Categorical grants are also called conditional grants. These are provided by the United States Congress and are meant to be spent for precisely defined purposes.
Categorical grants are the main source of federal aid for state and local governments. These can only be used for specified state and local government 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 are also helping to empower the US federal government to exert more power over the states, within the policy area.
These grants are usually classified as categorical grants, block grants, and general revenue-sharing initiatives.
Distribution of Categorical Grants
There are two main ways to distribute categorical grants, formula grants or project grants. Let’s check out the ways that different forms of categorical grants are distributed in the US:
Formula Grant Funding
Formula grants are meant for services that help a particular set of citizens. These may include children with disabilities or low-income students and such. As opposed to project grants, the formula grants do not include a competitive process.
Every applicant who applies and fulfills the criteria can receive funding, which is based on a formula devised by the federal government.
Congress determines the specific amount of money to be spent in a particular field. Congress then uses the special formula to determine how to divide the total funding amount for different states. This formula can be based on project goals or population.
For instance, the US Department of Health and Human Services (DHHS) runs the Nutrition Services Incentive Program. 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 of time. 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 applications are thoroughly reviewed by the agency before short-listing 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 award project grant funding.
For instance, the US Department of Agriculture Animal and Plant Health Inspection Services operates the Wildlife Services Program.
The department regularly provides project grant funding in such cases. This grant is awarded to applicants who are committed to reducing damage caused by mammals and birds and those that are carriers of zoonotic diseases.
Head Start Categorical Grants
Head Start was an initiative started in 1965 as a summer school program. This program helps low-income students to catch up with their curriculum before they start their first year of school.
Today, Head Start serves more than 1 million low-income households every year by encouraging parental involvement and focusing on student health.
This program receives partial funding through categorical grants.
Since 2014, the US Congress has issued more than US$ 500 million towards the Head Start program. To receive this funding Head Start organizations need to make regular reports and submit them to annual edits by the US Department of Health and Human Services.
Medicaid is probably the most well-known categorical grant as it is partially funded through it.
Funds are disbursed as formula grants to every state. Just like Head Start, Medicaid is also specific to a particular group, especially low-income family households.
Economists support the categorical grant system of the federal government as being one of the most efficient ways to distribute public funding.
This system has proven efficient to aid states to take care of low-income households and their under-served communities successfully for years.