What is the difference between a block and categorical 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. These became official in the U.S. beginning in 1966.

This form of federal assistance is often associated with supporting social welfare projects, such as Medicaid, public housing, education, and job training.

• Block grants are federal funds earmarked for specific state or local programs.
• A block grant is supported by federal funds but administered by state or local governments, the thought being local authorities are better suited to handle local issues.
• Such programs are often meant to improve social welfare programs.
• Most block grants, therefore, support public housing, health, or other social services.
  
• Opponents of block grants claim that they are a waste of taxpayer dollars and are often misspent.
  

Block grants have been in use in some form since the 1950s. Most have supported social 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.

Block grants have been in use since the 1960s, but have fallen from favor a bit in recent years.

While block grants are intended to promote social good by helping states fund important programs, some have held critical views of these programs. Because the recipients of block grants have a great deal of flexibility in how those dollars are actually spent, opponents argue that federal money can be misused by local authorities. Money received from block grants often cannot be tracked or audited in the same way that categorical grants (intended for a specific purpose) can, compounding these concerns.

Local officials can therefore be thought to direct the funding from block grants to those communities who have the greatest political influence in order to curry favor and votes, while ignoring those underserved communities that the money was ostensibly intended for.

Proponents of block grants typically argue that programs will be more effective and better suited to each state's needs when decision-making shifts to the states since local authorities have a deeper knowledge of their constituencies.

Three of the better-known block grant programs are earmarked for social services delivered at the local level:

The CDBG program, administered by the Housing and Urban Development (HUD) agency, says it aims to "develop 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.

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 services based on the advice of Mental Health Planning Councils comprised primarily of family members and non-treating professional citizens.

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; protect children and adults from neglect, abuse, and exploitation; and help individuals who are unable to 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.

Grants are awarded in one of several ways. The main four are: 1) competitive, whereby bidders submit applications based on merit or need asking for a specific amount; 2) formula, which uses an algorithm to allocate predetermined amounts of funds based on objective need; 3) continuation funding, where prior grants are renewed; and 4) pass-through funding, with federal funds passed to state authorities to be used for federal programs, such as transportation.

A block grant can be used for a variety of purposes, with the distribution of funds overseen and allocated by local authorities. A categorical grant is awarded for a singular and specific purpose, with distributions audited to ensure the intended recipient.

Because block grants give states or local authorities discretion with how to spend otherwise federal funds, they do increase the state's power to spend in that way. Proponents argue that this increases the efficiency of grant funds since local politicians and directors will have greater knowledge of their own area than those in Washington, D.C.

Many popular programs are funded by either block grants or categorical grants. Head Start, for example, is funded in part by categorical grants, as is Medicaid. The Community Development Block Grant from the Department of Housing and Urban Development is a long time program funded by a block grant.

Block grants and categorical grants are funding given to state and local governments by the federal government. The key difference is that block grants can be used for any purpose decided upon by the state or city whereas categorical grants must be used for a specific, designated purpose. There are positives and negatives to each type of grant.

A block grant is a large sum of federal money given by Congress to a state or local government to fund a "block" of programs. States are free to decide how to use block grants. Only general provisions are given as to the way it is to be spent. The idea behind this type of grant is that states have a better idea of how to spend the money for their state, and requiring conditions of aid is unproductive.

Those in favor of block grants argue that local government officials know better what the people of their own state need and can spend the money more wisely. The theory is that block grants end up in the hands of better-equipped local officials rather than federal bureaucrats who have no idea what a particular state needs.

Some argue that block grants are more cost-effective because they reduce federal administrative costs that are typically related to state and local government paperwork requirements. Advocates also argue that block grants allow local governments to experiment with new approaches. They can be creative and find new solutions to problems because they are given more freedom. If you're given a sum and told exactly what to do with it, innovation can be more difficult.

The arguments in favor of block grants sound perfectly reasonable, but digging deeper, there are potential problems with giving money in this way. If the federal government doesn't specify the conditions of aid, critics of block grants argue that the way local governments spend the money can't be tracked and assessed, particularly because there are often no federal requirements for program data collection across states.

Opponents also claim that when there is a lack of oversight and guidance, the communities most in need are often overlooked. Local officials can spend block grant funding so that underserved communities are forgotten and communities with the greatest political influence end up with the most benefits.

Critics also argue that funding for block grants is more likely to decrease over time because it is more difficult to regenerate political support for broad-purpose programs than it is for categorical programs focusing on specific purposes.

Today, categorical grants are the primary source of federal assistance to local and state governments. Issued for a specific purpose, these grants can only be used for an explicitly defined objective. States don't have to accept categorical grants, but if they do, they are required to adhere to the rules and regulations of that grant or it will be taken away.

There are two ways that categorical grants are distributed, either through project grants or formula grants.

Project grants are funding given for a specific project or service for a determined amount of time. These grants are competitive.

The process of project grants begins when an agency makes a funding program based on their mission or initiatives. Next, the agency announces the funding opportunity and invites groups to apply. At the end of the application period, the applications are evaluated by the agency and award recipients are chosen based on who best meets the application criteria. States compete for project grant funding by going through this process.

For example, the Department of Agriculture's Animal and Plant Health Inspection Service, which operates the Wildlife Services Program, often offers project grant funding. Applicants who are awarded a grant by this department might receive money for programs that help certain animals or repair damage done to a wilderness area.

Formula grant funding, on the other hand, is more for services that help a particular group of people. These types of grants might be given to programs that assist low-income students or children with disabilities, for example. Unlike project grants, these are not competitive and there is not the same type of application process. In the case of formula grant funding, all applicants who apply and meet the criteria receive funding based on a formula created by the federal government. The government decides how much money they want to spend, and it is divided up based on the formula.

The Nutrition Services Incentive Program offered by the U.S. Department of Health and Human Services, for example, offers grant funding for states to give nutritious meals to the elderly in a geographic location. The formula that determines how much grant money to give a state is based on how many meals were given out the year before.

A well-known example of a program funded by a categorical grant is Head Start. Created in 1965 as a summer school program to help low-income students catch up before the start of their first year in school, Head Start now serves more than one million low-income families per year. Partially funded by categorical grants, Head Start programs must follow conditions of the grant, such as making reports to the U.S. Department of Health and Human Services and submitting to an annual audit.

Medicaid, food stamp programs and magnet schools are also funded, in part, by categorical grants.

A well-known example of a program funded by a block grant is the Community Development Block Grant from the Department of Housing and Urban Development. Established in the 1970s as a consolidation of similar, existing grant programs, this program has much more freedom of implementation than does a program such as Head Start.

The Social Services Block Grant is another example. Made to U.S. states and territories, the recipients of this grant decide which services to provide and who is eligible for the social services.

Congress has debated whether or not Medicaid should act as a block grant program. Many in the GOP are in favor of changing Medicaid to a block grant program and giving the states more say in how they spend their money. However, those opposed argue that this has the potential to take money away from those who need it most: low-income, unserved communities, children and pregnant women.

As the program works now, states share the cost of Medicaid with the federal government. States with less wealth, pay less. And states with more wealth, pay more. For example, Mississippi pays less out of the state pocket than Massachusetts.

Federal funding is open-ended, and in return, states must cover certain services and people. If Medicaid went the route of the block grant, people who need the services the most could potentially be overlooked.