A federal appeals court ruled Friday that the Trump administration unlawfully withheld $73.5 million in highway funding from New York after the state refused to revoke nearly 33,000 commercial driver's licenses issued to noncitizens.
The U.S. Court of Appeals for the Second Circuit ruled on November 13, 2026, that the Department of Transportation exceeded its authority by penalizing New York over licensing requirements that federal regulators had not clearly established. The decision overturns an April funding penalty that threatened road repairs, bridge maintenance and highway safety projects across the state.
The dispute began after the Federal Motor Carrier Safety Administration (FMCSA) audited New York's commercial driver's license program and found that 107 of 200 records reviewed violated federal requirements. Regulators identified licenses that remained valid beyond drivers' immigration authorization documents and questioned the state's procedures for verifying eligibility.
Transportation Secretary Sean Duffy demanded that New York revoke the disputed licenses, arguing that allowing improperly credentialed drivers to operate commercial vehicles posed a public safety risk.
New York refused, maintaining that the licenses complied with federal regulations and that the administration was applying a new interpretation of longstanding requirements.
On April 16, federal regulators announced they would withhold approximately $73.5 million from the state's highway funding beginning in fiscal year 2027. The department also threatened additional annual reductions of approximately $147 million starting in 2028 and possible decertification of New York's commercial licensing program.
Attorney General Letitia James challenged the decision on April 24, with support from Governor Kathy Hochul, arguing that federal officials had imposed financial penalties based on licensing standards that were absent from the regulations governing the state's practices.
At the center of the disagreement was whether commercial driver's licenses issued to noncitizens had to expire when their federal employment authorization ended. New York maintained that existing rules permitted longer license periods, while federal officials argued that the state was required to cancel credentials once drivers no longer met eligibility requirements.
During oral arguments on September 28, a Justice Department attorney acknowledged that the government's interpretation was ambiguous. The judges also questioned how states were expected to apply expiration requirements when immigration status and employment authorization documents could carry different dates.
The Second Circuit found that the agency's interpretation departed from the regulatory text and violated fair-notice requirements. Federal officials had sought to punish New York for failing to follow licensing obligations that were insufficiently established under the rules in effect.
New York had warned that the funding cuts could delay infrastructure improvements and that revoking thousands of licenses would disrupt trucking operations and school transportation services. The disputed money came from federal highway programs established to support road maintenance, transportation safety and other infrastructure projects.
Friday's ruling sets aside the $73.5 million penalty while preserving federal regulators' authority to enforce commercial driver licensing requirements through lawful procedures. The administration would have to establish a valid basis for any further penalties against New York's licensing program.
