Categorical Grants 2022/2023 – How to Borrow from Top Tier Governments.
Categorical Grants – How to Borrow from Top Tier Governments : Categorical grants are funds the federal government gives to state and local governments to spend on specific activities within specific programs. The federal government usually requires localities and states to apply for categorical grants for specific purposes
Definition Of Categorical Grants
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 result from 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 thenational 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.”
Federal cash grants do come with strings attached; the national government has an interest in seeing that public monies are used for policy activities that advance national objectives.
Categorical grants are federal transfers planned to limit recipients’ discretion in using funds and subject them to strict administrative criteria that guide project selection, performance, and financial oversight, among other things.
These grants also often require some commitment of matching funds. Medicaid and the food stamp program are examples of categorical grants.
Block grants come with less stringent federal administrative conditions and provide recipients more flexibility over how to spend grant funds.
Examples of block grants include the Workforce Investment Act program, which provides state and local agencies money to help youths and adults obtain skill sets that will lead to better-paying jobs, and the Surface Transportation Program, which helps state and local governments maintain and improve highways, bridges, tunnels, sidewalks, and bicycle paths.
Finally, recipients of general revenue sharing faced the least restrictions on the use of federal grants. From 1972 to 1986, when revenue sharing was abolished, upwards of $85 billion of federal money was distributed to states, cities, counties, towns, and villages.
Examples of Categorical Grants
Here are examples of categorical grants:
1. Head Start Programs
Head Start programs prepare America’s most vulnerable young children to succeed in school and in life beyond school.
To achieve this, Head Start programs deliver services to children and families in core areas of early learning, health, and family well-being while engaging parents as partners every step of the way.
Head Start encompasses preschool programs, which primarily serve 3- and 4-year-old children, and early programs for infants, toddlers, and pregnant women.
Their services are delivered nationwide through 1,600 agencies that tailor the federal program to the local needs of families in their service area.
Head Start was created in 1965 as a summer school program to help low-income students catch up before the start of their first year in school.
Now they serve over 1 million low-income families per year in education and health encourages parental involvement.
Categorical grants partially funded head start programs, and in 2014 Congress gave over 500 million towards the program.
Head Start categorical grant participants have to follow conditions of the grant, meaning they have to report to the US Department of Health and Human Services periodically as well as submit to an annual audit.
Medicaid is also partially funded by categorical grants. Funds are given as a formula grant to each state. Medicaid, like Head Start is group-specific because it helps low-income persons and families.
What They Do
Head Start programs promote the school readiness of children ages birth to 5 from low-income families by supporting their development comprehensively.
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2. Asbestos Abatement Program
The primary focus of the asbestos abatement program is on work practice standards to minimize emissions from asbestos-containing materials during demolition and renovation of commercial, public, residential buildings.
The program also requires the proper transportation and disposal of regulated asbestos-containing materials. If not part of a larger project, residential buildings with four or fewer dwelling units and single-family homes are excluded from program requirements.
Additional guidance on residential exemptions can be found here or by contacting local asbestos abatement compliance staff prior to starting renovation or demolition activities.
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3. Forestry Assistance Program (FAP)
The goal of the Forestry Assistance Program is to help family forest owners achieve their goals for woodland ownership.
The program provides outreach and technical assistance to help private landowners make good decisions about how to care for their land.
A survey conducted by the Michigan State University of family forest owners concludes that only 20% of the 11 million-acre resource is actively managed.
The Forestry Assistance Program works with local conservation districts to increase the number of family forests that are managed under a sustainable forest management plan.
The Michigan Department of Agriculture and Rural Development (MDARD) awards grants to conservation districts across the state to interact with family forest owners and communities.
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4. Magnet Program
A magnet program is a program in a public school that usually focuses on a special area of studies, such as science, the performing arts, or career education.
A magnet school is an entire school with a special focus. These programs and schools are designed to attract students from across a district.
Categorical grants contrast with block grants, which can be used for broadly defined purposes and are not subject to as much oversight or as many administrative conditions
If you are just entering the realm of grants and government funding, it can feel overwhelming trying to find the right program for you or your organization.
