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. The terms cost sharing, in-kind, and matching are often used interchangeably.
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.
Prior to a 2011 Supreme Court decision, states like Arizona, Maine, New Mexico, North Carolina, and Wisconsin were using a system that distributed "additional funding to publicly financed candidates when they face big-spending opponents or opposition groups." The combined cases, Arizona Free Enterprise Fund v. Bennett (2011) and McComish v. Bennett (2011) held that "the law impermissibly forces private candidates and independent political organizations to either restrain their spending or risk triggering matching funds to their publicly financed opponents."
Now, states and cities are considering the implementation of programs like New York City's public financing model where public funds are used to multiply the impact of a small donor. These programs work by making each contribution worth more than their current value, thereby increasing the proportional impact of the contribution. In New York City, for example, a $6-to-$1 program has resulted in "small dollar donors constitute the vast majority of spending in New York City elections, representing 73% of all contributions in 2013 and 80% specifically to City Council race." A report by the Brennan Center found that "by pumping up the value of small contributions, the New York City system gives [candidates] an incentive to reach out to their own constituents rather than focusing all their attention on wealthy out-of-district donors, leading them to attract more diverse donors into the political process."
Programs of this type incentivize candidates to "fuse fundraising with voter outreach," incentivizing political engagement by communities that can only afford modest contributions. Candidates may then have more an incentive to reach out to their constituents, rather than devoting their energy to financing their campaigns. The Election Law Journal found that matching funds through a multiplier has increased the proportional role of small donors as well as the number of small donors. The programs have also helped to shift the demographic and class profile of those who give. Finally, besides diluting the power of major givers, these programs led candidates to reach out and engage a more representative set of constituents during fundraising.
- "University of Minnesota Policy". Retrieved 2014-02-14.
- Dave Battagello (June 15, 2012). "Deal reached to build new bridge to Detroit". Windsor Star.
- "Historic Preservation Grants". US National Park Service.
- "20120531_GJohnsonEligibility". Fec.gov. 2012-04-27. Retrieved 2012-06-01.
- Barnes, Robert (2011-06-26). "Supreme Court strikes Arizona’s ‘matching funds’ for publicly financed candidates". The Washington Post (in en-US). ISSN 0190-8286. Retrieved 2015-11-03.
- "Public Financing of Judicial Races Can Give Small Donors a Decisive Role". name. Retrieved 2015-11-03.
- "New York City Partial-Public Matching Program: A Model of Successful Campaign Finance Reform". Committee for Economic Development of The Conference Board. Retrieved 2015-11-03.
- Genn, Elisabeth (May 14, 2012). "Donor Diversity Through Public Matching Funds" (PDF). Brennan Center for Justice. New York University School of Law. Retrieved July 21, 2015.
- Malbin, Michael J. (2012). "Small Donors, Big Democracy: New York City's Matching Funds as a Model for the Nation and States" (PDF). Election Law Journal. doi:10.1089/elj.2010.0099. Retrieved July 21, 2015.
- Presidential Election Campaign Fund (PECF) information and Public Funding of Presidential Elections brochure, Federal Election Commission website.
- Federal Matching Fund Guidelines
- Federal Matching Funds Explanation provided on BBC website.