What are the Categorical Grants?

Categorical Grants – Overview

Categorical grants, often called conditional grants, are appropriations the United States Congress provides to state and local governments for specific purposes outlined in federal law. These grants are intended for narrowly defined projects or programs, such as education, transportation infrastructure, or health services.

Categorical grants are the primary source of federal aid for state and local governments. They can only be used for specified spending, such as roads, infrastructure, education, etc.

These grants are meant to help individual states improve the overall well-being of their residents. These funds also help empower the US federal government to exert more power over the states within the policy area.

Federal aid to state and local governments is usually classified into categorical grants, block grants, and general revenue sharing.

Distribution of Categorical Grants

Categorical Grants

Categorical Grants – Distribution of Categorical Grants

The distribution of categorical grants primarily occurs through formula grants and project grants. Formula grants allocate funds to states or entities based on predetermined criteria, such as population or need. On the other hand, project grants are competitive grants awarded based on the merits of the proposed project.

Let’s check out the ways that different forms of categorical grants are distributed in the US:

Formula Grant Funding

Formula grants provide funds for broad categories of activities, not just services for a specific set of citizens. These may include children with disabilities or low-income students and such. Unlike project grants, formula grants do not include a competitive process.

Formula grants are allocated to eligible entities based on specific criteria and formulas without a competitive application process.

Congress determines the specific amount of money spent in a particular field. Then, Congress uses a special formula to divide the total funding amount for different states. This formula can be based on project goals or population.

The Nutrition Services Incentive Program is an example of a formula grant, but it’s important to note that it’s just one of many such programs across various federal agencies. This program provides funds for states to offer nutritious meals to the elderly in a specific geographical location.

The number of meals given by the particular state within the past year is used as a formula to determine the specific grant amount for the present year.

Project Grant Funding

Project grant funding is offered to help subsidize a specific service for a particular duration. These grants are highly competitive and follow a specific cycle. An agency can create funding programs based on its administration, mission, and congressional initiatives.

Next, the grant-making agency announces the grant opportunity and invites applications from specific groups.

The agency thoroughly reviews the applications before shortlisting the award-worthy applicants. The states compete for project funding through the application process.

The applicants who fulfill the most criteria are usually selected to be awarded project grant funding.

For instance, the US Department of Agriculture, Animal, and Plant Health Inspection Services operates the Wildlife Services Program.

Project grants are awarded competitively for specific projects across various fields. This grant is awarded to applicants committed to reducing damage caused by mammals, birds and those carriers of zoonotic diseases.

Head Start Categorical Grants

Head Start, initiated in 1965, began as a program to prepare children from low-income families for school by providing educational, health, nutritional, and social services. While it initially started as a summer program, it has since expanded to offer year-round support to help children develop the skills needed for school success.

Today, Head Start serves more than 1 million low-income households annually by encouraging parental involvement and focusing on student health.

This program receives partial funding through categorical grants.

The Head Start program receives more than $500 million annually from the US Congress, and funding typically exceeds several billion dollars to support its comprehensive services. To receive this funding, Head Start organizations must make regular reports and submit them for annual edits by the US Department of Health and Human Services.

Medicaid, one of the largest and most well-known examples of categorical grants, provides federal funding to states to assist with healthcare costs for eligible low-income individuals and families. The program operates as a partnership between the federal government and states, with funding allocated based on a formula that considers the state’s expenditures and needs.

Funds are disbursed as formula grants to every state. Like Head Start, Medicaid is also specific to a particular group, especially low-income households.


Economists support the federal government’s categorical grant system as one of the most efficient ways to distribute public funding.

This system has proven efficient in helping states successfully take care of low-income households and their under-served communities for years.

Categorical Grants – FAQs

What are the different types of federal grants?

Federal grants are primarily categorized into four subtypes: categorical grants, block grants, project grants, and formula grants. While general revenue sharing was historically a significant category, it has become less common in recent years. The federal government administers these grants through numerous grant programs, targeting various sectors such as health, education, and public welfare.

What distinguishes category grants from block grants?

The key difference between categorical grants and block grants is their specificity and flexibility. Categorical grants are intended for specific, narrowly defined purposes with strict compliance to federal standards, while block grants offer broader leeway for states to address broader goals within a general policy area.

What are the different types of Categorical grants?

Categorical grants can be further divided into two main types: formula grants and project grants. Formula grants allocate funds to states or entities based on specific criteria, such as population or poverty level. Project grants are awarded based on competitive applications for specific projects or programs. This classification simplifies the understanding of categorical grants by focusing on their primary forms rather than introducing formula-project grants and open-reimbursement grants as separate categories.

See Also

Grant Writing for Nonprofits

DHHS Grant Program

Foster Care Grants

Blue Cross Blue Shield Telehealth Grants

Current Version
August 3, 2023
Updated By
Andrea Morales G.
July 15, 2022
Written By
Shubham Grover

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