When considering grants, these programs can be broadly categorized as those awarded by the federal government and those awarded by non-federal entities.
Within these two categories are a variety of funding sources and program types. To sort through the federal grant programs, the authoritative source is the Catalog of Federal Domestic Assistance (CFDA).
This catalogue lists all the funding programs to all levels of government, nonprofit organizations, for-profit businesses, and other eligible entities.
Search Grants within Grants.gov allows you to search, filter, and apply for specific opportunities to receive funding from one of these programs.
There are many nonprofit organizations and for-profit businesses that also provide grants or other types of funding help. Most times, the state and the local government need a boatload of money to fund some exotic projects.
Categorical grants comprise the bulk of activity in the federal grant-in-aid system, both in terms of the number of programs and the amount of funding.
Categorical grants derive their name from the fact that their uses are limited to a narrowly defined category of activities that generally are specified in the authorizing legislation.
There are four different types of categorical grants:
1. Project Categorical Grants
Project grants are awarded on a competitive basis by the administering agency, generally following the review of a grant application.
This Project grant funding is given to help subsidize a specific service for a specified amount of time. These grants are competitive and follow a specific cycle.
An agency makes a funding program based on its mission, Administration, and/or congressional initiatives. Then the grant-making agency announces the funding opportunity and invites groups to apply.
After the application is closed all applicants are reviewed by the agency and award recipients are chosen. States compete for project grant funding by going through the application process and those that best meet the application criteria are selected.
An example of project grant funding is the grants given by the Department of Agriculture Animal and Plant Health Inspection Services which operates the Wildlife Services Program.
Applicants who meet the goal and the criteria might receive this funding for programs that help “Reduce damage caused by mammals and birds and those mammals and bird species that are reservoirs for zoonotic diseases, (except for urban rodent control through control and research activities)” as the grant’s objectives specify.
2. Formula Categorical Grants
Formula grant funding is for services that help a particular group of people, such as low-income students or children with disabilities.
Unlike project grants, these do not involve a competitive process. All applicants who apply and meet the criteria receive funding based on a formula created by the federal government.
Congress decides how much money to spend in an area and then they divvy it up to applicants (usually states) by their formula. This formula can be based on population or project goals.
For example, the United States Department of Health and Human Services operates the Nutrition Services Incentive Program.
This program offers grant funding for states to give nutritious meals to the elderly in a geographic location. The formula used to determine how much grant money to give a state is based on how many meals were given out the year before within that state.
Examples of formula elements include population, poverty, per capita income, unemployment, enrollment in public schools, and the like.
The formula factors and the weight assigned to each are either prescribed in the authorizing legislation or determined by administrative officials.
3. Formula-Project Categorical Grants
Formula-project categorical grants involve a two-stage grant distribution: first, a formula grant is used to apportion funding among the states, and then project grants are awarded by state officials to state and local government agencies.
4. Open-Ended Reimbursement Grants
Under open-ended reimbursement grants, the federal government agrees to reimburse a certain percentage of state and local program costs for a prescribed activity or set of activities.
Hence, the total amount of the federal grant is open-ended and dependent on the amount of spending incurred by state and local jurisdictions the more a state spends, the larger its federal grant.
Medicaid is an example of an open-ended reimbursement grant, with a state’s grant determined by its federal reimbursement rate (which varies from a minimum of 50 percent in several states to a maximum of 77 percent in Mississippi) and the amount of a state’s spending for Medicaid-eligible services.
The origins of federal categorical grants can be traced to the Morrill Act of 1862, in which Congress authorized the distribution of public lands to state governments.
They instructed the states to use the proceeds from the sale of that land to support institutions of higher education (i.e., the “land grant” universities).
This aid also came with an additional requirement the colleges and universities that received assistance were required to provide military instruction. States were also required to submit annual reports to Congress on program expenditures.
The Federal-Aid Highway Act of 1916 was the next development milestone in the evolution of the federal grant system.
This program was the federal government’s first large-scale assistance program and also expanded the federal role by establishing several conditions and controls (e.g., project applications, progress reports, expenditure audits, and project closeout) designed to ensure that state governments adhered to federal goals and objectives in their use of grant funds.
