The federal government will withhold about $160 million from California for failing to cancel more than 17,000 illegally issued commercial driver’s licenses by Jan. 5, Transportation Secretary Sean Duffy announced on Jan. 7.

“It’s reckoning day for [Gov.] Gavin Newsom and California,” Duffy said in a statement. “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.”

California delayed revoking the licenses until March 6 after the state was sued by immigrant truck drivers and business owners.

Duffy warned in December 2025 that the state could lose the funding over the delay.

The federal transportation agency’s audit of the national nondomiciled commercial driver’s license program found a “systemic collapse of California’s” program, which allowed the state to illegally issue licenses with expiration dates extending beyond a driver’s lawful presence in the United States, according to the agency.

More than 25 percent of foreign commercial driver’s licenses issued by California were issued unlawfully, the audit revealed.

In all, more than 20,000 active foreign drivers held commercial licenses issued by California in violation of federal safety regulations, the Department of Transportation (DOT) reported.

“Federal regulations are clear” that states must correct safety deficiencies on a schedule mutually agreed upon by the agency, and California failed to meet its commitment to rescind the unlawfully issued licenses by Jan. 5, said Derek Barrs, chief of the Federal Motor Carrier Safety Administration, part of the DOT.

Barrs added that his department would not accept a corrective plan from California that knowingly leaves thousands of drivers holding noncompliant licenses.

In November 2025, California agreed to revoke every illegally issued license within 60 days and to work with the federal agency to verify that program failures were addressed.

Trucks drive through the port of Oakland, Calif., on Nov. 14, 2025. (Justin Sullivan/Getty Images)

California sent out notices in November after its first order to fix the program, but it was sued last month by the Sikh Coalition, representing about 20,000 immigrant drivers and business owners in the state.

The group argued that canceling the licenses will leave thousands of eligible drivers out of work and disrupt supply chains and services. The suit also blames the state’s Department of Motor Vehicles for committing administrative errors.

The DOT had already withheld $40 million from California after an investigation found that the state failed to comply with federal English language proficiency standards.

Newsom’s office referred questions about the funding cut to the state’s Transportation Department, also known as Caltrans, which didn’t immediately return a request for comment.