Longstanding federal Financial support has been provided as a collection of categorical grants, mostly to state DOTs, known as the Federal Aid Highway Program (FAHP). Administered by FHWA, typically FAHP grant funds are distributed through apportionment formulas to the states from receipts in the Highway Trust Fund. Distributions are made on a reimbursement basis as states incur qualifying expenditures to develop and construct highway projects and then request reimbursements from the FHWA. (For more detail, see Publication No. FHWA-PL-07-017, Financing Federal-aid Highways).
The funding details of the individual programs have changed over time but generally FAHP grants reimburse a Federal share of qualifying expenditures and thus result in a non-Federal expenditure or match. Within the FAHP there are numerous rules and regulatory requirements associated with using federal funding for any given project expenditure, governing for example, funding percentages, eligible purposes, contracting procedures, and planning. For state DOT fund managers, compliance with federal funding rules as well as managing state fund sources carrying their own set of rules, at times created significant cash management challenges and inefficiencies. As an example, at the end of a state fiscal year, state DOTs commonly managed their Federal Fiscal Year closure by assuring that their state funds were used as match to avoid the loss of soon to expire potential Federal program balances. One might argue that this could distort state priorities and optimal financial management.