The most expansive period of growth for categorical grants occurred during the 1960s in response to President Johnson’s call for a Great Society.
By the end of the decade, the number of grant programs had increased from about 150 to nearly 400, funding more than doubled, and the federal government became an important player in several policy areas where it had no previous involvement.
Though successive waves of New Federalism during the Nixon and Reagan administrations sought to merge dozens of categorical grant programs into a few block grants, the growth of categorical programs continued.
Today, there are about 600 grant-in-aid programs, and categorical grants account for about 95 per cent of the programs and over 80 per cent of total grant outlays.
The most important fact about categorical grants is their extensive variability. Though on the surface the design features of categorical grants may appear to be technical issues.
The decisions made regarding the key design elements of a categorical grant program are political ones and reflect the relative balance of power and influence among federal, state, and local governments.
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Categorical Grants and The Federal System
Categorical grants are a result of the United States’ federal system. With this system, the federal government has power in some areas, such as military spending.
While the state and local governments have power over other areas, such as schooling, roads and law enforcement.
But just because certain areas are the domain of local governments does not mean that the federal government can’t influence them.
Instead, the federal government uses the money to convince the states to comply with national goals. This is where categorical grants come into play.
Take education, for example. Nowhere in the Constitution does it say that the federal government should provide for education.
Yet, we have a Department of Education in Washington, D.C. Why is that? The simple answer is that the Department of Education does not provide schooling.
Instead, it provides federal money to local states to oversee schooling. However, the money is contingent upon local governments meeting the requirements set by the Department of Education.
Categorical grants are the most common types of grants given by the federal government to state and local governments, but they are not the only type.
There also exist block grants, which are given by the federal government directly to local governments with few strings attached. They are basically the opposite of categorical grants.
Categorical Grants in Cooperative federalism
Categorical grants increase the ability of the federal government to influence policy at the state and local levels. The founding fathers, particularly the antifederalists, were sceptical of the power of the national government, and so the Constitution does not afford the federal government many tools to steer policy at the state and local levels.
This means that when Congress has ideas about things they would like to implement on a national level, they have to have a way to get states to comply or agree.
Categorical grants and other grants provide a way for the federal government to work cooperatively with the states and still get a broader national outcome.
This outlines the basic idea of cooperative federalism, where the states and the federal government work cooperatively and equally to achieve something bigger than either can do alone.
Grants thereby incentivize states to help implement federal government national plans.
Economic Theory of Categorical Grant
Economists have studied the idea of categorical grants through the systems they support, such as Medicaid, food stamps, and education programs. Specifically, they have looked at how these grants might cause the income and crowding-out effects.
The crowding-out effect is when the government’s giving essentially lowers the amount of money the private sector could provide themselves.
This is always a concern with government grants. For example, if the government provides a categorical grant for education then some states might end up spending less on education than they would have without it because they are able to move to a better level of education without spending as much.
This problem occurs when the amount of the grant is less than the state would have been willing to spend originally. They then use the grant to replace what they would have spent and therefore have more money to spend on other goods.
Some economists believe in the Flypaper effect instead, meaning that when more money is given to an area, it sticks there like flypaper.
This means that the state would essentially raise the budget for a good or service if they continued to get more money for it.
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 the welfare reform and crime policy. Explanations below:
1. 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.
2. 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.
How Categorical Grants has been used to increase the power of the federalism
categorical grants are grants that have a specific purpose. This type of grant has been increasing the power of the federal government relative to the states because the categorical grants come with “strings attached”.
And states must spend the money in accord with the national government’s wishes. If they cannot comply with this order, federal funding can be revoked from the state governments.
Difference Between Categorical Grants and Block Grants?
Categorical grants provide very detailed instructions, regulations, and compliance requirements for the states, while block grants provide states with more leverage and power over how to spend the grant money.
Categorical grants are federal grants given to state and local governments to encourage their cooperation in implementing specific purposes and programs. These grants give less flexibility to state governments than block grants.
Federal officials place significant restrictions on states that accept grants and are quite specific about how funds are to be spent in specific policy “categories.”
What Is a Block Grant?
A block grant is an annual sum of money that is awarded by the federal government to a state or local government body to help fund a specific project or program.
