Categorical Grants & Block Grants
Categorical Grants
Categorical grants are the way in which the
federal government influences local and state
governments. These kinds of grants come with
strict rules on their spending. We'll explore these
limitations and look at some examples in this
article.
Definition
Imagine you are the governor of a state, and
you are looking for some funding for your area.
How would you like to receive a boatload of
money from the federal government? Not so
quick, though! There's always a catch!
This scenario outlines the basic idea of
a categorical grant. A categorical grant is
money granted by the federal government to
state and local governments with strict
limitations on how the money is spent. The
money can only be received if the state or local
government complies with certain regulations in
order to receive the money. The states further do
not have to receive the money if they do not
want to.
Categorical Grants and the Federal System
Categorical grants are a result of the United
State's 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 state and
local governments. Instead, the federal
government uses money to convince the states
to comply with national goals. This is where
categorical grants come into play.
Take, for example, education. 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, this department
provides federal money to local states to oversee
schooling. However, the money provided is
contingent upon local governments meeting the
requirements that the Department of Education
creates through its categorical grants.
Categorical Grants vs. Block Grants
Categorical grants are the most common
type of grants given by the federal government
to state and local governments, but they are not
the only type of grants. There also exist block
grants, which are grants given by the federal
government directly to local governments with
few strings attached. They are basically the
opposite of categorical grants.
Types of Categorical Grants
There are two ways in which categorical
grants are distributed. The first way is
through formula grants. With formula grants,
Congress decides how much it wants to spend
overall on a project, and then the money is
distributed to all states according to a formula.
Take, for example, food stamps, a national
program designed to allow those in poverty the
ability to buy food. The national government
spent just over $75 billion on food stamps in
2013. But how was that money distributed?
Clearly, some states have higher levels of
poverty than other states. So using a formula, the
money was distributed to the different states
based on the poverty levels and the number of
people in each state.
Another type of categorical grant is a
project grant. Rather than distributing money
by a formula, project grants 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, such as
adopting the Common Core standards,
uncapping the number of charter schools and
making improvements to the lowest achieving
schools. Several states tried to win the money,
but federal money was only given to the select
states that won the contest.
Examples of Categorical Grants
Categorical grants are a major part of
American society, even if we don't always
realize it. Anti-poverty programs, such as
Medicaid, Head Start and food stamps, are
categorical grants. Likewise, the national
drinking age is a result of a categorical grant. In
order for states to receive federal highway
funding money, all states have to make 21 years
of age the official age to drink. Otherwise, the
state would not get the federal grant money.
A controversial categorical grant has been
the Patient Protection and Affordable Care Act,
sometimes called Obamacare. This program,
among other things, gives states massive
amounts of money in order to start private
insurance exchanges to help individuals buy
insurance individually. Because of the
controversial nature of the bill, some Republican
governors have refused federal government
money in order to not comply with the federal
government's requirements. They have thus left
billions of dollars on the table as an act of protest
against the controversial piece of legislation.
Block Grants
Block grants are large chunks of money
given to state and local authorities by the federal
government for general purposes such as public
enforcement, law enforcement or community
development. They usually have few strings
attached to them and give a lot of discretion to
the local and state governments in how to spend
the money. They are the opposite of categorical
grants.
Here is an analogy that can help you
understand and remember the difference
between these grants. Think of the difference
between a car loan and a personal loan. With a
car loan, you can only use the money lent to you
to buy a car. But with a personal loan, you can
use the money for whatever purpose you want.
Likewise, in a categorical grant, a state or local
government can only spend the money in a
certain way. But a block grant can be spent any
way the state or local government wants so long
as it is generally kept within the broader domain
of the grant (e.g. healthcare, law enforcement,
education, etc.).
Both block grants and categorical grants are
the result of the United State's federal system.
In a federal system, the federal government is in
charge of certain government functions (for
example, national defense), and the local and
state governments are in charge of other
government functions (for example, education).
But the federal government often tries to
influence state and local governments by
offering money grants in exchange for
complying with their requirements. For
example, all states have adopted 21 as the legal
age to drink in large part because the federal
government requires the states to enact this rule
in order to receive money for their highways. So
even though states are in charge of patrolling
their own highways, they must adhere to the
federal government's wishes on the drinking age
to receive desired funding for their highways.
Examples of Block Grants
In the 2013 fiscal year, the federal
government had 25 block grants, as reported by
the Congressional Research Service. They are
shown in the following table:
One of the biggest block grant programs is
called Temporary Assistance for Needy
Families, or TANF for short. TANF is
commonly called welfare. This block grant
replaced an earlier categorical grant called Aid
to Families with Dependent Children(AFDC),
which placed a lot of requirements on states.
Now, under TANF, states have more control
over how money is spent.
Another block grant is the Low Income
Home Energy Assistance Block Grant, which
provides assistance to low-income families to
help pay energy bills. Like TANF, this grant
gives a lot of control to states in deciding how to
distribute funds across the state. This program is
especially important for northern states, where
cold winters drive up heating costs.
Proponents and Opponents of Block Grants
Generally speaking, block grants are
preferred by those who support giving more
power to local governments rather than the
national government. Although not necessarily
exclusive to one party, Republicans generally
tend to promote block grants more than
Democrats. For example, former Republican
Vice Presidential Candidate Paul Ryan has
proposed overhauling the Medicare and
Medicaid systems by converting them from
categorical grants to block grants. Ryan argued
that block grants give local states more control,
allowing them to decide how they should spend
money.
Opponents of block grants, on the other
hand, argue that the money is rarely spent with
the intended purpose, and states usually end up
spending less or cutting critical programs
important to the national goals. TANF is an
example here. After switching from a
categorical grant to a block grant, government
spending on welfare dramatically dropped,
causing states to cut several welfare programs
for poor families. Likewise, critics of Paul
Ryan's plan to convert Medicare into a block
grant argue that the end result will simply be to
cut funding for the healthcare of older
Americans.