Types of Federal Grant Funding

The federal government offers financial assistance to the states, various non-federal government agencies, and other entities. The purpose of these grants is to support a program or function that is beneficial to the public. Federal grants cannot be used as federal assistance, or loans to individual people.

Additionally, federal grants may not be used to acquire property, or contract services for the direct benefit of the federal government. Federal agencies offer more than 1,000 grant programs each year, each of which falls into one of the following categories:

Project Grant Funding

Project grant funding is awarded to subsidize certain specific services, for a fixed period of time. Once a project grant has been approved, the funding agency accepts applications from eligible organizations, who compete for a portion of the total grant funding. Once the application period has ended, the agency evaluates each one, then awards grants to those who best meet the application criteria.

As an example of project grant funding, the U.S. Department of Justice operates the Justice and Mental Health Collaboration Program. This program gives grants to states, local government agencies, and Indian tribal organizations to improve access to mental health services for criminals suffering from mental illness. Applicant agencies must submit a statement of how their projects will address the program's required six objectives. About 20-30 of the highest-scoring applicants receive grants.

Formula Grant Funding

Formula grant funding is used for ongoing programs that serve a particular group of people, such as children with disabilities, or low-income students. Formula funding does not have a competitive selection process, but is determined based on general criteria, such as population, or other census criteria. All applicant agencies that meet the application requirements can receive funding under the formula grant funding process.

As an example of formula grant funding, the U.S. Department of Health and Human Services ("DHHS") operates the Nutrition Services Incentive Program, which provides grant funding to encourage efficient delivery of nutritious meals to the elderly in a given geographical area. The formula used to determine the size of grant awarded to each applicant is based on the number of meals served to the elderly in the prior year, as compared to other states or regions. The system is automatic in that, as long as each state reports their meal tallies, the DHHS reimburses $0.50 per meal delivered.

Block Grant Funding

Block grant funding is also determined on a formula basis, though these grants fund broad concerns, rather than specific individual projects. Block grants, given to address such purposes as education, public health, or safety, allow the recipient agencies broad discretion in operations and applying the funds. Examples of block grant recipients include Community Development, Adult Social Services, and Temporary Assistance to Needy Families.

Categorical Grant Funding

Categorical grants are offered to governmental entities and agencies to be used for a very narrowly defined purpose. Categorical grants are awarded to applicants who meet the qualifications, based on a pre-defined formula. These types of grant come with reporting requirements, to ensure the continued adherence to program conditions. Examples of categorical grant funding include Head Start programs, Magnet School programs, Forestry Assistance programs, and Asbestos Abatement programs.

I add this observation. The authorizing agency corresponds with the state agencies who administer these programs and can audit. But you see the problem? These programs are generally too large for detailed focus. How many auditors would be needed? That is the problem. If you audit every grant you exceed the value of the grants. Second, most agents are honest brokers. The problems, as I have read, are usually sloppy record keeping.