They own the copyright to the code: they can do what they want with it. The licence is only a restriction on what people who don't own it can do.

Also, the GPLv3 is not the same thing as the AGPL. Even if they didn't own the code, if it was only GPL then they could make changes without making those available since they were not distributing the software (assuming this was just a webapp). The AGPL closes that loophole.

Copyright licenses apply to third parties, not owners.

The GPLv3 compels entities other than the copyright holder to make available source code to those who receive non-source code versions of software, if they are actually distributing the software or "offer access" to the work (e.g.: as a Web app). The copyright holder him or herself, whether by authorship or assignment, has no such obligations. Third parties would, as would the project maintainer if that maintainer accepted third-party contributions without assignment.

If the Knight Foundation grant required continual availability in open source form, that would be a different contractual obligation under the grant.

Just because this code is released under GPLv3 it doesn't mean that the main codebase is GPLv3. They have complete ownership of their own code & can do as they will with it. The GPL only controls the rights of other people that want to use it.