Solving the Federal Matching
Requirement Puzzle

Federal programs that support community and economic development often require that awardees contribute nonfederal dollars to match the government’s commitment. The match is an investment in the program by the community, demonstrating its dedication to implementing the program effectively. Match ratios can vary; a 1:1 ratio means that for every dollar provided by the government, the recipient must contribute the same amount. This can be challenging for organizations with limited resources.

Economic Development Administration (EDA) development districts and other organizations have come up with a variety of strategies for raising matching funds from outside sources. Betty Riley, President of Sierra Economic Development District (EDD) in Auburn, California, supplements traditional sources of match (e.g., banks and other private entities, Community Development Block Grant funds of counties in her region) with in-kind donations. When Sierra EDD establishes an advisory group for a project, they track the time of participants, who attend meetings and review proposals, and value the donated time based on an hourly rate. They also consider travel expenses of project-related volunteers as match. For hired consultants, Sierra EDD counts as match the difference of the consultant’s for-profit and nonprofit rates. When the district obtains data from the state, the value of the data and the time spent by the state employee in compiling the data is documented and counted. Riley advises that when in-kind sources of match are used, there should be an audit trail that documents and justifies all amounts.

Organizations can also turn to the counties they serve for match funds. Region Nine Development Commission in Mankato, Minnesota, needed to raise $200,000 to receive $400,000 from EDA to start a business development revolving loan fund. According to Wes Judkins, Director of Planning Development and Finance, Region Nine asked the boards of the five eligible counties to contribute $40,000 each to the fund. The selling point was that for a contribution of $40,000 by the county, its businesses could access $200,000 in RLF money. Judkins also believes that Region Nine’s sound track record made the counties feel that their investment was worthwhile, and the fund would be well managed. Since then, the region’s counties have annually supported the Small Business Development Center, also located at Region Nine, and provided matching funds for a disaster revolving loan fund after floods in 1993 and 1997.

State legislatures are another source of match funds if there is demonstrated need. Local resources for match are limited in the eastern part of North Carolina. Economic Development Districts in the area were successful in having a bill introduced to provide a portion of their match needs. Robert Paciocco, Executive Director of Mid-East Commission in Washington, North Carolina, suggests that organizations pursuing the legislative option should partner with other organizations across the state to gain support for the measure.

Traditionally, match funds obtained by development organizations have been in the form of grants. Some have proposed adding loans and investments as alternative match sources. Linda Salmonson administers Rural Electric Economic Development, Inc. (REED Fund), a nonprofit formed through the collaboration of rural electric cooperative members in eastern South Dakota and western Minnesota. She explains that the REED Fund relied on debt capital with an interest rate of five to seven percent for its match for the US Department of Agriculture’s Intermediary Relending Program (IRP) and for general lending. IRP funds are in the form of a loan with a one percent interest rate, and given the proportion of REED’s equity, IRP funds, and other debt, the blended cost of all capital in the loan fund is about two percent. By charging interest rates of five to six percent on loans, the REED Fund, which has $10 million in assets, is able to cover its administrative costs. Salmonson observes that banks are often willing to make loans and investments in loan funds first because it is a good investment and second because an investment in a loan fund is eligible for Community Reinvestment Act (CRA) credit for either lending or investment. The relationship is good for loan funds, since lenders often seek partners for higher risk deals. If the loan fund has a solid performance record, these investments may be unsecured. l

For more information, contact Betty Riley at (530) 823-4703; Wes Judkins at (507) 389-8872; Bob Paciocco at (252) 946-8043; and Linda Salmonson at (605) 256-8015.

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