Companion Guide to Video August 2012

www.fhwa.dot.gov/federal-aidessentials

Finance 

Project Funding

Matching or Cost Sharing Requirements

Most federally funded transportation projects 

require the recipient to apply some of its funds to 

match the Federal funds. But during times when 

your agency’s funds are in short supply, it may 

be difficult to find those matching dollars. 

Rather than delay worthy projects, in recent 

years some agencies have explored flexible 

alternatives to contribute their share.

Let’s look at some of the alternative sources of 

funding that can be used to match Federal funds 

on a highway transportation project. We will 

also look at options to adjust the matching share 

requirement on each request for payment.

One allowable method for matching Federal 

funds is to use in-kind contributions from 

qualified third parties. 

As an example of how this method might be 

used on a project, imagine that you are planning 

to add an exit ramp on an Interstate freeway, 

one that will provide access to a new business 

park. As part of your matching funds, you use 

land contributed by an individual.

Such real property contributions—and even 

services, materials, equipment or facilities – can 

be counted toward your match contribution 

provided you give the contribution a fair market 

value and diligently follow the conditions set out 

by the regulations.

When used to promote public-private 

partnerships, the regulations allow contributions 

from individuals, organizations and other local 

agencies, who are considered to be a third party 

to the Federal-aid agreement. Under most 

conditions, a sub-grantee is not considered a 

third party and cannot donate services, 

materials, equipment or facilities.

If the conditions are right, there are several 

additional potential funding sources that can be 

used as your match. But be certain to ask the 

right questions. 

For example:

• Does your project provide access to a 

scenic byway? In some cases, funds 

from a Federal land-use agency, such 

as the U.S. Forest Service, may be used 

as your agency’s match.

Alternative sources can be used to provide the matching funds 

share for Federal-aid projects
Federal-aid Essentials for Local Public Agencies

• Does your project provide access to 

Indian lands? If so, funds from the 

Federal Lands Highway Program may 

be used.

• Has your agency or State department of 

transportation, or State DOT, funded 

100 percent of the costs to refurbish one 

of its bridges? If so, the majority of 

those costs may be counted as your 

match. 

In addition to recognizing allowable sources of 

funding, it’s also important to understand 

payment options. The most common is 

“payment by payment,” which offers consistent 

application of Federal share of incurred costs 

throughout the lifecycle of a project.

But flexible payment schedules, known as 

“tapering,” are also available under certain 

conditions. This approach allows an agency to 

claim Federal reimbursement of up to 100 

percent of incurred costs on individual claims as 

long as the overall matching requirement is met.

Tapering is not available as an automatic option,

but your agency may be considered for it if you 

can demonstrate that tapering will: 

• Allow your project to be finished sooner

• Allow you to lower the cost of your 

project

• Provide for additional non-Federal funds

• Be leveraged for the project

• Accommodate the full utilization of inkind contributions from third parties

If your agency is able to maximize its dollars for 

the matching share of a Federal-aid project by 

using the alternative sources of funding and 

tapering options presented here, you are 

expected to comply with all Federal 

requirements when accounting for project funds 

and costs.
Federal-aid Essentials for Local Public Agencies

The content of this 

document is not a 

substitute for 

information obtained 

from State departments 

of transportation, 

appropriate FHWA 

Division Offices, and 

applicable laws. 

Scenarios have been 

simplified for emphasis 

and do not necessarily 

reflect the actual range of 

requirements applicable 

to the scenario or this 

topic. This document

was created under 

contract number

DTFH61-11-D-00025 by 

the Federal Highway 

Administration, U.S. 

Department of 

Transportation, and is 

offered to the public to 

heighten and focus 

awareness of Federal-aid 

requirements within the 

local public agencies 

community and 

reinforces the 

importance of these 

necessary policies, 

procedures, and 

practices.

This companion resource 

is the script content for 

the video production of 

the same name. 

Additional Resources

• Clarification of Federal-aid project funding match guidelines

http://www.fhwa.dot.gov/legsregs/directives/policy/memonfmr20091229.htm

• Guidance on application of the Tapered Match provisions on Federal-aid 

projects

http://www.fhwa.dot.gov/legsregs/directives/policy/tapered20091229.htm

• U.S. DOT regulation detailing matching or cost-sharing requirements for locally 

funded Federal-aid projects

http://www.ecfr.gov/cgi-bin/textidx?c=ecfr&SID=635f40442cd64d8932f55a090c19f20f&rgn=div5&view=text&no

de=49:1.0.1.1.12&idno=49

• U.S.DOT regulation detailing matching or cost-sharing requirements

http://www.ecfr.gov/cgi-bin/textidx?c=ecfr&SID=9a2afa4f414a08c8727f6f80ca0e7ff9&rgn=div5&view=text&nod

e=49:1.0.1.1.13&idno=49

• Part 225 of the general accounting regulation that is the codified material 

originally developed as OMB Circular A-87

http://www.ecfr.gov/cgi-bin/textidx?c=ecfr&SID=5a4eef46fbff218c61a60ed608be3367&rgn=div5&view=text&no

de=2:1.1.2.10.6&idno=2

• The text of the law that established the Federal-aid highway program

http://frwebgate.access.gpo.gov/cgibin/usc.cgi?ACTION=BROWSE&TITLE=23USCC1

• Text of the current regualtions of the Federal-aid highway program.

http://www.ecfr.gov/cgi/t/text/textidx?&c=ecfr&tpl=/ecfrbrowse/Title23/23cfrv1_02.tpl