Categorical grants include nearly all action in the federal grant-in-aid system, both in regard to the amount of software and the whole amount of financing. Categorical grants derive their name from the fact that their uses are confined to a narrowly defined set of actions that normally are described in the authorizing legislation.

Formula grants are dispersed jurisdictions entitled to capital from the authorizing statute on the grounds of a numerical formula that takes into account the relative need of the recipient jurisdiction when compared with other entitlement authorities. Examples of formula components include poverty, per capita income, unemployment, enrollment in public schools, and the like. The formula variables and the weight assigned to each are prescribed in the authorizing legislation or determined by administrative officials.

Understand Categorical Grants

Formula-project categorical grants require a two-stage grant distribution: initially, a formula award is used to apportion capital among the states, and subsequently, project grants are given by state officials to local and state government agencies.

Under open-ended settlement grants, the federal government claims to repay a specific proportion of local and state program costs for a prescribed activity or set of activities. Therefore, the total quantity of the federal grant is open-ended and determined on the amount of spending incurred by local and state authorities –the greater a country spends, the larger its national grant. Medicaid is a good example of an impending settlement grant, with a country’s grant determined by its federal reimbursement rate (which changes by a minimum of 50 percent in several countries to a maximum of 77 percent in Mississippi) and the sum of a state’s spending for Medicaid-eligible services.

categorical grant
categorical grant

The origins of federal categorical grants could be monitored into the Morrill Act of 1862, where Congress authorized the distribution of lands to state governments and instructed the states to utilize the profits from the sale of the property to encourage institutions of higher education (i.e., the”land grant” universities). This support also came with an additional requirement–the colleges and universities that received help were needed to introduce army instruction. States were also required to submit annual reports to Congress on program expenses.

The Federal-Aid Highway Act of 1916 was another development milestone in the evolution of the national grant system. This program was the national government’s very first large-scale help program and also expanded the federal role by establishing several requirements and controls (e.g., job applications, progress reports, expenditure audits, and project closeout) designed to ensure that state authorities stuck to federal goals and objectives within their usage of grant funding.

From the end of the decade, the number of grant programs had increased from approximately 150 to nearly 400, funds more than doubled, along with the federal government became a significant participant in many policy areas in which it had no prior participation.

Through successive waves of New Federalism during the Nixon and Reagan administrations sought to combine dozens of categorical grant programs into a small number of block grants, the increase of categorical programs lasted. Nowadays, there are about 600 grant-in-aid programs, and categorical grants account for roughly 95 percent of those apps and more than 80 percent of overall grant outlays.

The most important fact about categorical grants is their extensive variability. Though on the surface that the look characteristics of categorical grants may appear to be technical problems, the decisions made concerning the significant design components of a categorical grant program are political ones and reflect the relative equilibrium of power and influence among federal, state, and local authorities.


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