Companion Guide to Video August 2012

www.fhwa.dot.gov/federal-aidessentials

If you’re considering using Federal-aid Highway 

Program funds on a local public agency, or LPA, 

project, you’ll need to understand some key points 

about this type of funding and how you can use it. 

This overview module will help you attain 

awareness about Federal-aid funding itself and 

some important criteria that you’ll need to meet in 

order to use the money on your project.

Let’s begin with a brief explanation of the source 

of Federal-aid funding, and how these funds are 

provided to and administered by the States.

Congress established the Highway Trust Fund in 

1956 to support building the interstate system as 

one of the earliest major initiatives of the Federalaid Highway Program. Today, this fund continues 

to provide a steady source of surface 

transportation financing for the Federal-aid 

program. User fees such as gasoline taxes go into 

the Highway Trust Fund to finance surface 

transportation system projects, primarily for 

highways and bridges.

Federal-aid funds are generally distributed to 

States using formulas specified in Federal law, 

although the money is not provided up front. The 

Federal law provides a promise of future 

reimbursement. The funds distribution enables a 

State department of transportation, or State DOT,

to enter into agreements with the Federal Highway 

Administration, or FHWA, that will ultimately be 

reimbursed from Highway Trust Fund receipts. The 

funds distribution is provided to each State within 

funding categories or programs that focus on key 

areas, such as the Surface Transportation Program

and the Highway Safety Improvement Program.

State DOTs are the designated recipients or 

“grantees” for the funds, and LPAs are subrecipients or “sub-grantees,” meaning LPAs receive

funds via the State DOT. State DOTs oversee 

decisions regarding the selection of projects for 

funding and are responsible for ensuring Federal 

requirements are met, including those for funds 

eligibility.

Federal-aid Program Overview

Funding Basics and Eligibility

Funding Basics and Eligibility

Key points must be understood about the Federal-aid Highway 

Program and how its funds can be used
Federal-aid Essentials for Local Public Agencies

Two important characteristics of Federal-aid are 

that it is both a reimbursable and a matching 

program. Reimbursable means that FHWA pays 

grantees and sub-recipients the actual eligible 

expenses incurred on a progress payment basis. 

Money is not provided in advance, so a State DOT 

or LPA must initially finance the project. The States 

and the LPAs incur project costs and are 

reimbursed with Highway Trust Fund receipts. A 

matching program means that the Federal funds 

are matched with State or local resources to cover 

the total project cost. Federal funds typically 

provide 80 percent of the project’s eligible cost, 

with the remaining 20 percent provided by State or 

local agency funding. 

Now that you have a general awareness of where 

Federal-aid funds come from and how they make 

their way to local projects, let’s introduce a few of 

the important criteria for using the funds.

The first criterion to note is that most funds must 

be used on eligible highways, often termed

“Federal-aid highways.” An eligible highway must 

have a certain functional classification, which may 

not include all LPA roads. 

Each State DOT maintains maps showing highway 

functional classifications and can help you 

determine whether your project is eligible for 

Federal-aid highway funding. There are some 

exceptions that permit certain funding programs to 

be used for projects on other public roads. You 

should contact your State DOT to get more 

information on Federal-aid funding programs that 

lend themselves to use on LPA projects.

A second important criterion is that Federal-aid 

funding is available for capital improvements and 

planned upkeep of highway assets. Federal-aid 

funding may not be used for routine maintenance, 

such as pothole patching, mowing, snow removal 

or graffiti removal.

Another criterion is that Federal-aid funds are 

provided to States within specific funding 

programs, and each one has its own eligibility 

criteria for allowable work. For example, Surface 

Transportation Program funds must be used for 

eligible surface transportation project activities and 

Highway Safety Improvement Program (HSIP) 

funds must be used for certain safety projects. The 

Highway Safety Improvement Program is an 

example of funding that can be used for eligible 

projects on any public road, even if not on a 

Federal-aid highway.
Federal-aid Essentials for Local Public Agencies

Another major criterion to note is your project must 

be included in the Statewide Transportation 

Improvement Program, or STIP, to be eligible for 

Federal-aid funds. The STIP is the State DOT’s 

multi-year list of selected projects resulting from 

collaboration with urban planning agencies, known 

as metropolitan planning organizations, and with 

LPAs.

Being aware of the nature of Federal-aid funds –

and the criteria for using them – is a good starting 

point for pursuing Federal funding for your LPA 

projects. This video is meant to raise your 

awareness of funding basics and important 

eligibility criteria. We learned previously in this 

video that Federal-aid can only be used on eligible 

highways, and that the Federal-aid Highway 

Program is both a reimbursable and a matching 

program. The Federal-aid Highway Program is for 

capital improvement and significant upkeep, and 

not for routine maintenance. We also learned that 

there are unique eligibility requirements for each 

funding program or category, and that your project 

must be in your State DOT’s STIP to be eligible. 

More in-depth information about 

Federal-aid Highway Program 

funding can be obtained from the

module’s companion resources, 

Web links and your State DOT.
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-00023 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

• List of free FHWA Web-based training through NHI, including 

course 310115, Introducing Highway Federal-Aid

http://www.nhi.fhwa.dot.gov/training/list_catalog.aspx?cat=&key=&n

um=&loc=&sta=%&typ=3&ava=1&str=&end=&tit=&lev=&drl=

• Link to publication that explains financing Federal-aid projects from 

start to finish

http://www.fhwa.dot.gov/reports/financingfederalaid/index.htm

• Link to A Guide to Federal-Aid Programs and Projects and info 

about Federal-aid core programs

http://www.fhwa.dot.gov/federalaid/projects.cfm

• FHWA's LPA Web site that includes reference, contact, and training 

information

http://www.fhwa.dot.gov/federalaid/lpa/