Appeals Court Voids $73.5 Million Highway Fund Cut Over New York CDL Rule

• A federal appeals court on November 13 overturned the $73,502,543 highway funding cut the Federal Motor Carrier Safety Administration imposed on New York for fiscal 2027.
• The Second Circuit found that no federal rule in force required a commercial license to expire when a driver’s immigration papers did.
• The court did not rule on the stricter federal license rule that took effect March 16, 2026, and that rule faces a separate challenge in the D.C. Circuit.

The Rule the Court Says Never Existed

On Friday, November 13, 2026, a three-judge panel of the Second Circuit in New York City ruled against the Federal Motor Carrier Safety Administration (FMCSA) and its plan to withhold $73,502,543 in federal highway money from New York for fiscal 2027. The money flows through two federal programs, the National Highway Performance Program and the Surface Transportation Block Grant Program, and pay for road and bridge upkeep and other projects. The judges sided with the state and set aside the agency’s final determination.

The agency’s case rested on an expiration rule for nondomiciled commercial driver’s licenses, the credentials New York issues to certain foreign nationals who live in the country lawfully. The court’s finding on that point is short:

“The agency could not withhold federal funding based on a state’s noncompliance with a regulatory requirement that did not exist,” the court said.

The decision removes one penalty. It leaves the licensing fight itself open, along with a federal rule that now says in writing what the old rules did not.

What FMCSA Found and Why It Held Back the Money

FMCSA opened its review of the state’s licensing program in July 2025. The state had been issuing nondomiciled commercial driver’s licenses (CDLs) for five years at first issue and eight years at renewal, even when the holder’s immigration documents expired sooner. The licenses are open to certain foreign nationals, including DACA recipients, asylees and refugees.

The court’s account of the audit says FMCSA examined 200 nondomiciled license and permit records and found 101 that stayed valid past the expiration date of the documents the applicant presented. That is 50.5 percent of the sample. The agency told New York to pause issuance and to rescind the licenses it judged noncompliant.

New York contested the reading, and in April 2026 FMCSA issued its final determination. The agency said it would hold back 4 percent of the state’s federal-aid highway money, a figure of $73,502,543 which implies a fiscal 2027 pool near $1.84 billion. If New York stayed out of compliance, later years carried a threat of up to 8 percent, about $147 million. The agency also threatened to decertify the state Department of Motor Vehicles’ CDL program unless it took corrective steps that included canceling “thousands of previously issued CDLs.”

The scale of the program explains the stakes. The court’s opinion counts about 32,600 holders of nondomiciled CDLs and learner permits in New York as of July 2025, close to 7 percent of all active commercial licenses and permits in the state.

Transportation Secretary Sean Duffy announced the withholding on April 16 and described it as a promise kept:

“I promised the American people I would hold any state leader accountable for failing to keep them safe from unvetted, unqualified foreign drivers. I’m delivering on that promise today by refusing to fund Governor Hochul’s dangerous, anti-American policies. My message to New York’s far left leadership is clear: Families must be prioritized on American roads,” Duffy said.

How the Court Read the Regulations

The court said the rules required an immigrant applying for a commercial license to present valid immigration documents. It found no requirement that the license itself expire when those documents did, and a commercial license could generally run as long as eight years. FMCSA countered that the requirement was implied, a way to keep people who no longer have permission to live or work in the country behind the wheel of commercial vehicles. The judges turned that argument down, finding the requirement absent from the rules of the day.

Circuit Judge Schwartz concurred in the result but wrote separately that the old regulations’ wording alone should have settled the case. The court also noted that FMCSA later added restrictions that link licenses to immigration documents in explicit terms, and the panel left the lawfulness of those newer regulations undecided.

The two sides had argued the same point at the September 28 oral argument. Anthony Raduazo, the attorney for New York, told the judges that the state was being punished for a rule nobody had written down:

“Federal respondents have found the state of New York in substantial non-compliance for the first time in the 40-year history of the state’s commercial driver’s license program,” Raduazo said. “That determination is based solely on a purported failure to comply with an expiration rule for non-citizens that doesn’t exist in any federal statute or regulation, is not memorialized in any guidance documents and has never been enforced by the federal respondents. That determination is arbitrary, capricious and contrary to law.”

When a judge asked whether a regulation can carry an implied requirement, Raduazo said that withholding funds calls for a clearer standard:

“If FMCSA wanted to condition the receipt of federal funds on this type of requirement, they needed to do that expressly,” he said.

