While the Trump administration has done its best to undermine state authority—from clawing back grants to revoking California’s Clean Air Act waivers—state leaders can still make progress on clean transportation. Even after the administration's illegal freeze on funds and massive program cuts via the "One Big Beautiful Bill Act," there are still unspent pockets of federal money available to states. States have underutilized authorities to transfer highway funding to projects that give people healthier, easier, and cleaner options for travel, like public transit, biking, or walking. 

Now, it’s a matter of using this authority, identifying these funds, and channeling them effectively. That authority is enshrined in the Bipartisan Infrastructure Law that expires at the end of 2026. Historically, both parties have supported a state's right to decide how to use federal transportation funds. But today, as the Trump administration looks to consolidate power and undermine states, it is not clear what the next Surface Transportation Reauthorization will hold. States must act quickly and decisively to maximize the impact of available funds. 

By using these funds wisely, states can build healthier, cleaner transportation systems, including more public transit, better cycling, and walking infrastructure.

What Transportation Funding Sources Can States Draw From?

Transportation funding is one of the biggest chunks of money that states receive from the federal government. The National Highway Performance Program alone has contract authority for $30 billion annually from 2022 to 2026.

The U.S. Department of Transportation disburses federal dollars primarily as formula funds, which are allocated to state and local governments based on a blanket formula that takes into account factors like population size, number of bridges, and maintenance needs. This October, we are likely to see new criteria for Fiscal Year 2026 federal formula dollars that include Secretary Duffy’s priorities of high marriage rates and high birth rates over traditional criteria like population and projected growth.

Historic Highway-to-Transit “Flex” Funding

States can choose to “flex” funding. Flex funding allows states and metropolitan planning organizations (MPOs) to reallocate federal transportation funds away from their original purpose, like highways, to other initiatives like transit, bicycling, and pedestrian infrastructure. This can be done through transfers from one highway program to another or to the Federal Transit Administration (FTA).

The most high-profile recent example of a state exercising this authority to move funds to the FTA is when Pennsylvania Governor Shapiro flexed $153 million to pay for transit in 2024. The money came from highway projects that had not yet been started, where federal dollars were obligated but not actually programmed. While the state had money sitting on the books for many years, public transit was struggling to make its numbers add up. Two decades earlier, Pennsylvania Governor Rendell had similarly flexed highway money (PDF) to support transit under parallel circumstances.

Flex funding is highly discretionary (PDF). There is no upper limit on flex funding authority, like there is with the movement of other kinds of federal dollars. However, flex funding requires significant engagement with the federal government at the district and headquarters level through both the Federal Transit Administration and the Federal Highway Administration. Given the antagonistic relationship between the U.S. Department of Transportation and states with Democratic governors, under Secretary Duffy’s leadership, this strategy is not feasible today, but other opportunities remain. 

Opportunities Today: Transfers Across Highway Trust Fund Programs

There is another, lower lift route for states to move federal money towards low-carbon transportation options like electric vehicles, transit, walking, and biking. States can transfer money across Federal-Aid Highway Programs that are administered by the Federal Highway Administration.  Nationwide, state budgets are impacted by federal funding freezes, slowdowns, and program cuts. But transfer funding provides an alternative source of federal funding that states can draw from to cut transportation pollution and invest in clean transportation infrastructure. 

States have used this authority before, generally to move money away from sustainable transportation projects. In 2022, the Transportation Research Board published a retrospective analysis on the use of funds from the previous two surface transportation reauthorizations (MAP-21 and FAST Act). From Fiscal Years 2013 to 2020, states flexed $13.3 billion from highway to transit projects. The major leaders in flex funding have been New Jersey (flexing 15 percent), California (10 percent), and Maryland (9 percent), closely followed by Oregon, Vermont, and New York. The states most likely to flex money to transit systemically are part of a legacy group of states that have poor air quality and need to meet air quality improvement performance measures.

States also already transfer on average 8.7 percent of dollars between Highway Trust Fund programs. Since the National Highway Performance Program is the biggest program, most of those dollars came out of highway funding. The Surface Transportation Block Grant Program is the most flexible of the Highway Trust Fund programs, so states often choose to transfer money into it. The states that used transfer authority from the National Highway Performance Program to the Surface Transportation Block Grant program were led by both Republican and Democratic governors: Mississippi, Maine, Nebraska, and Virginia were top users of transfer authorities towards flexibility and away from highway projects.

The first three years of Bipartisan Infrastructure Law funding have proven to be more of the same, according to research from the Climate and Community Institute. States are flexing about 11 percent of funding out of the National Highway Performance Program. Most of that funding went into the Surface Transportation Block Grant Program. Most of that funding has gone into highway expansions eligible under the block grant program, rather than electric vehicle infrastructure or other modes. The air quality mitigation program and the two explicit climate programs (Carbon Reduction Program and PROTECT) have seen funding flexed out. California has flexed only 6.5 percent ($895 million) out of the National Highway Performance Program. It has the authority to flex another 43.5 percent out of new highway build and into sustainable transportation projects. 

Time is running out on the Bipartisan Infrastructure Law transfer authorities. States now have limited funding for electrification, transit, walking, and biking. So now, more than ever, states need to use available funds to support climate and vehicle electrification goals.

The Highway Trust Fund includes four key programs that have direct transfer eligibility. These funds are appropriated by Congress to state and local governments. The National Highway Performance Program (NHPP) can be used for projects related to highway construction, maintenance, and resilience for highway facilities. By transferring funding out of this program, states can fund projects that reduce pollution, support public transit, and allow greater mobility.