CATEGORICAL GRANTS: Definition, Examples, Types (+PDF)

Categorical grants

There has been an increase in federal grant-in-aid outlays throughout the second half of the twentieth century. This shows how the national government balances power between the federal, state, and local governments. One of these ways is through the federal categorical grants which have increased in two-folds since 2000. So we are going to look at the definition of categorical grants and compare it with the other types of grants. Hence we are also going to explore some examples of categorical grants, categorical grants vs block grants, and the grants in aid.

Most times the state and the local government need a boatload of money to fund some exotic projects. So they’ll like to receive this huge sum from the Federal Government which is a good idea-hence, categorical grants to the rescue. So we are going to look at the definition of these categorical grants below.


A categorical grant is the type of grant paid by the Federal Government to a state government or any other parastatal to be used for a specific purpose. This definition of categorical grants implies that the money can only be received if the state or local government complies with certain regulations.

Categorical grants are a result of the United States federal system. This Congress system gives the federal government power in some areas, such as military spending. Meanwhile, the state and local governments will have power over other areas like schooling, roads, and law enforcement. Although these certain areas are the domain of local governments doesn’t mean that the federal government won’t be able to influence them. Rather, the federal government uses the money to convince the states to comply with the national goals. Here the categorical grants come to play.

There are diverse opportunities for governments to cooperate and garner resources to accomplish projects that are too large for either to accomplish easily on its own. For instance, the state may want to make repairs on the interstate highway running through it. So, both the federal and state government can pool money, manpower, and other useful resources to complete the works and repairs timely. This is what we call “cooperative federalism.”

Categorical Grants and the Federal System

The U.S. Constitution especially assigns certain powers to the federal government, and reserves all other powers to the individual states. This is to ensure that the federal government doesn’t oppress the individual states. Also, this limits the federal government from being too powerful and inaccessible. However, Congress oftentimes rolls out programs from which it feels the people would benefit, though it does not have the power to implement it on a national basis.

For instance, Congress can decide that the mandatory use of seatbelts would significantly decrease injuries, deaths, and medical bills. However, it could not simply pass a federal law requiring everyone to wear seatbelts. In fact, this was the case decades ago, and any requirements for seatbelt use lie with the states. Hence, Congress creates a program and then offers incentives for each state to adopt that program. The incentives are usually in form of cash grants. This is a good example of categorical grants.

A categorical grant is a good example of how cooperative federalism is accomplished. Another example of categorical grants in action is when the federal government may offer the state money for implementing a seat belt program. However, there are certain requirements the state must fulfill. Hence, the federal government achieves its goal of making the roads safer for the majority of Americans. It accomplishes this without stepping on the authority of the individual states.

Categorical grants are the most common types of grants the federal government awards to both state and local governments. However, they are not the only type of grant that the federal government has to offer. We are going to look at types of federal grant funding.

Types of Federal Grant Funding in the US

The federal government offers financial assistance to the states, non-federal governments, and other parastatals. The grants aim at supporting programs that are beneficial to the public. It’s not for federal assistance or loans to individuals. Also, these grants may not be used to acquire property or contract services of direct benefit to the federal government. Federal agencies roll out more than 1,000 grant programs each year. Each of which must fall into one of the following categories:

#1. Project Grant Funding

Project grant funding aims at subsidizing certain specific services, for a definite period of time. Once they approve this grant, the funding agency accepts applications from qualified organizations, which compete for a part of the total grant funding. Once the application period ends, the agency assesses each one, then awards grants to those who best meet the application requirements.

An example of project grant funding is the operation of the U.S. Department of Justice and the Justice and Mental Health Collaboration Program. This program gives grants to states, local government agencies, and some tribal organizations. This is to enhance access to mental health services for criminals suffering from mental illness. Applicant agencies then submit a statement of how their projects will address the program’s required objectives. So, about 20-30 of the top-scoring applicants receive grants.

#2. Formula Grant Funding

Formula grant funding is utilized for ongoing programs that serving a special group of people, such as children with disabilities, or low-income students. This funding does not have a competitive selection process. However, it is determined based on general criteria, like population, or other census criteria. So all applicant agencies that meet the application requirements will receive funding under the formula grant funding process.

An example of formula grant funding is the U.S. Department of Health and Human Services (“DHHS”) operation on the Nutrition Services Incentive Program. The program provides grant funding to encourage the efficient delivery of nutritious meals to the elderly in a given geographical area. The formula used to determine the amount of grant awarded to each applicant is based on the number of meals served to the elderly in the prior year, compared to other states or regions. This is a system in that, once each state reports its meal tallies, the DHHS reimburses $0.50 per meal.

#4. Block Grant Funding

Block grant funding is also determined on a formula basis, though it can be used to fund diverse projects. These grants are aimed at addressing such purposes as education, public health, or safety. It permits the recipient agencies broad discretion in operations and application of the funds. The recipients include Community Development, Adult Social Services, and Temporary Assistance to Needy Families.

Categorical Grant Funding

Categorical grants definition simply means that they are grants for governmental entities and agencies and a very special purpose. To obtain the categorical grants the applicants must meet certain requirements. Examples of categorical grant funding include Head Start programs, Magnet School programs, Forestry Assistance programs, and Asbestos Abatement programs.

There are two ways in which they award categorical grants.

#1. Formula Grants.