Simon Jerome, who argued for the US Department of Transportation, relied on the word “unexpired” in the regulation. In his reading, the word and its context mean lawful presence has to last as long as the CDL does. He also argued that the problem reached well beyond New York and that many states worked with the agency to fix it:

“This issue of expiration date non-compliance was rampant and no other states have reached the point of final determinations,” Jerome said. “Many of those states across the country worked with the agency to address the agency’s concerns.”

FMCSA’s audit found 30 states issuing licenses that ran past the holder’s work authorization, and California and New York were the only two states the agency said failed to cooperate. The agency withheld about $160 million from California. A D.C. Circuit panel heard California’s challenge on September 11.

What Each Side Says

New York’s officials claimed the win in a joint statement from state Attorney General Letitia James and Gov. Kathy Hochul:

“Once again, New York has defeated this administration in its endless quest to hurt New Yorkers.”

“This is a win for the millions of New Yorkers who rely on safe roads to travel and for the CDL drivers who power our state’s economy.”

The two contended in April that the agency acted “based on a new, unsupported interpretation of its own long-standing regulations.” The state’s petition told the Second Circuit that the funds were earmarked to support “safety, maintenance and reliability of New York’s entire transportation system,” and that the dispute could “endanger the safety of motorists and pedestrians.” It also said FMCSA acted without following required procedure “in excess of FMCSA’s statutory jurisdiction, authority or limitations.” Hochul said on April 24:

“Ripping away money that goes towards critical safety upgrades on our roads is reckless and it is illegal,”

“Standing with Attorney General [Letitia] James, we will fight — and win — in court to restore this funding and ensure that our roads are safe for millions of New Yorkers who rely on them.”

She also said:

“Once again, New York is facing devastating federal cuts for nothing more than political payback. Here’s the truth: New York has always followed federal rules when issuing CDLs, something even the previous Trump administration verified year after year,”

The Transportation Department’s response to the ruling was not available at the time of writing. On the licensing crackdown more broadly, a department spokesperson has said:

“We’ve put a stop to the madness to keep the driving public safe,”

Federal officials said in May that they had found more than 30 states issuing noncompliant licenses, had taken enforcement action against 26 states, and had prompted more than 28,000 license revocations.

The Federal Rule Has Moved On Again

The ruling covers the regulations as they stood when FMCSA reviewed New York. It does not cover the rule that followed. The final rule that took hold on March 16, 2026, restricts nondomiciled CDL eligibility to three groups of foreign nationals: holders of H-2A visas (temporary agricultural workers), H-2B visas (temporary nonagricultural workers) and E-2 visas (treaty investors). It also generally limits a license’s validity to one year or the end of the driver’s authorized period of admission, whichever comes first.

A separate lawsuit challenges that rule before the D.C. Circuit. That court stayed an interim version of the restrictions in November 2025. In May 2026 it refused an emergency stay of the final version, so the limits apply while the larger case continues. That decision did not settle whether the rule is lawful.

Other states have tightened their own CDL rules in parallel. Idaho’s July 1 CDL rule stopped issuance to out of state drivers.

What It Means for Drivers and What Comes Next

For New York, the practical result is money. With the determination set aside, the $73.5 million is no longer being withheld for fiscal 2027, unless the Transportation Department wins a further appeal. State officials had said the withholding could delay safety and infrastructure work across New York. The warning of an 8 percent cut, about $147 million, in later years came with the same determination.

For the roughly 32,600 people holding a nondomiciled CDL or learner permit in New York, the ruling decides the funding penalty. It does not decide the status of any single license. A holder who wants to know whether a license is valid, and when it expires, should ask the state DMV that issued it. Under the March 16 rule, a nondomiciled license generally lasts one year or until the authorized stay ends, whichever comes first.

The ruling leaves the federal government free to enforce valid licensing standards. The court recognized that new requirements can be introduced through the proper rulemaking process, but a state cannot be penalized after the fact for a requirement that did not exist. Whether the Transportation Department will ask the Second Circuit to rehear the case or seek Supreme Court review was not known at the time of writing. California’s case at the D.C. Circuit and the challenge to the March 16 rule are the next decisions to watch. The federal push on trucking runs wider than licenses, and 26,000 truckers pulled off the road for failing English tests shows how far enforcement has reached.

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Sources

• Newsweek: Trump Admin Dealt Legal Blow Over Immigrant Truckers
• Land Line Media: New York takes turn in CDL court case with FMCSA
• Transport Topics: New York Sues USDOT Over $73.5M in Withdrawn Federal Funds
• NationPath India: US Appeals Court Blocks $74 Million Highway Funding Penalty Against New York

Reviewed by Preetam Gadekar