakes confrontation over how far the federal government can go when alleging misuse of public funds, and whether fraud claims can justify cutting off aid to millions of families.
California, Colorado, Illinois, Minnesota, and New York brought the case in Manhattan federal court after the U.S. Department of Health and Human Services blocked their access to the money earlier this week. The freeze affects funding streams that support low-income families, working parents, and social services administered at the state level.
According to the agency, the decision followed what it described as widespread fraud and misuse of taxpayer dollars within the states’ welfare programs. Officials also raised concerns that benefits may have gone to individuals who do not qualify under federal rules, including people without U.S. citizenship or lawful permanent residency. The White House did not immediately respond to requests for comment.
The frozen funds include $7.3 billion from the Temporary Assistance for Needy Families program and nearly $2.4 billion from the Child Care and Development Fund. In addition, HHS restricted access to $869 million in social services block grants. All three programs fall under the Administration for Children and Families, a division of the department that oversees federal welfare assistance.
States challenge fraud rationale and federal authority
In their lawsuit, the states argue that the administration failed to provide evidence supporting its fraud allegations. They say the agency acted without proper notice and overstepped its authority by interfering with spending decisions reserved for Congress under the U.S. Constitution.
State leaders described the move as politically motivated rather than rooted in verified misconduct. New York Governor Kathy Hochul called the freeze vindictive, while Illinois Governor JB Pritzker said it punished families for unproven claims. New York Attorney General Letitia James said the administration was using fraud accusations as leverage, rather than following established oversight and enforcement procedures.
The action followed an earlier decision by HHS to freeze $185 million in annual childcare funding to Minnesota alone. That move came after allegations surfaced of fraud in the state’s social services programs. Minnesota Governor Tim Walz later said he would not seek another term, citing the need to focus on addressing the controversy.
At the center of the dispute is a broader question about accountability and enforcement. Federal agencies routinely investigate suspected fraud in welfare programs. However, the states argue that freezing funds before completing audits or formal findings risks harming eligible families while bypassing due process.
The case could shape how future administrations handle suspected fraud in federally funded assistance programs. If the courts side with the states, agencies may face tighter limits on using funding freezes as an enforcement tool. If the administration prevails, fraud allegations could become a more powerful lever in federal-state disputes over welfare oversight.
For now, the lawsuit underscores a growing tension between fraud prevention and access to essential public funds, with millions of families caught in the middle as the legal fight unfolds.