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Transportation Funding & Financing

Tapered Match

Overview

Tapered match is a form of Federal-aid matching flexibility that allows a project's Federal share to vary from year to year as long as the final contribution of Federal funds does not exceed the project's maximum authorized share. This tapered match, or delayed local match, as it is commonly called for transit projects, allows states to vary the required matching ratio over the life of a project. For example, the Federal share could start out at 100 percent and taper off to zero as the project nears completion.

With tapering, a state can advance a project before fully securing bond and capital market financing. Tapered match may also be useful when the project sponsor lacks the funds needed to match a Federal-aid project at the start, but will accumulate the match over the life of the project. For example, this technique may facilitate a project when a new local tax has recently been enacted. Using tapered match, the project can move forward immediately with 100 percent Federal funds, allowing time for the new tax revenues to accumulate. The use of tapered match also may help a state overcome near-term gaps in state matching funds.

Historically, tapered match underwent several years of experimentation through TE-045 and was formally instituted when TEA-21 amended Sections 121 and 133 of Title 23, no longer requiring that the Federal share of project costs be applied to each progress payment. Instead, the Federal share is applied to the total project costs.

An example is provided below illustrating a tapered match project with total project costs of $200 million. In this example the required non-Federal match is equal to 20 percent of total project costs, or $40 million. The project construction timeframe is four years. During the first two years of construction, the Federal contribution is equal to 100 percent of project costs. The state begins to provide the non-Federal share starting in year 3 and by the end of year 4 has provided its entire $40 million share of funding for this project, i.e. the entire 20 percent of total contributions to the project.

Qualified Projects

States may request use of a tapered match approach for most projects eligible for Federal-aid assistance under Title 23 when meeting at least one of three objectives: to expedite project completion, to reduce project costs, or to leverage additional non-Federal funds. However, a few exceptions exist: tapered match cannot be used on advance construction projects, STP projects for which the non-Federal match is being provided on a program-wide basis, or projects that are financed with GARVEE bonds. These activities are considered to be inconsistent with the intent of tapered match.

Process

The process for using a tapered match is as follows:

  1. A State submits a tapered match project request to FHWA accompanied by a statement indicating that it will achieve at least one of the three objectives noted above under Qualified Projects.

  2. FHWA determines that requirements are met and establishes a Federal-aid share to be applied to total project costs, expressed as a pro rata percentage of total project costs or as a lump sum amount.

  3. The State and FHWA agree on taper schedule.

  4. FHWA approves the match and executes a project agreement specifying the non-Federal match schedule. It is possible for this amount to be revised when a contract for the project is actually awarded. The agreement also specifies the point at which the state will provide the non-Federal share of funds.

  5. The State submits billings for progress payments.

  6. FHWA reimburses costs according to the schedule.

  7. By the close of the project, the Federal/non-Federal share equals the agreed ratio.

Legislation

Title 23, Section 121, Payment to States for Construction and Title 23, Section 133, Surface Transportation Program (Subsection e(3)(A)) allows FHWA to establish a more flexible matching share policy for progress payments, as the restriction of applying the required Federal share of project costs to each progress payment was removed by TEA-21.

Resources

A guidance memorandum describing the use of tapered matches was issued by FHWA.