(a) State distribution of funds
Each eligible agency receiving a grant under section 3291(b) of this title for a fiscal year—

(1) shall use not less than 82.5 percent of the grant funds to award grants and contracts under section 3321 of this title and to carry out section 3305 of this title, of which not more than 20 percent of such amount shall be available to carry out section 3305 of this title;

(2) shall use not more than 12.5 percent of the grant funds to carry out State leadership activities under section 3303 of this title; and

(3) shall use not more than 5 percent of the grant funds, or $85,000, whichever is greater, for the administrative expenses of the eligible agency.

(b) Matching requirement

(1) In general
In order to receive a grant from the Secretary under section 3291(b) of this title each eligible agency shall provide, for the costs to be incurred by the eligible agency in carrying out the adult education and literacy activities for which the grant is awarded, a non-Federal contribution in an amount that is not less than—

(A) in the case of an eligible agency serving an outlying area, 12 percent of the total amount of funds expended for adult education and literacy activities in the outlying area, except that the Secretary may decrease the amount of funds required under this subparagraph for an eligible agency; and

(B) in the case of an eligible agency serving a State, 25 percent of the total amount of funds expended for adult education and literacy activities in the State.

(2) Non-Federal contribution
An eligible agency's non-Federal contribution required under paragraph (1) may be provided in cash or in kind, fairly evaluated, and shall include only non-Federal funds that are used for adult education and literacy activities in a manner that is consistent with the purpose of this subchapter.