The Trump administration will withhold approximately $160 million in federal transportation funding from California beginning in fiscal year 2027 after the state failed to revoke more than 17,000 commercial drivers’ licenses that federal regulators say were unlawfully issued, according to an announcement Wednesday by U.S. Transportation Secretary Sean Duffy, as reported by Fox News.

The funding penalty follows a “final determination” by the Federal Motor Carrier Safety Administration after California missed a Jan. 5, 2026, deadline to cancel the licenses.

Federal officials say the state’s failure allowed foreign drivers whose licenses did not meet federal lawful-presence requirements to continue operating heavy commercial vehicles on U.S. roads.

“It’s reckoning day for [Gov.] Gavin Newsom and California. Our demands were simple: follow the rules, revoke the unlawfully-issued licenses to dangerous foreign drivers, and fix the system so this never happens again,” Duffy said in a statement.

“Gavin Newsom has failed to do so, putting the needs of illegal immigrants over the safety of the American people.”

Duffy added that the administration is withholding the funds “to ensure federal tax dollars don’t fund this charade.”

According to the FMCSA, a federal audit uncovered what the agency described as a “systemic collapse” of California’s non-domiciled CDL program.

Federal officials said California issued licenses with expiration dates that extended years beyond a driver’s lawful presence and granted CDLs to individuals who were ineligible under federal safety regulations.

The audit found that more than 20,000 active non-domiciled CDLs — issued to individuals whose permanent residence is outside the United States — were granted by California in violation of federal rules.

Federal regulators said these violations posed significant safety risks, particularly given the size and weight of commercial vehicles.

“Federal regulations are clear: states must correct safety deficiencies on a schedule mutually agreed upon by the Agency, and California failed to meet its commitment to rescind these unlawfully-issued licenses by January 5,” FMCSA Administrator Derek D. Barrs said.

“We will not accept a corrective plan that knowingly leaves thousands of drivers holding noncompliant licenses behind the wheel of 80,000-pound trucks in open defiance of federal safety regulations.”

Federal officials said a nationwide audit conducted in September determined that more than 25 percent of California’s non-domiciled CDLs were unlawfully issued.

Some licenses were extended as many as four years beyond the expiration of lawful presence documentation.

The audit highlighted specific examples, including one case in which California issued a CDL to a driver from Brazil with endorsements to operate both a passenger bus and a school bus.

According to federal regulators, that license remained valid for months after the driver’s legal presence in the United States had expired.

In November, California agreed to revoke all illegally issued licenses within 60 days and to work with federal officials to verify that the underlying failures in the licensing system had been corrected.

Federal officials said the state failed to meet that commitment and attempted to extend the revocation deadline without federal approval.

As a result, the Trump administration moved forward with the funding penalty, which will impact California’s transportation budget beginning in fiscal year 2027.

The office of California Gov. Gavin Newsom, the California Department of Motor Vehicles, and the California State Transportation Agency did not immediately respond to requests for comment.