What Is Section 5307? Urban Transit Grants and Paratransit Contract Work for NEMT Companies

A transit agency in a mid-size city asks for bids to run its demand response vans for five years. The solicitation says the work is paid in part with Section 5307 money, so FTA’s rules ride along with the contract. This page explains what the grant pays for, where the agency finds its match, and what lands on you as a contractor.

What Section 5307 pays for

Section 5307, the Urbanized Area Formula Grants program, is FTA’s formula grant for public transportation in urbanized areas, which are areas of at least 50,000 people (49 U.S.C. 5302). It pays for capital projects, planning, and job access and reverse commute projects. In an urbanized area under 200,000 people, it also pays operating costs (49 U.S.C. 5307(a)(1)). FTA’s program page also lists non-emergency medical transportation and certain mobility management expenses among the eligible activities.

In an area of 200,000 or more, operating help is limited to systems that run 100 or fewer buses at peak, not counting ADA complementary paratransit. Systems of 75 or fewer buses can get up to 75 percent of their share, and systems of 76 to 100 buses up to 50 percent (5307(a)(2)).

FTA’s full-year table for fiscal year 2026, posted March 31, 2026, shows $7,025,844,743 available for Section 5307 and $7,588,514,188 to allocate after set-asides for safety oversight, passenger ferries, and program oversight, and after adding Section 5340 and reapportioned funds. An agency can obligate each year’s money for five years after the year it is apportioned (49 U.S.C. 5336(g)), so the 2026 funds last through September 30, 2031. Public Law 119-103, signed September 2, 2026, extends the federal transit law through December 11, 2026, at a prorated share of 2026 funding.

In an urbanized area of 200,000 or more, the grant goes to a designated recipient, an entity chosen through the regional planning process. In a smaller one, the Governor or the Governor’s designee is the eligible recipient and may pass funds to local transit operators. A van company takes part by selling service to the agency that holds the grant. FTA’s program page says private for-profit operators are not eligible recipients but may provide service under contract, and its September 2024 notice for circular C 9050.1A says the circular covers contracted service arrangements with such operators.

Where the agency finds the other half

The federal share is up to 80 percent of net capital project cost and up to 50 percent of net operating cost (5307(d)). The agency covers the rest from sources the law lists. They include advertising and concessions, cash from non-government sources other than revenue from running transit service, other federal agencies’ money that can be spent on transportation, and amounts under a service agreement with a social service agency.

Medicaid fits. CMS and FTA’s November 2024 fact sheet says revenue from contracts to provide Medicaid NEMT can be local match for Sections 5307, 5310, and 5311. Fares cannot. The Section 5311 page works through the same match with numbers.

Section 5307 can also pay for ADA paratransit service. The law counts the provision of nonfixed route paratransit service under the ADA as a capital project, up to 10 percent of the recipient’s annual 5307 and 5311 apportionment, or 20 percent if it meets two of three conditions on travel training, staff training, and employer agreements (49 U.S.C. 5302). Capital grants carry the 80 percent federal share. Read a solicitation’s funding clause to see whether it pays for paratransit this way.

What lands on you as a contractor

• FTA drug and alcohol testing. 49 CFR 655.3 covers any contractor of a Section 5307 recipient. Driving a van in service and controlling dispatch are safety-sensitive, and contracted maintenance is excused only for a 5307 agency in an area under 200,000 (655.4). Set up the program before you bid. See NEMT driver drug testing.
• ADA duties. Under 49 CFR 37.23, a company running demand response service for a public agency must meet the ADA rules the agency would, and vehicles it buys for that service must be accessible wherever the agency’s would have to be. The ADA paratransit contractor guide covers the testing and bidding details.
• Employee protections. Section 5333(b) makes fair arrangements for employees a condition of assistance under Section 5307. When one private transit bus contractor replaces another by competitive bid, the law points to a 1994 Labor Department decision. Ask what terms cover the current contractor’s workers before you price labor.
• Bidding rules. The agency must follow sections 5323 and 5325 when it buys under this program, and FTA’s third-party contracting circular, C 4220.1G, replaced C 4220.1F with an applicability date of March 20, 2025.
• National Transit Database reporting. The law lets FTA award a 5307 grant only if the applicant and any person that will receive benefits directly from it are subject to the reporting system (49 U.S.C. 5335). Expect the agency to ask you for the data behind its reports, as the Raleigh solicitation below does. In the database’s 2024 report year, agencies reported 38,978,322 vehicle revenue hours of demand response service bought from contractors, against 30,229,667 they ran themselves. The totals include rural agencies.

A real solicitation: Raleigh’s 2022 request for proposals

The City of Raleigh issued RFP 274-2022-2027-2, GoRaleigh Transit Management and Operating Services, on May 19, 2022, with proposals due August 1, 2022 at 3 p.m. Eastern. It asked for a contractor to run the day-to-day operations of the city’s fixed route and paratransit systems, starting about January 2023, for an initial term of five years with an option to extend for two one-year periods. Wake County joined the city in seeking a contractor, so the contract also runs the county’s GoWake Access demand response service, and the Wake County page shows how that service reaches Medicaid riders.

The RFP’s false-claims clause covers projects financed with FTA assistance under 49 U.S.C. 5307, and its other terms show what such a contract hands down. The contractor must abide by any Section 13(c) labor agreement, send the city the previous month’s National Transit Database and ridership reports on the 15th of each month with its invoice, and help compile the annual database report due to FTA in October. It must keep drug and alcohol testing records and submit FTA’s annual testing summary by January 31. Read your own solicitation for the same clauses.

How to get 5307 work, step by step

1. Find the agency. Ask your metropolitan planning organization or your state transportation department’s transit office who the designated recipient is for your area. The National Transit Database’s service data on data.transportation.gov lists each reporting agency with its urbanized area.
2. Comment on its program of projects. The law requires each recipient to draft the list in consultation with interested parties, including private transportation providers, to publish it, to offer a public hearing, and to consider comments, especially those of private providers (5307(b)). Send yours.
3. Get on the vendor list and watch its procurement page, as government NEMT contracts explains. Agencies buy more than paratransit, and microtransit contracts shows the on-demand zone service they also hire for.
4. Set up testing and ADA training first, so you can sign when a solicitation opens.
5. Bring a Medicaid angle. An agency that can earn Medicaid contract revenue gains local match, so a partner that helps it carry broker trips is worth talking to. For the senior and disability grant some agencies hold alongside 5307, see Section 5310 grants.