Second Circuit Questions New York Over $73.5 Million Federal Highway Fund Freeze
The appellate hearing tests whether the federal government can withhold transportation funds as leverage over state commercial driver's license practices for noncitizens, a question with broad...
A three-judge panel of the U.S. Court of Appeals for the Second Circuit heard oral arguments on September 28, 2026, in New York State's bid to unfreeze $73.5 million in federal highway funds that the Trump administration has withheld, according to the Washington Examiner.
The funds were frozen after the U.S. Department of Transportation issued an April notice of final determination of substantial noncompliance against New York. The determination alleged that New York failed to comply with federal requirements related to the DOT's crackdown on commercial driver's licenses issued to noncitizens. The specific regulatory provisions at issue have not been fully detailed in publicly available filings reviewed for this report; the administrative record filed with the Second Circuit would contain those details.
New York officials are asking the appellate court to rescind the DOT's April notice and restore the $73.5 million in withheld highway funding. The state's legal challenge centers on whether the DOT's determination was procedurally and substantively valid under the Administrative Procedure Act. The APA requires federal agencies to follow notice-and-comment procedures and to avoid actions that are arbitrary, capricious, or contrary to law.
During oral argument, the three-judge panel questioned New York's position, according to the Washington Examiner's account of the proceeding. The specific questions posed by the judges, and to whom, were not detailed in the available source material. The full audio or transcript of the argument, if made public by the Second Circuit, would provide that record.
The DOT's authority to withhold highway funds as a compliance mechanism is grounded in federal transportation law, which allows the federal government to condition grant disbursements on state adherence to federal standards. Funding conditionality disputes between states and the federal executive branch have a long legal history, including the Supreme Court's 2012 ruling in National Federation of Independent Business v. Sebelius, which limited Congress's ability to coerce states through spending conditions, though that precedent arose in a different statutory context.
The noncitizen commercial driver's license question sits at the intersection of federal immigration enforcement priorities and state motor vehicle administration. Federal law under 49 U.S.C. Section 31311 sets minimum standards for state CDL programs. Whether those standards explicitly prohibit states from issuing CDLs to certain categories of noncitizens, or whether the DOT's current position represents a new interpretation of existing statute, is a legal question that the Second Circuit is now being asked to evaluate.
New York is not the only state to have faced federal scrutiny over CDL issuance practices. The DOT's enforcement posture on this issue took shape earlier in 2026 as part of the broader Trump administration effort to restrict services available to noncitizens at the state level. Whether other states have received similar notices of noncompliance is not confirmed in publicly available DOT records reviewed for this report. A FOIA request to the DOT's Federal Motor Carrier Safety Administration would be the appropriate mechanism to identify any other states under review.
For New York, the practical consequence of the funding freeze is the unavailability of $73.5 million in highway infrastructure dollars. Federal highway funds flow through the Federal Highway Administration and are typically allocated to states under multi-year surface transportation authorization bills. The current authorization framework is the Infrastructure Investment and Jobs Act, enacted in November 2021, which appropriated approximately $110 billion for roads and bridges over five years. Whether the withheld $73.5 million is drawn from that authorization or from a separate appropriation is not specified in available source material; the relevant USASpending.gov award records for New York DOT would identify the funding stream.
The Second Circuit has not issued a ruling as of the date of this report. A decision could come weeks or months after oral argument, depending on the panel's schedule. If the court rules against New York, the state could seek en banc review or petition the Supreme Court. If the court rules in New York's favor and rescinds the DOT notice, the Trump administration could appeal or issue a new compliance determination.
Several key facts remain unknown from public records currently available. The names of the three judges on the panel have not been confirmed in the source material reviewed. The full text of the DOT's April notice of final determination has not been independently verified. It is also unknown whether New York has taken any interim steps to modify its CDL practices in response to the federal notice. The Second Circuit docket for this case, which would be publicly accessible through PACER, would contain all filings and the names of the presiding judges.