For most federal aid transportation projects, federal law requires that 20 percent of the total funds used for the project come from nonfederal sources. State and local governments have several options for where they can raise the 20 percent match or how they can leverage the federal share until nonfederal revenues are available. The matching flexibility can help states find revenue for projects or accelerate project completion.
• Tapered Match-A change in federal matching requirements enacted in TEA-21 allows state and local contributions to transportation projects to vary annually, as long as the required matching ratio is met over the entire duration of the project. The provision, referred to as a tapered or delayed match, allows state and local governments to start projects with higher percentages of federal funds until they are able to fully secure financing for the nonfederal share. This tool may be particularly useful when a state does not have sufficient money for the match at the beginning of a project but expects to accumulate the funding by project completion through special taxes or other means. It allows state and local governments to accelerate project completion and meet near-term funding gaps. The tapered match is not available for every project, and projects must meet certain federal criteria to be eligible. Transportation officials in Washington used the tapered match to expedite completion of a $35.9 million HOV lane.
• Third-Party Donations and Flexible Match Provisions-Federal law allows state and local governments to use contributions from a variety of public and private sources to fulfill the 20 percent nonfederal match requirement. Donations can include money, land, materials or services. Third-party donors can include private companies, organizations and individuals.
State and local governments also have some options for matching requirements. States can put the value of public-owned property toward the nonfederal match requirements. They also can count funds from certain federal agencies toward the nonfederal share of recreational trails, transportation enhancement projects and some federal aid highway projects. States can apply funds from the Federal Lands Highway Program to the nonfederal match for projects that are within or provide access to federal or Indian lands. Another option allows states to seek program-wide approval from the U.S. Department of Transportation for Surface Transportation Program projects. Upon approval, the matching requirement would apply to the entire program, rather than to individual projects.
The advantage of using a flexible match or third-party donations is that it allows the state or local government to reallocate funds that would have been used as a match. It also can accelerate project completion and can promote private investment in transportation projects. A flexible match was used in Auburn, Maine, to help construct an intermodal truck/rail transfer facility. In this example, a private railroad company donated materials, equipment and labor that counted toward the nonfederal match.
• Toll Credits-Federal law allows states to apply toll revenues used for capital expenditures to build or improve highway facilities as a credit toward the nonfederal match requirement for certain transportation projects. A state, toll authority or private entity earns toll credits by funding a highway facility with toll revenues from existing facilities. The amount of toll revenues spent on nonfederal highway capital improvements earns the state an equivalent dollar amount that the state or local government can apply to the nonfederal share of a federal aid transportation project. Federal law requires that the state must certify that its toll facilities are properly maintained and must pass an annual maintenance of effort test to use this tool.
Toll credits allow states to essentially raise the federal share for a transportation project to as much as 100 percent of the total cost. Such credits encourage states to make investments in transportation infrastructure and allow states to direct money to other transportation needs. According to FHWA, by the end of FY 2001, 20 states had accumulated $9.2 billion in toll credits for transportation needs.42