New York City, Portland and Seattle are on the list of "anarchist cities" that Trump officials say have failed to stem crime linked to a summer of protests.
It follows a memo from Mr Trump earlier this month, threatening the move.
The mayors of the cities have promised to sue, calling Mr Trump's move a political stunt.
A statement from the Justice Department on Monday laid out recent crime rates in the cities and how their police responded.
"We cannot allow federal tax dollars to be wasted when the safety of the citizenry hangs in the balance," Attorney General William Barr said in the statement.
He also called on Portland, Seattle and New York City to "reverse course and become serious about performing the basic function of government and start protecting their own citizens".
Chickens are coming home to roost.
New York among three 'anarchist' cities named by White House to lose funds
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