On April 16, 2026, the U.S. Department of Transportation announced that FMCSA is withholding $73,502,543 in federal highway funds from the State of New York for failing to revoke illegally issued non-domiciled commercial learner's permits and commercial driver's licenses. The withheld amount represents about 4% of New York's funding under the National Highway Performance Program and the Surface Transportation Program Block Grant.
What FMCSA's Audit Actually Found
The funding withholding did not come out of nowhere. The issue stems from a July 2025 audit that found deficiencies in the state's standards for issuing non-domiciled CDLs and CLPs. FMCSA's audit reviewed 200 sampled records and found 107 were issued in violation of federal law, a failure rate of more than 53%. FMCSA Administrator Derek Barrs characterized New York's issues not as isolated errors, but as a "systematically, grossly unacceptable deviation from the rules that have been on the books a long time."
The audit identified two primary defects. First, New York's DMV systems defaulted to issuing eight-year CDLs for certain non-REAL ID credentials, regardless of when a driver's lawful status in the United States expired, a direct violation of federal regulations requiring that non-domiciled CDLs align with the duration of a driver's authorized presence. Second, auditors found cases where the DMV relied on expired lawful presence documents to issue commercial licenses, and in some instances issued CDLs without any evidence of verifying the driver's current lawful presence at all.
Records showed approximately 25,000 drivers in New York had non-domiciled status, and FMCSA said there are likely thousands of commercial drivers with expiring status issues. In total, New York has issued 32,606 non-domiciled CLPs or CDLs that remain unexpired.
Following the July 2025 audit, FMCSA notified New York of its findings and required corrective action. New York responded within the required 30-day window but DOT found the response lacking. On March 13, 2026, FMCSA formally warned the state that failure to complete required corrective actions, including immediate rescission of all noncompliant non-domiciled CLPs and CDLs, would result in a Final Determination of Substantial Noncompliance. Ten days later, New York wrote back, continuing to dispute the legal and procedural merits of FMCSA's position and declining to act. FMCSA issued its final determination shortly after, triggering the funding withholding. Administrator Barrs has warned that New York could see that figure double in fiscal year 2028 if the state remains out of compliance.
New York officials have defended their licensing practices, arguing they were complying with federal law and pointing to audits during the first Trump administration that they say supported their approach. The state and federal government are also at odds over what federal regulations actually required prior to FMCSA raising its standards in September 2025 with an interim final rule and subsequent final rule.
New York Is Not Alone
FMCSA has cited issues and threatened funding losses to states beyond New York. In January 2026, DOT announced it was withholding approximately $158 million from California for failure to cancel approximately 17,000 non-domiciled CDLs by the given deadline, a decision California appealed to the U.S. Court of Appeals for the District of Columbia Circuit. Illinois, North Carolina, and Pennsylvania have also faced scrutiny.
The Regulatory Background
The enforcement action against New York is rooted in a broader federal overhaul of the non-domiciled CDL program, which we've covered in depth. On February 13, 2026, FMCSA published its Non-Domiciled CDL Final Rule, reaffirming, with minor changes, the provisions of the interim final rule published on September 29, 2025. The rule took effect March 16, 2026, limits the maximum term of a non-domiciled CLP or CDL to one year, and prohibits validity from extending beyond the Admit Until Date on Form I-94 or I-94A. FMCSA estimates that approximately 194,000 current non-domiciled CDL holders will lose eligibility to renew their licenses as they expire over the next five years. For full details, see our earlier coverage: FMCSA Issues Final Rule on Non-Domiciled CDLs and FMCSA Issues Guidance Clarifying Non-Domiciled CDL Implementation.
For more information about non-domiciled CDLs and how fleets should be navigating this issue, contact us.
