Sixteen states and the District of Columbia on Thursday sued the Trump administration over its decision to essentially halt hundreds of millions of federal dollars schools have already committed to spend—and often pledged to outside vendors through contracts.
In a March 28 letter, Education Secretary Linda McMahon announced she was immediately rescinding extensions her agency had granted allowing states and districts additional time to spend the last sliver of their federal emergency pandemic aid.
The extensions had generally pushed the Jan. 30, 2025, deadline for spending all funds to March 28, 2026. But with no warning, schools in more than 40 states no longer had time left to “liquidate” funds for ongoing contract expenses, including construction, tutoring, summer learning, support for homeless students, and mental health services.
The legal challenge, filed April 10 in federal court in the Southern District of New York, alleges that McMahon’s letter and the department’s follow-up guidance on how states could seek project-by-project extensions violated federally mandated procedures for changing protocols in the middle of a grant period.
McMahon’s sudden rule changes, the lawsuit says, created a “massive, unexpected funding gap that is causing serious harm to the public, cutting off vital education services, all to the detriment of the students whom Congress intended to benefit.”
McMahon’s assertion that the approvals are no longer valid because “the COVID-19 pandemic has ended” didn’t adequately justify the changes, the lawsuit alleges. The federal government ended the COVID-19 public health emergency on May 11, 2023, well before states even began applying for late liquidation of pandemic relief funds.
Plaintiffs include the Democratic governor of Pennsylvania and Democratic attorneys general from the District of Columbia and 15 states: Arizona, California, Delaware, Hawaii, Illinois, Maine, Maryland, Massachusetts, Michigan, Nevada, New Jersey, New Mexico, New York, and Oregon.
States and districts have already canceled contracts and laid off staff
The money in question came largely from the last round of pandemic relief approved by Congress in March 2021, through programs including Elementary and Secondary Schools Emergency Relief (ESSER), Emergency Assistance to Non-Public Schools (EANS), and Homeless Children and Youth grants (HCY).
Three sets of funds appear to be affected by the sudden revocation of extensions states had already secured on behalf of districts:
- money districts or states have already spent that hasn’t been reimbursed by the federal government,
- money districts have spent that states have reimbursed, but for which the states are still awaiting reimbursement from the federal government, and
- money districts or states have committed to spend but haven’t spent yet.
The late liquidation changes have already caused widespread disruption with more to come in the weeks and months ahead, according to the lawsuit.
The state-contracted vendor that has been implementing private school pandemic relief programming in New York has already furloughed staff. Three vendors for services funded by EANS in California have already stopped work “due to non-payment.”
A school district on the Navajo Reservation in Arizona has terminated its contract with a tutoring service and might have to lay off staff members if it doesn’t get reimbursed for pandemic relief funds it already spent.
More than 100 teachers in Maine will lose reimbursements for classroom materials they paid for with their own money.
Illinois would have to cancel 66 contracts with regional education offices that offer professional development and instructional support to school districts; and cancel teacher and principal mentoring programs that currently have close to 2,000 participants.
One company in Nevada has “disabled its invoicing portal which is affecting the ability of other vendors to submit bills for payment,” the lawsuit said.
Some states want the rule changes reversed but didn’t join the lawsuit
Several state education chiefs had already pushed back on McMahon’s rule changes, arguing in letters to the Education Department that they would cause financial hardship for schools and disrupt services for students. Kansas, Mississippi, and North Carolina were among the states that sent letters urging McMahon to reverse the changes, but those states are not part of the lawsuit.
Schools in states that didn’t sue have also been roiled by the funding freezes. The Tulsa school district in Oklahoma, for instance, canceled a program that brings volunteers to provide math tutoring support to students in low-income schools. Missouri has 50 literacy and 32 mathematics consultants who might have to stop work if the money doesn’t come back. South Dakota canceled career camps for middle schoolers and summits for training teachers on the state’s new social studies curriculum.
Some states moved quickly in the week after the announcement to begin filing appeals for spending deadline extensions for individual projects. Department officials told states they needed to justify for each project how it related to mitigating the ongoing effects of the COVID-19 pandemic.
Schools in all 17 of the plaintiffs’ jurisdictions still have funds from the last round of COVID-19 relief—known as ESSER III—left to spend that were previously approved for late liquidation. Several participating states also have funds left to spend from the HCY and EANS programs. Maryland, Michigan, and Pennsylvania also have funds left to spend from ESSER II, a smaller set of funds approved by Congress in December 2020.
The amount of money affected by the late liquidation changes is large, but the proportion of money tied up in the late liquidation rule changes is small relative to the original state allocations in affected programs.
Out of the total pandemic aid each state got from the programs for which they received approval for late liquidation, 10 of the 17 plaintiffs have less than 3 percent affected by the late liquidation changes, according to the lawsuit.
Maryland has $245 million out of its $2.9 billion haul from ESSER II, ESSER III, EANS, and HCY—about 8 percent—tied up in the late liquidation dispute. The District of Columbia has $33 million out of $393 million from ESSER III, EANS, and HCY—close to 9 percent—left to resolve.
Out of the 17 plaintiffs, Hawaii has the largest share of its previously extended funds affected by the rule changes—12 percent. But its total dollar amount is only $327,000 out of its original $2.7 million in HCY funds. The state didn’t secure late liquidation approvals for any of the other pandemic aid programs.