Block grants are federal grants-in-aid that allow states considerable discretion (within broad limits) about how the funds will be spent.
These give greater flexibility to state political actors to tailor programs to the state’s particular needs than do categorical grants.
The federal government places few restrictions, allowing states to spend funds within broad programmatic areas.
Understanding Block Grant
Block grants have been in use in some form since the 1950s. Most have supportedsocial services, public health services, or community development programs.
Block grants were designed to provide funding for those services with relatively few strings attached, allowing local governments to manage and oversee the programs.
In addition, state and local governments may add their own guidelines and will sometimes distribute a portion of the grant to other organizations, which likewise have their own guidelines and rules regarding how the money is used and for what purpose.
Block grants have fallen out of favor in recent years. A 2017 attempt to revamp Medicaid as a block grant program failed. A number of block grant programs still exist.
One enduring example is the Community Development Block Grant (CDBG) program under the U.S. Department of Housing and Urban Development, which began in 1974.
Critics of block grants cite the relative lack of federal oversight as a problem. Notably, the proposal to turn Medicaid into a block grant program was seen as endangering the federal government’s ability to guarantee a standard level of service.
Examples of Block Grants
Three of the better-known block grant programs are earmarked for social services delivered at the local level:
1. CDBG Program
The CDBG program, administered by the Housing and Urban Development agency, says it “aims to viable urban communities by providing decent housing and a suitable living environment” with a focus on “low- and moderate-income persons.”
It has provided more than $160 billion in grants through mid-2021. The grant amounts are awarded according to a formula based on a community’s needs, including its extent of poverty, overcrowding, and population growth.
Block grants have been in use since the 1950s but have fallen from favour in recent years.
2. Mental Health Block Grant (MHBG)
The Mental Health Block Grant, established in 1981, has disbursed millions of dollars to states to assist in the treatment of mental illnesses.
The grant was amended in 1986 to require that states develop their services based on the advice of Mental Health Planning Councils comprised primarily of family members and non-treating professional citizens.
3. Social Services Block Grant Program (SSBG)
The Social Services Block Grant Program (SSBG) is a broadly defined program that allows states and territories to tailor social service programming to the needs of their populations.
Administered by Health and Human Services, the program is intended to “reduce dependency and promote self-sufficiency.
To protect children and adults from neglect, abuse and exploitation; and help individuals who cannot take care of themselves to stay in their homes or to find the best institutional arrangements,” according to the department’s Office of Community Services.
Why Republicans Prefer Block Grants
Block grants provide state and local governments funding to assist them in addressing broad purposes, such as community development, social services, public health, or law enforcement, and generally provide them more control over the use of the funds than categorical grants.
Block grant advocates argue block grants increase government efficiency and program effectiveness by redistributing power and accountability through decentralization and partial devolution of decision-making authority from the federal government to state and local governments.
Advocates also view them as a means to reduce the federal deficit. For example, the Trump Administration’s FY2020 budget request recommended that Medicaid be set “on a sound fiscal path by putting States on equal footing with the Federal Government.
To implement comprehensive Medicaid financing reform through a per capita cap or block, grant, the proposal would empower States to design State-based solutions that prioritize Medicaid dollars for the most vulnerable and support innovation.”
The Trump Administration’s FY2021 budget request added that “Medicaid reform would restore balance, flexibility, integrity, and accountability to the State-Federal partnership.”
Block grant critics argue that block grants can undermine the achievement of national objectives and can be used as a “backdoor” means to reduce government spending on domestic issues.
For example, opponents of converting Medicaid into a block grant argue that “block granting Medicaid simply codes for deep, arbitrary cuts in support to the most vulnerable seniors, individuals with disabilities, and low-income children.”
Block grant critics also argue that block grants’ decentralized nature makes it difficult to measure their performance and to hold state and local government officials accountable for their decisions.
Block grants have been a part of the American federal system since 1966, and are one of three general types of grant-in-aid programs: categorical grants, block grants, and general revenue sharing.
These grants differ along with three defining characteristics: the range of federal control over who receives the grant; the range of recipient discretion concerning aided activities; and the type, number, detail, and scope of grant program conditions.
