On January 8, 2025, five states—California, Colorado, Illinois, Minnesota, and New York—initiated legal action in federal court in Manhattan against the Trump administration. This lawsuit contests the administration's decision to freeze access to more than $10 billion in federal childcare and family assistance funds, a move attributed by the U.S. Department of Health and Human Services (HHS) to concerns regarding fraud in the welfare systems of these states.

The funds affected include $7.3 billion from the Temporary Assistance for Needy Families (TANF) program, which provides cash assistance to low-income families, and approximately $2.4 billion from the Child Care and Development Fund (CCDF), designed to make childcare more affordable for working families. Additionally, the freeze impacts $869 million in social services grant funding overseen by the Administration for Children and Families, a division of HHS.

HHS has cited "widespread fraud and misuse of taxpayer dollars" as the rationale for the funding freeze, claiming that benefits may be received by individuals not legally entitled to them. This action follows a previous freeze of $185 million in annual childcare funds to Minnesota, linked to similar fraud allegations.

Democratic leaders from the affected states have criticized the funding freeze. New York Governor Kathy Hochul described it as "vindictive," while Illinois Governor JB Pritzker labeled it "wrong and cruel." New York Attorney General Letitia James emphasized that she would not allow the administration to manipulate essential resources for families. The lawsuit argues that HHS lacks valid justification for the freeze, has not provided evidence to support its fraud claims, and has infringed upon Congress's constitutional authority over federal spending.

The lawsuit highlights that the frozen funding includes $2.4 billion in direct cash assistance for over 200,000 families in New York, crucial for covering basic needs such as housing and food. The state also received $638 million in childcare subsidies last year to support low-income parents in maintaining employment or pursuing education, along with $93 million from the Social Services Block Grant for foster care and child welfare services.

State officials express concern that even a temporary disruption in funding could have severe consequences for families, warning that parents may be forced to miss work or leave children in unsafe situations if childcare options diminish. The lawsuit indicates that childcare funds in New York are typically accessed every 24 to 48 hours, meaning any delays could quickly impact both providers and families.

While recent reports have confirmed fraud cases in Minnesota's social service programs, the states argue that existing oversight mechanisms, including regular audits and reporting requirements, adequately address fraud concerns. The complaint asserts that the Trump administration has failed to adhere to statutory processes governing each program, including necessary notifications and opportunities for states to respond before penalties are enacted.

This lawsuit arises as New York seeks to expand access to childcare subsidies, with state leaders cautioning that the funding dispute could hinder these efforts. Additionally, the states face impending federal cuts to health care funding, further complicating the landscape for low-income families reliant on these essential services.