Thought Leadership

Using Federal Funding Options to Provide Innovative On-Demand Transit


Todd Allen


6 min read

Todd Allen
6 min read

Public transit agencies seek to meet their community’s mobility needs through a number of innovative solutions.  On-demand transit, also referred to as microtransit, requires the agency’s use of technology, vehicles, staffing, and other resources to provide successful service delivery.  Identifying the appropriate seed and sustainable funding options are critical to ensuring the operational and financial success of the service. RideCo is here to help transit agencies across the United States with potential options for funding on-demand transit services.  


Three Levels of Transit Funding

Transit funding in the United States is typically provided by federal, state, and local funding sources.  Federal transit funding is provided by Congress; state transit funding, appropriated by state legislatures, varies across the country; and local transit funding may be provided by municipal/county/regional governments, non-profit organizations, human service agencies, philanthropic entities, the passenger (i.e. through the farebox), and other community sources.  In this blog, we will discuss the federal funding options that are available to agencies for on-demand transit services.

2021 Bilateral Infrastructure Law Passage: Why Is This Important?  

Every five to six years, Congress passes a national transportation policy and funding blueprint called an Authorization.  The Authorization provides Congress with annual program spending recommendations; the United States Department of Transportation (USDOT) with policy and program requirements; and local transit agencies with federal budget certainty for project commitments.  

In 2021, Congress passed the latest Authorization, the Infrastructure Investment and Jobs Act (IIJA), also known as the Bilateral Infrastructure Law.  The IIJA sets forth federal transportation, including transit, policy, and program requirements through 2026.


Congress and USDOT – Annual Budget Appropriations

The federal government’s fiscal year runs from October 1st to September 30th.  Annually, Congress must pass a budget to provide the USDOT with funding to administer transit and other multi-modal grant programs.  Once the budget is appropriated by Congress, the USDOT and its modal divisions provide varied formula-based and discretionary funding options to meet transportation needs across the country.  The USDOT’s Federal Transit Administration (FTA) manages all policy and grant funding programs for the public transit industry.  


FTA On-Demand Transit Funding Options: Grants – Formula vs. Discretionary

The FTA administers the majority of its funding as formula and discretionary grants. Eligibility and other requirements for these programs vary depending on factors such as the type of agency and size of community served.  

Formula Grants.
 The FTA’s largest funding source is provided through annual application and directly to large urban transit systems and through State Departments of Transportation (DOTs) to small urban and rural transit systems.  Depending on the transit agency’s eligibility, funding for capital (i.e. technology and vehicles), operating (i.e. fuel, maintenance, insurance, and driver salaries), administrative, and planning expenses may be available.  On-demand transit technology is typically considered an FTA capital expense, allowing for the federal share to address up to 80% of the project’s capital costs.  


The FTA provides formula grants through the Sections 5307 Urbanized Area Formula Funding Program, 5310 Enhanced Mobility of Seniors and Individuals with Disabilities, 5311 Formula Grants for Rural Areas, and 5339(a) Grants for Buses and Bus Facilities Formula Program.

Discretionary and Research Grant Programs.  Based on annual Congressional budget appropriations, the FTA administers nationally competitive discretionary and research grant programs as well.  These funding initiatives focus on new or replacement bus and other capital programs, state of good repair, equity, tribal transit services, service planning, innovation, and much more.  Discretionary grants are typically annual in nature, vary on release timeframe, and have different eligibility requirements.  The following are sample FTA discretionary grants that provide seed funding opportunities for on-demand transit services:

          · Low or No Emission and Buses and Bus Facilities Grant.  This program funds low or no emission vehicles, facilities, and bus equipment, which includes technology.

          · Tribal Transit Grant Program.  Capital, limited operating, administrative, and planning funds for tribal transit services are included in this program.  On-demand transit technology is an eligible capital expense.  

          · Innovative Coordinated Access and Mobility Grants (ICAM).  The ICAM grants provide discretionary funding opportunities for innovative projects that enhance access for the disadvantaged through the coordination of public transportation services with healthcare, human services, and other community partnerships.  On-demand transit technology has previously been considered an eligible capital expense through ICAM.

          · Research and Innovation Grants.  The FTA’s Research and Innovation Office periodically funds innovation research projects that seek to address FTA research goals and identified issues in the industry.  Over the past few years, FTA has funded a number of innovation research programs such as the Mobility Services for All Americans (MSAA), Mobility on Demand (MOD) Sandbox, Integrated Mobility Initiative (IMI), and Accelerating Innovative Mobility (AIM).


Other USDOT On-Demand Transit Funding Options

The USDOT and modal offices, such as the Federal Highway Administration (FHWA), also administer discretionary and research grant programs that have the capability of providing seed funding for on-demand transit services.  The following are a sample of USDOT programs that have permitted on-demand transit as an eligible expense:

USDOT – Discretionary Grants

          · Rural Surface Transportation Grant (RSTG).   Beginning in 2022, as part of the overall Multimodal Project Discretionary Grant, the RSTG provided capital funding to expand rural transportation infrastructure, including on-demand transit services.  

          · Strengthening Mobility and Revolutionizing Transportation (SMART). The USDOT launched the SMART grant program in 2022 with a focus on planning, prototyping, and implementing smart community technologies and systems to improve transportation efficiency and safety.  Per USDOT, SMART identifies technologies past the early development research stage and not in widespread use.  On-demand transit is considered an eligible use case for SMART funding.  SMART grant applications are due to USDOT no later than November 18, 2022.

FHWA – Formula and Discretionary Grants

          · Congestion Mitigation Air Quality (CMAQ). Apportioned by formula, FHWA provides CMAQ funding to state DOTs for use in mitigating local air quality issues. These funds are managed differently by each state and may be used for highway or “flexed” to transit projects. On-demand transit services are considered an eligible project expense for this initial seed funding program and states such as California and Vermont are using “flexed” CMAQ funds for local microtransit services.  

          · USDOT Advanced Transportation Technologies and Innovative Mobility Deployment (ATTIMD) Program, also known as the Advanced Transportation Technology and Innovation (ATTAIN) Program.  Formerly known as the Advanced Transportation and Congestion Management Technologies Deployment Program, the new 2022 ATTIMD/ATTAIN discretionary grant program facilitates “model technology deployments to demonstrate how emerging transportation technologies, data, and their applications can be effectively deployed and integrated with existing systems to provide access to essential services and other destinations”. The ATTIMD/ATTAIN program focuses on increased connectivity and mobility, especially for senior citizens and persons with disabilities.  On-demand transit services are an eligible ATTIMD/ATTAIN project with applications due to FHWA no later than November 18, 2022.    

Intelligent Transportation Systems (ITS) JointProgram Office (JPO)

          · These periodic grants or cooperative agreements traditionally focus on areas of specific mobility research interest.  In 2021, the ITSJPO released the ITS4US Deployment Program, which featured a three-phase approach from concept development to operations focusing on creating innovative and replicable mobility solutions for underserved communities.  

If you have questions, comments, or interest in discussing federal funding options for on-demand transit services, please contact Todd Allen, RideCo’s Director, Government and Community Relations at
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