Here, Congress decides how much it wants to spend totally on a project. Afterward, the money is shared with all the states according to the formula. For example, food stamps are types of national programs aiming at allowing those in poverty to get access to good food. The national government spends just over $75 billion on food stamps yearly

Clearly, some states are more impoverished in comparison to others. Congress distributes the grants to these states according to the formula. Hence some states receive more funding than others as a result of the poverty rate there.

#2. Project Grant

Rather than distributing money by a formula, these are competitive grants where local governments submit proposals in a bid to win government money. An example of a project grant was the Department of Education’s Race to the Top. In this program, states competed for education money by making changes to their educational system. These changes include adopting the Common Core standards, uncapping the number of charter schools, and making improvements to the lowest-achieving schools. Many states tried to win the money, but federal money was only given to the select states that won the contest.

categorical grants
Photo Credit: Wealthhow (Categorical grants vs block Grants)

Categorical Grants vs Block Grants

On a careful examination of the block grants and the Categorical grants, we can see some similarities and differences too. Categorical grants are federal grants given to state and local governments to encourage their cooperation in implementing specific purposes and programs.

Whereas the block grants give more flexibility, the categorical grants are more competitive and specific. The categorical grant has specific restrictions on the states accepting the grants while the block grants have fewer restrictions.

Also, the block grants most times are awarded to the local government only. The categorical grants on the other hand award grants to the state and the local government.

Federalism and the Politics of Categorical Grants-in-Aid

The national government has had an increasing role in encouraging and even coercing states to administer federal policies recently. Pivotal to this evolving relationship is the federal government’s use of grants-in-aid to encourage states’ cooperation in implementing federal policies.

Increases in categorical grants-in-aid outlay throughout the second half of the twentieth century. This shows that there is an increase in the role of the national government in the federal balance of power.

Political actors in the national government establish these categorical grants-in-aid programs with varying degrees of flexibility and discretion given to state governments.

The Politics of Categorical Grants-in-Aid

When the Republicans took charge of Congress after the 1994 elections, their “Contract with America” sought to “devolve” control of many federal programs to the states. This is mainly by replacing existing categorical grant programs with block grant programs. Two examples of this approach are welfare reform and crime policy.

  • Devolution in Welfare Reform

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

  • Devolution in Crime Policy

Utilizing the Taking Back Our Streets Act, the Republicans changed the specific programs and grants to state and local governments. These programs characterized the Clinton administration’s crime bill with block grants to states. Thus, this allows them to fight crime as they saw fit.

Categorical grant pdf

There are so many pdf materials available on different websites like Federal Categorical Grants-in-Aid and State-Local Government Expenditures pdf.

Can I use a categorical grant for capital expenses?

Yes, in some cases, categorical grants can be used to cover capital expenses, such as purchasing equipment or renovating facilities. This will depend on the specific guidelines and restrictions of the grant program.

What is the process for getting reimbursed for expenses on a categorical grant?

The process for getting reimbursed for expenses on a categorical grant will depend on the specific grant program. In general, you will need to submit documentation of the expenses incurred and provide proof of payment, such as receipts or invoices. The grant program may have specific requirements or forms that need to be filled out and submitted along with the reimbursement request.

Who do I contact if I have questions about a categorical grant?

If you have questions about a categorical grant, you should contact the organization or government agency responsible for administering the grant program. They should be able to provide you with more information and assist with any questions or issues you may have.

What is the process for closing out a categorical grant?

The process for closing out a categorical grant will depend on the specific grant program. In general, you will need to submit a final report that summarizes the activities and outcomes of the project and provides information on how the grant funds were spent. You may also need to return any unused funds or provide documentation of the disposition of any equipment or supplies purchased with the grant funds.

How do I know if a categorical grant is still available?

To determine if a categorical grant is still available, you should check the website or contact the organization or government agency responsible for administering the grant program. They should be able to provide the most up-to-date information on the availability of funds and the status of the grant program.

What happens if the funds from a categorical grant run out before the project is completed?

If the funds from a categorical grant run out before the project is completed, you may need to find alternative sources of funding to complete the project. Depending on the specific grant program, you may be able to apply for additional funds or extend the grant period, but this will depend on the terms of the grant and the availability of funds. It’s important to carefully manage the grant funds to ensure that they are used as intended and to minimize the risk of running out of funds before the project is completed.


Here we can see that categorical grants-in-aid are the primary source of federal assistance to local and state governments and other entities. So they issue the grants for a specific purpose, and can only be used for that explicitly specific objective.

We have seen from the categorical grants definition and example above that the states are never required to accept a categorical grant. But if they need it they must adhere to the rules and regulations of that grant or it will be withdrawn. We have also seen block grants vs categorical grants, noting the basic differences.

Categorical Grants FAQ’s

What is an example of categorical grant?

Categorical grants include programs like Medicaid and food stamps. Block grants include less stringent federal administrative criteria and provide grantees more leeway in how they spend grant cash.

What are categorical grants in government?

Categorical grants are federal funds distributed to state and municipal governments to encourage cooperation in the implementation of certain goals and initiatives. State governments have less flexibility with these funds than with block grants.

What are the types of categorical grants?

Categorical awards are divided into four types: formula grants, project grants, formula-project grants, and open-ended reimbursement grants.

What is the most common type of categorical grant?

A project grant is the most prevalent sort of categorical grant.

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