As for the "government threats", that's utter BS. Allocating federal funding is one of the explicit duties of congress. They voted to give Berkeley these extra pork barrel funds, and it's at least as legitimate of an act to vote to halt this funding for any reason seen appropriate by congress. That's what they DO.
If Berkeley was entitled to those funds, they'd get them. That's why certain federal funding programs are called "entitlements". Everyone is entitled to get that money. The rest is gravy, subject to congressional votes on who does and does not get it.
Threats... Some people sound like they think the government is going to roll in the BATF and shoot/arrest everyone in sight. What a bunch of nonsense. Taxes and funding change every time a new law is passed, so by that argument, every citizen is constantly threatened by the government every day of their lives. Ron Paul might agree (heh) but I don't think this meets the test of emotional hysteria being put forward by those shocked (shocked I say, shocked!) that the federal government might not be willing to shovel pork barrel money at a city that is attempting to remove an official federal office while demonizing the organization's employees.