U.S. Transportation Secretary Threatens $160 Million Funding Cut to California Over Undocumented Immigrant Driver Licenses
Federal Clash Erupts Over California’s Licensing Policies
Washington, D.C. — A new rift between federal regulators and the State of California deepened Friday after U.S. Transportation Secretary Sean Duffy announced his intent to withhold $160 million in federal highway funding, citing what he described as California’s “ongoing violation” of federal transportation safety laws. The dispute centers on the state’s policy of issuing commercial driver’s licenses to undocumented immigrants, a practice Duffy claims directly contradicts federal eligibility standards for commercial vehicle operators.
In a statement delivered from the Department of Transportation headquarters, Secretary Duffy said his office had warned California multiple times to suspend issuance of federally regulated commercial licenses to non-citizens lacking legal immigration status. According to the Secretary, Governor Gavin Newsom’s administration “knowingly defied” those instructions and failed to implement corrective measures, prompting the threat of financial penalties.
The Trigger: Fatal Crash Raises Safety Concerns
The confrontation has been amplified by a recent fatal crash in the Central Valley that federal investigators say involved a tractor-trailer driver who had received an upgraded commercial license through California’s system for undocumented residents. Authorities allege that the driver, who lacked valid work authorization, lost control of the vehicle while hauling hazardous materials, resulting in two deaths and extensive roadway damage.
Transportation Secretary Duffy cited the incident as emblematic of the dangers associated with California’s current approach. “When safety protocols are undermined, lives are put at risk,” he said. “California’s disregard for federal driver standards cannot continue without consequences.”
Officials in the Newsom administration have not issued a formal response but previously defended their statewide licensing program as an effort to improve safety by ensuring all drivers — regardless of immigration status — are trained, tested, and insured.
A Decade of Divergent Policies
California first began issuing driver’s licenses to undocumented immigrants in January 2015 under Assembly Bill 60 (AB 60). The landmark law, signed by then-Governor Jerry Brown, allowed residents without lawful status to obtain a “limited-purpose” license for noncommercial vehicles. Since its inception, the Department of Motor Vehicles reports that more than 1.2 million such licenses have been issued.
Federal officials say, however, that California has extended the policy improperly to include certain commercial license categories that fall under federal oversight. The Federal Motor Carrier Safety Administration (FMCSA), an agency within the Transportation Department, prohibits issuing commercial driving credentials to individuals who are not legally present in the United States.
California’s position has been that its licensing system is consistent with broader public safety goals. The state argues that licensed and tested drivers reduce hit-and-run rates, lower uninsured motorist claims, and help integrate essential workers — particularly in agriculture, construction, and delivery sectors — into the regulated economy.
The Economic Stakes for California
The potential loss of $160 million in federal funding could have a broad impact on California’s highway safety and infrastructure projects. The funds in question support vital programs, including commercial vehicle inspection networks, roadway safety data initiatives, and rural highway repairs.
According to California’s Legislative Analyst’s Office, such a funding cut could delay several high-priority safety upgrades planned for Interstate 5 and U.S. Route 101. State budget analysts warn that local governments might be forced to shoulder additional maintenance costs if the federal money is withheld, potentially diverting funds from other infrastructure needs.
Previous funding disputes between California and federal agencies — whether over emissions regulations, water infrastructure, or wildfire mitigation — have shown that protracted legal battles can freeze grants for months or even years. Some economic experts caution that this latest conflict could deter contractors and delay investment in the state’s already overburdened transportation network.
Historical Tensions Between Federal and State Transportation Policy
Federal-state clashes over driver licensing are not new. During the early 2000s, several states including New York, Illinois, and Utah faced resistance when attempting to issue licenses to noncitizens without legal status. In 2005, Congress passed the REAL ID Act, establishing national identification and security standards following the September 11 attacks. That law empowered the federal government to restrict the use of certain state-issued credentials for official purposes, such as boarding airplanes or entering federal buildings.
California attempted to navigate around those restrictions by issuing two types of driver’s licenses — one compliant with federal identification standards and another marked “Federal Limits Apply.” The system has largely operated without interference since then. However, the new dispute centers specifically on commercial driving privileges, which fall under exclusive federal jurisdiction.
