Matching funds are funds that are set to be paid in equal amount to funds available from other sources. Matching fund payments usually arise in situations of charity or public good.
In philanthropic giving, foundations and corporations often give money to nonprofit entities in the form of matching gifts. Corporate matches often take the form of employee matching gifts, which means that if an employee donates to a nonprofit, the employee's corporation will donate money to the same nonprofit according to a pre-determined match ratio (usually 1:1). For foundations, matching gifts are in the form of grants made directly to nonprofits, under the qualifying condition that the nonprofit raise a set quantity of money before the grant is bestowed. The benefit of foundation matching grants is that they provide greater incentive leverage when a nonprofit is fundraising from its constituency. If a foundation approves a 1:1 matching grant, donors know that their dollars will be doubled. On the other side, foundations who give matching grants receive assurance of the nonprofit's capacity to raise adequate funds.
For example, Dr. Booker T. Washington, a famous African-American educator, had a long-time friendship with millionaire industrialist Henry Huttleston Rogers who provided him with substantial amounts of money to be applied for the betterment and education of black Americans in the late 19th and early 20th centuries.
Dr. Washington later wrote that Henry Rogers had encouraged projects with at least partial matching funds, as that way, two ends were accomplished:
- The gifts would help fund even greater work.
- Recipients would have a stake in knowing that they were helping themselves through their own hard work and sacrifice.
Using the matching funds philosophy, after Rogers' death, Julius Rosenwald and the Rosenwald Fund continued and expanded the work, eventually funding over 5,000 Rosenwald Schools between 1912 and 1932. During that time, over US$4.6 million additional dollars were contributed by blacks in the communities responding to the challenge thus presented.
U.S. federal funding
In the United States, many projects in the various states and communities are partially funded with federal grants with a requirement for matching funds. For example, the Interstate Highway System was primarily built with a mix of 90% FHWA funds from the Highway Trust Fund and 10% matching state DOT funds. In some cases, borrowed money may be used to meet criteria for a matching grant; the $550 million Canadian federal government investment to connect a Detroit River International Crossing to Interstate 75 in Michigan qualifies the state for $2 billion in US federal matching grants which can rebuild other Michigan highways, even though the Canadian money is nominally a loan to be repaid by tolls on the new bridge.
US federal matching grants have also funded historic preservation initiatives; a local historic property may be able to seek a 1:1 federal matching grant for specific capital projects, such as restoration of structures on the National Register of Historic Places.
In American politics the term matching funds refers to the money a presidential candidate is given by federal government to match the money they have raised personally. Candidates can expect up to US$250 extra from public funds for each contribution from an individual they receive.
This usually only applies to the two main parties; as in order for a candidate to gain the benefits of matching funds, they must have received 5% of the popular vote in the previous election. Hence the anomaly of Ross Perot standing as Reform Party candidate in 1992 and receiving 18% of the vote, yet receiving no matching funds because the Reform Party did not receive 5% of the vote in 1988; whilst Pat Buchanan, running as the Reform Party candidate in 2000, did receive matching funds despite winning only 0.4% of the vote.
The source of the funds comes from a $3 voluntary checkoff on the U.S. Income Tax form.
The effect that these have on the candidates for presidential campaigns is to strengthen the role that the party plays in raising money.