Need More Resources for Transit? You May be Able to Transfer Federal Highway Funds

As COVID grants are ending, communities may be looking for alternative sources to fund multimodal transit projects. Fortunately, several federal-aid highway programs may be used as flex funding.

Since 1982, federal transportation funding has typically split 80% for highways, 20% for transit. But many highway funding programs are eligible to be “flexed”—transferred to instead support transit improvements. Some states, Nevada, Washington, New York, Vermont, Oregon, Maryland, California, and New Jersey, have transferred more than 4% of their federal highway funding to transit projects. New Jersey, for example has used over 15% of their highway funds for transit costs like new buses and train cars. California uniquely gives its metropolitan planning organizations (MPOs) the authority to flex much of their highway dollars and many communities have opted to use that funding for transit.

What qualifies?

There are several capital projects that can be funded with flex allocations, provided that they meet the requirements of the metropolitan and statewide transportation planning processes. Programs that qualify for flex funding include congestion mitigation and air quality projects that help meet the requirements of the Clean Air Act, Surface Transportation Block Grant programs, Tribal Transportation Programs, and transit and transit access.

Considerations

Local transit administrations need to request that their state’s departments of transportation (DOT) submit the request for the transfer of funds from the Federal Highway Administration (FHWA) to the Federal Transit Authority (FTA). The FHWA’s transfer of funds to the FTA can take up to 60 days, after which time the FTA disburses funds to the direct local recipient.

A 2022 report published by the National Academy of Sciences, Engineering and Medicine found that these transfer practices can prevent ultimate recipients from requesting flex funds. Concerns included funding timeliness, extensive reporting requirements and challenges with handling unanticipated expenses.

To avoid these obstacles, several states have taken to implementing their own “fund swapping” programs. This permits state DOTs to allow local agencies to “exchange their state’s proposed suballocation of federal-aid highway funds for state transportation funds. By swapping funds, local agencies complete a project with state funds instead of the federal funds,” the National Academy report explained.

The Government Accountability Office (GAO), a non-partisan agency that works for Congress to review how taxpayer dollars are spent, found that no statute exists that either permits or prohibits fund swapping programs.

Examples

• Milford, Connecticut wanted to install bike lockers at their local train station, which mostly serves residents who commute to New York City. The city’s metropolitan planning organization reached out to the Connecticut DOT, which applied for congestion mitigation and air quality funds. The federal allocation—80% of the $70,000 budgeted for the project—was disbursed to Milford’s Transit District.
• Upper Kirby Management District in Houston, Texas wanted to improve the streetscape that parallels much of their fixed route bus lines. If they funded the project using their state DOT, they would have had to meet standards and complete environmental analyses that were designed for highways. To avoid this, they used a surface transportation block grant program to transfer the funds through the FTA instead. The $8 million project was 23% funded using federal dollars.

How can I learn more?

The FTA’s Transportation Planning Capacity Building (TPCB) has a comprehensive website and can be reached at flexfunds@dot.gov.