IT seemed like a plot point in some fictional hacking scheme: Nearly US$80.5 million had gone missing from one of New York City’s bank accounts overnight.
The startling discovery by the city’s accountants last week was not a product of Hollywood but the Trump administration’s abrupt clawback of Biden-era federal funds meant to help the city shelter migrants, The New Yotk Times reported.
On Friday, the city sued the Trump administration in an attempt to recoup the money, describing the clawback as an unlawful “money grab” of congressionally appropriated funds that had been allocated by the Federal Emergency Management Agency.
The lawsuit, filed in Manhattan federal court, said the withdrawal had happened “without notice or process of any kind.” It was, the city said, “simply put, lawless.”
The lawsuit escalated the tit-for-tat between New York and the Trump administration after Elon Musk drew attention to the migrant shelter funding in a social media post, resurfacing the debate over using taxpayer money on migrants.
It also marked the first legal battle between the city and President Trump as the president expands his campaign to circumvent Congress to freeze and take back money from federal programs he opposes.
By taking a legal stand, Mayor Eric Adams also seemed to defy concerns, however briefly, that he would not stand up to Trump. The mayor has been accused of entering into a corrupt agreement to help the Trump administration in exchange for the dismissal of federal corruption charges against him.
This week, City Hall officials also provided partial answers to a question that had confounded city officials and alarmed localities across the country: How exactly did the federal government dip into a city bank account and unilaterally take back millions of dollars?
The answer, it seems, was quite simple.
FEMA had turned to the Automated Clearing House, or A.C.H., to transfer the nearly $80.5 million to a Citibank account belonging to the city. A.C.H. is one of the most widely used payment systems, and is the network used to transfer money electronically between banks, such as through direct deposit paychecks.
Senders are typically allowed to rescind a payment, a process known as an A.C.H. reversal, within a short window of time under certain circumstances, such as an incorrect payment amount or the inadvertent duplication of a transaction.
City officials said that on Feb.11 — the day after Musk’s social media post and about a week after FEMA had transferred the money to the city — the federal government appeared to execute A.C.H. reversals totaling nearly US$80.5 million without notifying the city. It is unclear if the federal government followed proper procedures to execute the reversals, and a judge may end up determining whether the reversal was legal.
The New York Times cited a spokeswoman for the Department of Homeland Security, which was named in the lawsuit and oversees FEMA, did not immediately respond to a request for comment.
The episode demonstrated one tool the Trump administration was willing to use to rescind funds. It quickly alarmed experts and local officials, who raised concerns that the president was leveraging payment systems to improperly steer funds according to his political goals.
On Wednesday, Brad Lander, the city comptroller, wrote a letter to the city’s Finance Department asking what measures the city had taken to prevent the federal government from unilaterally withdrawing funds from city accounts in the future.
“This withdrawal is just one component of an escalating series of measures by which Musk and DOGE are weaponizing government payments to support unchecked federal executive power, in violation of the law,” he wrote, referring to the Department of Government Efficiency, the federal cost-cutting initiative presided over by Musk.
In many ways, the saga dates back to 2022, when Adams began clamoring for financial assistance from Washington to help cover the costs of feeding and housing thousands of migrants showing up in the city from the southern border of the United States.
Congress, under former President Joseph R. Biden Jr., appropriated US$237 million to the city, a small amount compared with the more than US$7 billion the city says it has spent on the crisis.
The migrant-support money was allocated chiefly through the Shelter and Services Program, an initiative administered by FEMA that was created by Congress to pay localities and groups providing services to people who had recently crossed the border.
Recipients have included cities and counties, like San Diego and Chicago, and churches and food banks in Texas, Arizona and elsewhere.
New York City began applying for and receiving that money last year to cover costs it had already incurred, including for payments to hotels converted into shelters and for food and security. On Feb. 4, two weeks after Mr. Trump’s inauguration, FEMA deposited an installment of the appropriated funds, about US$80.5 million, into a Citibank account belonging to the city.
Then Musk entered the fray.
He singled out the transfer on a post on X the following week, claiming that it was unlawful and undermined a Trump executive order, though he did not specify which law or order. He also claimed that the money was intended for disaster relief, even though shelter reimbursements stemmed from a separate funding stream.
The fallout, like Trump’s second term, was dizzying.
Musk’s post quickly stoked outrage among conservatives over the use of taxpayer dollars on migrants. The following day, the Trump administration fired four FEMA officials, including the agency’s chief financial officer.
And the day after that, on Feb. 12, the city’s accountants made a surprising discovery when they checked their ledgers that morning: The money had disappeared overnight.
Kristi Noem, the homeland security secretary, quickly claimed responsibility, saying she had “clawed back the full payment that FEMA deep state activists unilaterally gave to N.Y.C. migrant hotels.”
In its lawsuit, the city is seeking the return of the nearly US$80.5 million and urging a judge to prevent the federal government from taking more money city bank accounts. – February 22, 2025
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