Funds from the state or federal government granted to qualifying schools or districts for specific children with special needs, certain programs, or special purposes such as transportation. In general, schools or districts must spend the money for the specific purpose. This money is in addition to the funding schools receive for their general education program.
From Federalism in America
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: formula grants, project grants, formula-project grants, and open-ended reimbursement grants. Formula grants are distributed to jurisdictions entitled to funds by the authorizing statute on the basis of a numeric formula that takes into account the relative need of the recipient jurisdiction compared to all other entitlement jurisdictions. 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.
Project grants are awarded on a competitive basis by the administering agency, generally following the review of a grant application. 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.
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 and 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 a number of conditions and controls (e.g., project applications, progress reports, expenditure audits, and project closeout) designed to insure 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 1960's 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 consolidate dozens of categorical grant programs into a small number of block grants, the growth of categorical programs continued. Today, there are about 600 grant-in-aid programs, and categorical grants account for about 95 percent of the programs and more than 80 percent 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.
| BIBLIOGRAPHY:
Lawrence D. Brown, James W. Fossett, and Kenneth T. Palmer, The Changing Politics of Federal Grants (Washington, DC: Brookings Institution, 1984); Martha Derthick, The Influence of Federal Grants (Cambridge, MA: MIT Press, 1970); Robert Jay Dilger, National Intergovernmental Programs (Englewood Cliffs, NJ: Prentice Hall, 1989); and U.S. Advisory Commission on Intergovernmental Relations, Categorical Grants: Their Role and Design, ACIR Report A-52 (Washington, DC: U.S. Government Printing Office, 1977). |
Michael J. Rich
Last updated: 2006
SEE ALSO: Block Grants; Categorical Grants; Crosscutting Requirements; Crossover Sanctions; Fiscal Federalism; Formula Grants; Grants-in-Aid; Project Grants; Rural Policy; Supremacy Clause: Article VI, Clause 2; Unfunded Mandates; Urban Policy
Money plays a key role in the federal government’s relationship with the states. Congress gives money to the states, for example, but stipulates how this money should be used in order to force the states to cooperate with federal policies.
Federal Aid to the States
Since World War II, states have come to rely heavily on federal money. Likewise, the national government has also relied on the states to administer some federal policies, a practice called fiscal federalism. The term grants-in-aid refers to the federal government giving money to the states for a particular purpose. There are two general types of grants-in-aid:
- Block grants: Money given for a fairly broad purpose with few strings attached.
- Categorical grants: Money given for a specific purpose that comes with restrictions concerning how the money should be spent. There are two types of categorical grants:
- Project grants: Money states apply for by submitting specific project proposals
- Formula grants: Money given to states according to a mathematical formula
Example: When the Republicans retook Congress in 1994, they changed many federal grants into block grants. Instead of giving money to states to buy textbooks or repair schools, for example, Congress gave states blocks of money to spend on education in any way the states saw fit.
Federal Pressure on the States
The federal government uses a number of tactics to compel states to follow its policies and guidelines. Congress can order states to comply but usually applies pressure more subtly by threatening to withhold funds from disobedient states.
Example: When the federal government decided to raise the drinking age to twenty-one, it denied certain highway funds to states that opted not to comply.
Mandates
Sometimes the federal government orders states to do certain things, such as obeying housing laws or environmental regulations. These demands are called mandates. An unfunded mandate is one for which the federal government provides no money. For example, the federal government has required state and local governments to live up to the Americans with Disabilities Act without providing money to make buildings accessible to handicapped people. State governments resent unfunded mandates because they drain state coffers.
One way for Congress to pass mandates is to impose regulations and standards on state and local governments. In the past, Congress has forced state governments to meet certain environmental standards, for example. Scholars call this practice regulated federalism.
Preemption
Because of the supremacy clause, all laws passed by the national government take priority over state and local laws. The national government, then, can override state laws if it can demonstrate a compelling national interest; this practice is called preemption.
Horizontal Federalism
Horizontal federalism refers to the ways state governments relate to one another. States often compete or cooperate on many different issues, from environmental policy to economic development. One state, for example, may lower its tax rate in order to attract businesses away from other states. States have a great deal of leeway in how they behave toward one another.
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