Appeals Court Blocks Trump Administration From Withholding $73.5 Million in New York Highway Funds
A federal appeals court ruled on Friday that the Trump administration overstepped its authority when it withheld $73.5 million in highway funding from New York, handing the state a significant win in a dispute over commercial driver licences issued to noncitizens.
The US Court of Appeals for the Second Circuit said the Transportation Department’s decision to penalise New York went beyond its legal authority. The ruling sets aside the funding cut, which the administration imposed in April after the state refused federal demands to revoke certain commercial driver licences.
What the court decided
Writing for the court, Judge Alison J. Nathan said the department’s decision “runs afoul of fair notice principles, departs from the regulatory text, and underestimates the complexity of its supposedly ‘common sense’ requirement.”
Judge Sarah A. L. Merriam joined the opinion. Judge Matthew A. Schwartz wrote separately, agreeing with the outcome but criticising the majority for commenting “gratuitously on regulatory structure and history in ways that could affect other cases.”
At the heart of the case was a question about licence expiry dates. Federal regulators argued that New York had issued commercial driver licences to noncitizens with expiry dates running well beyond the period for which the holders could show they were lawfully present in the United States. But the court found that the regulations in force during the relevant period contained no requirement that licence expiry dates match a holder’s authorised stay — a point the agency itself conceded.
“The regulatory structure and history confirm that conclusion,” Judge Nathan wrote, according to Bloomberg Law.
How the dispute began
The dispute began after the Federal Motor Carrier Safety Administration audited New York’s commercial driver licence programme and found that 107 of 200 records reviewed violated federal requirements. The department said the state had been routinely issuing commercial driver licences to foreign drivers illegally, and Transportation Secretary Sean Duffy demanded that New York revoke the disputed licences, arguing that improperly credentialed drivers posed a public safety risk.
On 16 April, 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 further annual reductions of about $147 million starting in 2028, along with possible decertification of New York’s commercial licensing programme.
New York Attorney General Letitia James challenged the decision on 24 April, with support from Governor Kathy Hochul, arguing that federal officials had imposed financial penalties based on licensing standards that did not appear in the regulations governing the state’s practices. The case is State of New York v. U.S. Department of Transportation, No. 26-1097. The court heard oral arguments in September.
According to one account of the dispute, nearly 33,000 commercial driver licences issued to noncitizens were at issue.
What happens next
Friday’s ruling sets aside the $73.5 million penalty while leaving federal regulators free to enforce commercial driver licensing requirements through lawful procedures. It does not prevent the department from pursuing a properly grounded enforcement action in future.
Spokespeople for Transportation Secretary Sean Duffy and Governor Kathy Hochul did not immediately comment on the ruling, Reuters reported.
The decision is the latest in a series of courtroom clashes between New York and the Trump administration over federal funding conditions. The administration has repeatedly used the threat of withheld funds to press states on immigration enforcement, while states have argued in court that such conditions exceed what Congress authorised. The Supreme Court has separately agreed to weigh the legality of the administration’s restrictions on asylum at the southern border, and record deportations under the administration have drawn close scrutiny from the courts.
For now, the ruling means New York keeps the highway money — funding the state says supports road repairs, bridge maintenance and highway safety projects. Whether the administration appeals, or returns with a new enforcement case built on clearer rules, will determine whether the fight ends here or moves to another courtroom.
