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Tools & Programs:
Federal-aid Fund Management Tools

Federal-aid Matching Strategies

Toll Credits

Overview

Section 120(j) of Title 23 permits states to substitute certain previous toll-financed investments for state matching funds on current Federal-aid projects. This provision dates back to ISTEA and has since been modified by TEA-21 and SAFETEA-LU. It permits the non-Federal share of a project's cost to be met through a "soft match" of toll credits. The flexibility of state transportation finance programs is increased by allowing states to use toll revenues when other state highway funds are not available to meet nonfederal share matching requirements. Toll credits encourage states to increase capital investment in infrastructure and enable them to more effectively utilize existing resources. By using toll credits to substitute for the required nonfederal share on a new Federal-aid project, the Federal share can effectively be increased to 100 percent.

Toll credits are earned when the state, a toll authority, or a private entity funds a capital transportation investment with toll revenues earned on existing toll facilities (excluding revenues needed for debt service, returns to investors, or the operation and maintenance of toll facilities). The amount of credit earned equals the amount of excess toll revenues spent on Title 23 highway capital improvement projects (except emergency relief program projects) and Title 49, Chapter 53 transit projects. If Federal funds were used for the project, the credit is reduced by the percentage of the total project cost derived from Federal funds.

Process

To utilize this tool, the state must pass an annual maintenance of effort (MOE) test. The MOE determination covers a state's nonfederal transportation capital expenditures over a four-year period, and must certify that its toll facilities are being properly maintained before excess revenues can be credited. The expenditures in the last year of the four-year period generally must meet or exceed the annual average of the expenditures in the preceding three years of the four-year period.

To apply earned toll credits toward the non-Federal matching share of an eligible project, the state must make a request to FHWA at the time the project is put under agreement (project agreement for obligation of Federal funds or before the funds are transferred to another agency (e.g. Federal Transit Administration) responsible for administering the "receiving" project. The amount of credit (up to the total non-Federal share) should be debited from the special account set up for tracking approved toll credits.

Below are steps for the approval and use of toll credits:

Phase I: Toll Credit Approval

  1. State spends toll funds on capital roadway improvements serving interstate travel.
  2. State submits certifications and request for use of toll credits to FHWA with maintenance of effort (MOE) documentation.
  3. FHWA determines whether state meets requirements.
  4. FHWA approves MOE and toll credits for later use.
  5. State establishes a special account to track toll credits.
  6. Credit remains available until used by state.

Phase II: Toll Credit Use

  1. State identifies candidate project(s) for application of toll credits.
  2. State determines the amount of credit applied to project(s).
  3. Credit is debited from state's special account when project agreement is executed.
  4. State submits billings for progress payments and toll credits applied as non-Federal share.
  5. FHWA reimburses Federal share according to project agreement.
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