State departments of transportation that provide the bulk of matching funds to local transit agencies for the purchase of new buses are duly concerned about the escalating costs of new buses and the lack of sufficient funds to keep up with their replacement costs. An asset management framework is presented that can be used by state departments of transportation to (a) allocate capital dollars for the dual purpose of purchasing new buses and rebuilding existing buses within the constraints of a fixed budget when the needs of all constituent agencies in a peer group are considered and (b) distribute funds among the agencies equitably. The proposed framework includes two optimization models. Model 1 attempts to maximize the weighted fleet life of all the buses being purchased and rebuilt for a given peer group within the constraints of a fixed budget. Model 2 is designed to maximize the remaining life of the entire peer group, including the existing buses and those being replaced or rebuilt. Case studies presented to demonstrate the application of the models show that the framework is viable and can be used for the designated purpose with fleet data currently available from transit agencies. Further research on testing the framework is recommended to ensure its applicability under different sets of circumstances.