A Complete Guide of Categorical Grants

Throughout the second half of the 20th century, federal grant-in-aid expenditures have increased. This demonstrates how the federal, state and local governments are all given equal weight by the federal government. Federal category grants, which have doubled in size since 2000, are one of these methods. We will thus examine the categorical grant definition and contrast it with the other types of grants. As a result, we will also discuss some examples of categorical grants, the differences between categorical grants and block grants, and grants in aid.

The state and local governments typically require a tonne of cash to finance some extravagant initiatives. It makes sense that they would prefer to obtain this substantial money from the federal government, therefore categorical grants come to the rescue. The definition of these categories of grants will therefore be discussed below.


A categorical grant is a type of grant given by the federal government to a state government or other parastatal for a specific purpose. According to this definition of categorical grants, the money can only be received if the state or local government follows certain regulations.

Categorical grants are a result of the federal system in the United States. This Congress system grants the federal government authority over certain areas, such as military spending. Meanwhile, state and local governments will have control over areas such as education, roads, and law enforcement. Although these specific areas are the responsibility of local governments, the federal government has the ability to influence them. Rather, the money is used by the federal government to persuade states to comply with national goals. Categorical grants come into play here.

There are numerous opportunities for governments to collaborate and pool resources to complete projects that are too large for either government to complete easily on its own. For example, the state may wish to repair the interstate highway that runs through it. As a result, both the federal and state governments can pool money, manpower, and other valuable resources to complete the works and repairs on time. This is referred to as “cooperative federalism.”

Categorical Grants and the Federal System

The United States Constitution specifically delegated certain powers to the federal government while reserving all other powers to the individual states. This is done to ensure that the federal government does not oppress the states. This also prevents the federal government from becoming too powerful and inaccessible. However, Congress frequently implements programs that it believes will benefit the people, despite the fact that it lacks the authority to do so on a national scale.

For example, Congress could decide that mandating seatbelt use would significantly reduce injuries, deaths, and medical bills. It could not, however, simply pass a federal law requiring everyone to wear seatbelts. In fact, this was the case decades ago, and any seatbelt requirements are left up to the states. As a result, Congress develops a program and then provides incentives for each state to adopt that program. In most cases, the incentives take the form of cash grants. This is an excellent example of a categorical grant.

A categorical grant is an excellent example of cooperative federalism in action. Another instance of categorical grants in action is when the federal government offers money to the state for the implementation of a seat belt program. However, there are some requirements that the state must meet. As a result, the federal government meets its goal of making roads safer for the vast majority of Americans. It accomplishes this without infringing on the sovereignty of individual states.

Categorical grants are the most common types of federal grants awarded to state and local governments. However, they are not the only type of grant available from the federal government. We’ll look at different types of federal grant funding.

Different Types of Federal Grant Funding in the US

The federal government provides funding to states, non-federal governments, and other parastatals. The grants are intended to support public-benefit programs. It is not for federal assistance or individual loans. Furthermore, these grants may not be used to purchase property or contract for services that directly benefit the federal government. Each year, federal agencies launch over 1,000 grant programs. Each of these must fall into one of the categories listed below:

1. Project Grant Funding

Project grant funding is intended to subsidize specific services for a set period of time. Once this grant has been approved, the funding agency will accept applications from qualified organizations to compete for a portion of the total grant funding. Following the close of the application period, the agency evaluates each one and awards grants to those who best meet the application requirements.

The operation of the United States Department of Justice and the Justice and Mental Health Collaboration Program is an example of project grant funding. This program provides funding to states, local governments, and some tribal organizations. This is to improve criminals with mental illnesses’ access to mental health services. Following that, applicant agencies must submit a statement outlining how their projects will address the program’s required objectives. As a result, grants are awarded to approximately 20-30% of the top-scoring applicants.

2. Formula Grant Funding

Formula grant funding is used for ongoing programs that serve a specific group of people, such as disabled children or low-income students. There is no competitive selection process for this funding. However, it is determined using broad criteria such as population or other census criteria. As a result, all applicant agencies that meet the application requirements will be funded through the formula grant funding process.

