First a quick definition. Grants-in-aid are financial grants from the federal government to a lower governing body in order to fund a program that is required or encouraged by the federal government. There are typically strict guidelines governing the way the grant may be spent.

Under the general category of grants in aid are two different subcategories. These are block grants and categorical grants. Block grants are more general in nature. The federal government gives state or local government money with few, if any, strings attached detailing how the money can be spent. Categorical grants have very specific restrictions on how the money can be spent.