Most categorical grants are awarded through a competitive application process, can be used only for a specifically aided program, usually are limited to narrowly defined activities, and have more administrative conditions than other grant types.
Block grants address broader purposes, are distributed by formula, allow greater flexibility in the use of the funds, and have fewer administration conditions than categorical grants.
General revenue sharing grants are distributed by formula, have few restrictions on the purposes for which the funding may be spent, and have the least administrative conditions of any federal grant type.
Project categorical grants and general revenue sharing grants represent the ends of a continuum on the three dimensions that differentiate grant types, with block grants being at the midpoint.
However, there is some overlap among grant types in the middle of the continuum. For example, some block grants have characteristics normally associated with formula categorical grants.
This overlap, and the variation in characteristics among block grants, helps to explain why there is some disagreement concerning precisely what constitutes a block grant, and how many of them exist.
Frequently Asked Question About Categorical Grants
1. What Are The Purposes of Categorical Grants?
Categorical grants are intended to help states improve the overall well-being of their residents, but also empower the federal government to exert more power over the states within a specific policy area.
2. Why Categorical Grants are Better?
The national government has greatly preferred using categorical grants to transfer funds to state and local authorities because this type of grant gives them more control and discretion in how the money is spent.
3. How are Categorical Grants Given?
Categorical grants are distributed in two ways. With formula grants, money is distributed based on a formula, such as the level of poverty for each individual state. With project grants, local governments submit proposals to bid on and win money the federal government has allotted for a specific issue, like education.
4. How do Categorical Grants Affect Policy-Making?
These grants give less flexibility to state governments than block grants. Federal officials place significant restrictions on states that accept grants and are quite specific about how funds are to be spent in specific policy “categories.”
5. What are the Advantages and Disadvantages of Categorical Grants?
One advantage of categorical grants is to control over spending for its intended purposes. One disadvantage of categorical grants is that the federal gov’t has more control of the money and funds can’t be diverted in other categories.
6. What is True About Categorical Grants?
Which of the following statements is true about categorical grants? They give the national government control over how states use the funds by imposing certain conditions.
7. What Might Keep a State From Accepting a Categorical Grant?
What might keep a state from accepting a categorical grant-in-aid? No state can draw unreasonable distinctions between its own residents and those persons who happen to live in another state. Does the federal government fund interstate?
8. Why Do States Prefer Block Grant to Categorical Grant?
What are categorical grants? Block grants are given to states or communities and they decide how to spend the money. States prefer block grants because there are fewer strings attached and the money can be used for a broader purpose.
9. Is No Child Left Behind a Categorical Grant?
Categorical grants are grants that can only be used for a specific purpose. An example of this would be grants created under the No Child Left Behind Act, which specifically was for the purpose of bettering the educational system.
10. How Can The NG Use Categorical Grants Block Grants and Federal Mandates?
How does the national government use grants and mandates to influence state policies? A categorical grant is used for a specific purpose, or category, for state or local spending. Block Grants are given for general purposes that the states can use as they see fit (welfare, public health).
11. What is Categorical Funding in Education?
Funds from the state or a federal government are granted to qualifying schools or districts for specific children with special needs, certain programs, or special purposes such as transportation. This money is besides the funding schools receive for their general education program.
12. How Does a Categorical Grant Benefit the National Government?
Categorical grants are intended to help states improve the overall well-being of their residents, but also empower the federal government to exert more power over the states within a specific policy area.
13. How Might Grants in Aid Increase the National Government’s Power?
Under the grant-in-aid mechanism, the federal government extends subsidies to the states to be used in carrying on particular governmental services; by accepting these subsidies, the states give their assent to federal supervision over the administration of the aided services.
14. Are Categorical Grants Fiscal Federalism?
These programs resulted in fiscal federalism, which means that federal funding is allocated to the states with specific conditions attached. … There are four categories of fiscal federalism: Categorical grants. Block grants.
15. What are Categorical Grants AP Gov?
Categorical Grants. federal grants that can be used only for specific purposes, or “categories,” of state and local spending. They come with strings attached, such as nondiscrimination provisions.
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