Transportation attorneys note that if the Department of Transportation moves forward with its sanctions, California could challenge the penalties in court, arguing that the federal government is exceeding its regulatory authority or misinterpreting state licensing data.
Comparison With Other States
California is not alone in extending certain driving privileges to undocumented residents. As of 2025, 19 states, along with the District of Columbia, allow such drivers to obtain noncommercial licenses. However, none of those states issue or upgrade commercial vehicle licenses to individuals without lawful presence, according to data from the American Association of Motor Vehicle Administrators.
In neighboring Nevada, lawmakers instituted clear barriers separating commercial and noncommercial licensing categories to maintain federal compliance. Arizona, historically more restrictive, revamped its licensing protocols in 2022 to permit undocumented residents to apply for learner’s permits but stopped short of commercial endorsements.
These discrepancies highlight the tension between state-level inclusivity initiatives and federal transportation uniformity standards. Transportation policy experts warn that inconsistent licensing rules across states could distort the interstate trucking industry and create insurance liabilities for carriers.
Public and Political Reaction
Reaction within California has been swift and polarized. Immigrant rights advocacy groups condemned the federal government’s threat as punitive and politically motivated, arguing that it stigmatizes essential workers who contribute to the state’s logistics and supply chain sectors. Labor unions representing farmworkers and warehouse employees warned that revoking licenses could worsen driver shortages and disrupt agricultural distribution networks as the holiday season approaches.
Conversely, several national trucking associations applauded the Transportation Department’s stance, stating that uniform enforcement of federal standards is necessary to protect safety and professionalism within the nation’s commercial driving workforce. “If one state ignores federal law, the entire system becomes unreliable,” said Mark Holbrook, a spokesperson for the National Freight Safety Alliance.
Local officials expressed concern about the downstream effects of the funding cut. “We’re already struggling to repair bridges and rural highways,” said a county transportation director in Fresno. “Losing federal support would be devastating for smaller communities that rely on those programs.”
What Comes Next
The Department of Transportation has given California 30 days to halt the issuance of all commercial driving credentials to undocumented residents and to initiate a review of existing credentials for compliance. Failure to meet those requirements could trigger formal enforcement actions, including revocation of the state’s certification to administer federal commercial license standards.
Legal experts predict that a protracted battle lies ahead. California could seek an injunction against the federal funding freeze, potentially escalating the dispute into federal court. The outcome may hinge on nuanced interpretations of the Motor Carrier Safety Improvement Act and whether California’s current practices constitute a violation of its cooperative agreement with the federal government.
Broader Implications for Interstate Commerce
If the sanctions proceed, California’s trucking sector — the largest in the country by employment — could face significant operational challenges. Licensing disruptions might temporarily sideline thousands of drivers, compounding supply chain pressures already affecting ports and distribution centers.
Transportation logistics analysts caution that any decline in available licensed drivers could increase freight costs nationwide. California is a critical node in U.S. commerce, handling nearly 30% of all containerized cargo entering the country through its ports. A slowdown in licensure processing could ripple through industries from agriculture to e-commerce.
At the same time, renewed focus on licensing compliance could reshape national transportation policy. Other states with similar licensing frameworks may preemptively revise their programs to avoid federal scrutiny. Some analysts predict this controversy may prompt Congress to revisit driver eligibility rules within the next reauthorization of federal transportation programs.
A Collision Course Between Safety and Inclusion
The looming financial penalty underscores a deeper philosophical divide over how the United States balances road safety enforcement with inclusive public policy. For California, the licensing debate represents a continuation of its commitment to integrating undocumented residents into social systems that reduce risks for all drivers. For federal regulators, the issue is non-negotiable — a question of maintaining standardized qualifications that protect lives on highways.
With $160 million in federal funds and control over commercial licensing authority at stake, both sides appear unwilling to back down. As the deadline approaches, transportation officials nationwide are watching closely, aware that this confrontation could set a national precedent for how far states can go in shaping immigration-adjacent driver policy under federal oversight.