Federal-aid Highway Program
excerpts from Financing Federal-aid Highways (Publication No. FHWA-PL-92-016)

To have a basic understanding of the financial procedures of the program, it is essential to know that the Federal-aid Highway Program is a reimbursable program; that is, the Federal Government only reimburses States for costs actually incurred. The authorized amounts distributed to the States through apportionment or allocation represent lines of credit upon which States may draw as they advance federally assisted projects. They draw on the line of credit by obligating or committing some portion of it for a project (this step is called obligation . . .). No cash is disbursed at this point. The States generally start a project using their own money; i.e., they provide front-end financing for the project and receive cash for the Federal share of the project’s cost as work is being completed.

The term "obligation" has been used frequently. An obligation is a commitment of the Federal Government to pay, through reimbursement to the States, the Federal share of a project’s eligible cost. The commitment is made when the plans, specifications, and estimate (PS&E) is approved . . .

Obligation is a key step in financing. Obligated funds are considered "spent" even though no cash is transferred. Incurring an obligation is similar to the use of a credit card. The holder of the card is obligated to reimburse the credit card company when a purchase is made. Although no cash has exchanged hands, the money is as good as spent when the holder signs the charge receipt. Likewise, the Federal Government must eventually provide the cash to reimburse the States once an obligation is made.

With few exceptions, the Federal Government does not pay for the entire cost of construction or improvement of Federal-aid highways. Federal funds are normally "matched" with State and/ or local government funds to account for the necessary dollars to complete the project. The maximum Federal share is specified in the legislation authorizing the program. Most projects will have an 80 percent Federal share.

Federal Transit Program

Grant-based capital program . . .