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A Guide to Transportation Funding Options

About – Overview of Terms and Concepts

Apportionment and Allocation

SAFETEA-LU authorizes specific amounts for each transit program and Congress in turn provides an annual appropriation of the funds to the Federal Transit Administration (FTA). The FTA then apportions these funds to eligible recipients. Program specific apportionment information can be found at:

Matching Requirements

In general, the Federal government does not pay for the entire cost of projects for which it allocates funds from Federal fuel tax revenues. To make up the difference between what is received in Federal aid and the cost of the project States and local entities are required to provide a state and/or local match of funds. Matching funds are paid out over the course of the project and not in lump sums. Therefore, projects need not be completed prior to applying for Federal reimbursement.

The normal process for Federal reimbursement is as follows:

  1. Work is done by a contractor.
  2. The contractor bills the State for all work done.
  3. Vouchers for these bills are forwarded by the State to the FHWA for review and approval.
  4. The FHWA certifying officer certifies the State transportation department's claim for payment.
  5. Certified schedules are submitted to the Treasury Department.

The Federal share of the cost for all projects on the vouchers is transferred directly from the Treasury Department to the State's bank account by electronic fund transfer.

States and local entities may use the following revenue sources to meet Federal match requirements:

  1. State and/or local governments funds;
  2. Private contributions;
  3. Credit for donated private property or land lawfully obtained by the State or local government without the use of Federal funds;
  4. Toll revenue credits may be applied to the non-Federal share of certain highway and transit projects; and
  5. Other Federal agencies, if specifically authorized in law.

Most projects receiving Federal aid will receive 80 percent, leaving fund recipients with 20 percent of the cost. There are; however, exceptions.

Interstate System

Unless a project adds lanes that are not dedicated for High Occupancy Vehicles (HOV) or auxiliary lanes, the Federal share on a project on the Interstate Highway System is 90 percent.

Sliding Scale

States with a large percentage of Federal lands may have their Federal share of certain projects increased to 95 percent.

100 Percent Federal Funding

Certain projects are eligible for 100 percent federal funding. These include:

Tapered Match

This approach may be approved for projects that where the Federal share may vary on individual payments as long as the final Federal match does not exceed the maximum authorized Federal share for that type of project. This allows the state portion to be assessed on the project as a whole and not on a payment by payment basis. Tapered match can be most beneficial in situations where the non-Federal sponsor of a given project lacks the adequate matching funds at the start of the project but expects them over the life of the project.

Flexible Match

Flexible match allows a wide variety of public and private funds to be counted towards a project's requisite non-federal match amount. Flexible match may be applied to any project with a required non-federal match. Flexible match works especially well in situations where public or private partners have a clear interest in investing in infrastructure.

Toll Credits

Toll credits allow for a certain amount of toll revenue used to build or improve highway facilities to be applied to non-federal match requirements. The amount credited will depend on the amount of toll revenue used by toll authorities for capital expenditures to build or improve facilities that serve interstate travel. Expenditures for routine maintenance, debt service or toll collection costs are not eligible for inclusion.

Metropolitan Planning Organizations

Largely in response to the continued construction of the interstate highway system, the Federal-Aid Highway Act of 1962 established requirements for the coordinated, comprehensive and cooperative planning of transportation projects in urban areas with a population of 50,000 or more as a condition for federal transportation financial assistance. Subsequent legislation required the formation of planning organizations composed of representatives of the various political jurisdictions in the urban region. These metropolitan planning organizations (MPOs) are currently responsible for cooperating with state and other transportation providers in carrying out the metropolitan transportation planning requirements of federal highway and transit legislation.

To form an MPO an urban community must be designated by the U.S. Census bureau as an urban area with a population of 50,000 or more. In each urban area, the MPO must be designated by agreement between the Governor and local units of government representing 75 percent of the affected population, including the central cities, or cities as defined by the Bureau of the Census, and adjacent communities.

Cities within the jurisdiction of an MPO face additional constraints in the planning and financing of transportation projects, as MPOs are required to develop transportation plans and transportation improvement plans (TIP) subject to requirements established in Title 23, Chapter 1, Section 134 of the U.S. Code . A transportation plan must be updated at least every four years and must: identify transportation facilities serving as an integrated metropolitan transportation system, discuss potential environmental mitigation strategies, demonstrate how the adopted plan is to be implemented financially, discuss operational and management strategies, establish capital investment strategies, and propose transportation and transit improvements. A TIP must be updated every four years and include a priority list of federally supported projects and strategies to be carried out over the four year period of the TIP, a detailed description of each project and a financing plan for carrying out these proposed improvements. Areas with a population of over 200,000 must develop unified transportation plans which place heavy emphasis on congestion mitigation.

A Transportation Management Area (TMA) is an area designated by the US Secretary of Transportation having an urbanized area population of over 200,000.

Air Quality Considerations

A region's success in controlling air quality is a major determinant in what sort of funding it is eligible to receive and how it may use the funds it receives. Areas are considered to be "non-attainment" if they do not meet one or more of the criteria of the National Ambient Air Quality Standards (NAAQS) criteria for certain pollutants designated under the Clean Air Act. These pollutants include ozone, sulfur dioxide, particulates, nitrogen dioxide, carbon monoxide, and lead.

Areas that were once non-attainment, but eventually meet National Ambient Air Quality Standards criteria, are considered to be "maintenance" areas.

For more information, consult the Federal Transit Administration's Best Practices Procurement Manual.

Fixed Guideways

Fixed guideways are transit services that utilize, either entirely or in part, exclusive or controlled rights-of-way or rails. These types of facilities include (but are not limited to) heavy rail, commuter rail, light rail, monorail, trolleybus, aerial tramway, inclined plane, cable car, automated guideway transit, ferryboats, that portion of motor bus service operated on exclusive or controlled rights-of-way, and high-occupancy-vehicle (HOV) lanes. There are often special restrictions and incentives placed on the use of funds used for fixed guideway facilities.