Federal-aid fund management tools are designed to provide states with greater flexibility in managing Federal-aid highway funds. Typically state and local governments must provide 20 percent of the funding for projects benefiting from Federal aid. The principal objective of the management techniques described here is to ease restrictions on the timing of obligations and reimbursements and create a broader range of options for meeting matching requirements. While finding money for projects is always a challenge, states and other project sponsors also have to align the flow of projects with the availability of local funding. These cash flow tools help state and local governments to leverage Federal funding and expedite the implementation of projects.
Further information on the tools below is available from the FHWA Center for Innovative Finance Support.
Advance Construction and Partial Conversion of Advance Construction
Advance construction and partial conversion of advance construction are cash flow management tools that allow states to begin projects with their own funds and only later convert these projects to Federal assistance. Advance construction allows a state to request and receive approval to construct Federal-aid projects in advance of the apportionment of authorized Federal-aid funds. Under normal circumstances, states “convert” advance-constructed projects to Federal aid at any time sufficient Federal-aid funds and obligation authority are available, and do so all at once. Under partial conversion, a state may obligate funds for advance-constructed projects in stages.
Advance construction practices across the country were reviewed in two Briefing Papers that summarize historical trends in its usage, identifies current practices, benefits, and challenges, and provides observations on its future use and administration.
Federal-aid Matching Strategies
Tools that enable Federal-aid matching strategies are designed to provide more flexibility to states in managing Federal funds. These tools permit states to maximize the use of all available resources (including non-cash) and to improve cash flow, allowing states to increase investment, accelerate projects, and pursue multiple projects concurrently. These tools include:
- Flexible match allows a wide variety of public and private contributions to be counted toward the non-Federal match for Federal-aid projects.
- Tapered match allows the non-Federal matching requirement to be applied to the aggregate cost of a project rather than on a payment-by-payment basis.
- Toll credits permit states to use revenue from toll facilities as a credit toward the non-Federal matching share of certain highway projects.