The US Department of Health and Human Services (“DHHS”) operation on the Nutrition Services Incentive Program is an example of formula grant funding. The program awards grants to encourage the efficient delivery of nutritious meals to the elderly in a specific geographic area. The formula used to calculate the amount of grant awarded to each applicant is based on the number of meals served to the elderly in the previous year in comparison to other states or regions. This is a system in which the DHHS reimburses $0.50 per meal after each state reports its meal totals.

3. Block Grant Funding

Block grant funding is also determined by a formula, but it can be used to fund a wide range of projects. These grants are intended to address issues such as education, public health, and safety. It gives recipient organizations broad leeway in operating and allocating funds. Community Development, Adult Social Services, and Temporary Assistance to Needy Families are among the recipients.

What is Categorical Grant Funding

Categorical grants are simply grants for governmental entities and agencies with a very specific purpose. Applicants must meet certain requirements in order to receive categorical grants. Head Start programs, Magnet School programs, Forestry Assistance programs, and Asbestos Abatement programs are examples of categorical grant funding.

There are two types of categorical grants:

1. Formula Grants.

Congress decides how much money it wants to spend on a project in total. Following that, the funds are distributed to all states in accordance with the formula. Food stamps, for example, are a type of national program that aims to provide poor people with access to nutritious food. The federal government spends slightly more than $75 billion per year on food stamps.

Clearly, some states are more impoverished than others. The formula is used by Congress to distribute grants to these states. As a result of their poverty rate, some states receive more funding than others.

2. Project Grant

Instead of distributing funds in a formula, these are competitive grants in which local governments submit proposals in order to win government funds. The Department of Education’s Race to the Top is an example of a project grant. States competed for education funds in this program by making changes to their educational systems. These changes include adopting Common Core standards, lifting the cap on the number of charter schools, and improving the lowest-performing schools. Many states competed for the money, but federal funds were only distributed to the winning states.

Categorical Grants vs Block Grants

A close examination of the block grants and categorical grants reveals some similarities and differences. Categorical grants are federal funds distributed to state and local governments to encourage cooperation in the implementation of specific goals and programs.

While block grants provide greater flexibility, categorical grants are more competitive and specific. The states that accept categorical grants are subject to specific restrictions, whereas block grants are subject to fewer restrictions.

Furthermore, most block grants are only given to local governments. Categorical grants, on the other hand, are given to the state and local governments.

Federalism and the Politics of Categorical Grants-in-Aid

Recently, the federal government has played a greater role in encouraging, and even coercing, states to implement federal policies. The federal government’s use of grants-in-aid to encourage states’ cooperation in implementing federal policies is central to this evolving relationship.

Increases in categorical grant-in-aid spending during the second half of the twentieth century. This demonstrates that the national government’s role in the federal balance of power is growing.

These categorical grant-in-aid programs are established by political actors in the national government, with varying degrees of flexibility and discretion granted to state governments.

The Politics of Categorical Grants-in-Aid

Following the 1994 elections, the Republicans took control of Congress, and their “Contract with America” sought to “devolve” control of many federal programs to the states. This is accomplished primarily through the replacement of existing categorical grant programs with block grant programs. Welfare reform and crime policy are two examples of this approach.

Devolution in Welfare Reform

The Republicans renamed the federal Aid to Families with Dependent Children (AFDC) welfare program Temporary Assistance for Needy Families (TANF) (TANF). This provides state governments with block grants to reform welfare.

Devolution in Crime Policy

Republicans used the Taking Back Our Streets Act to change specific programs and grants to state and local governments. With block grants to states, these programs characterized the Clinton administration’s crime bill. As a result, they are free to fight crime as they see fit.


As can be seen, categorical grants-in-aid are the primary source of federal assistance to local, state, and other entities. As a result, the grants are issued for a specific purpose and can only be used for that purpose.

We can see from the definition and example of categorical grants above that states are never required to accept a categorical grant. However, if they require it, they must follow the rules and regulations of the grant or it will be withdrawn. We’ve also seen the differences between block grants and categorical grants.


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