Categorical grants are the primary source of federal assistance to local and state governments, and other entities. These grants are issued for a specific purpose, and can only be used for that explicitly defined objective. The government may issue categorical grants on a per-project basis, or based on a formula of purpose and financial need. States are never required to accept a categorical grant, but if they do, they must adhere to the rules and regulations of that grant or it will be withdrawn. To explore this concept, consider the following categorical grants definition.
Definition of Categorical Grants
- A grant paid by the Federal government to a state government or other entity to be used only for a specified purpose.
The Issue of Cooperative Federalism
In the United States, the federal government has a narrowly defined scope in which it can act. The U.S. Constitution specifically assigns certain powers to the federal government, and reserves all other powers to the individual states. The purpose for this was to prevent the federal government from oppressing the states, or from becoming too powerful and far-reaching. Still, Congress often envisions programs from which it feels the people would benefit, though it does not have the authority to implement on a national basis.
For instance, if Congress decided that the mandatory use of seatbelts would significantly decrease injuries, deaths, and medical bills, it could not simply pass a federal law requiring everyone to wear seatbelts. In fact, this issue was addressed decades ago, and any requirements for seatbelt use lie with the states. What Congress can do, however, is create a program, then offer incentives for each state to adopt that program. Such incentives are usually in the form of cash grants.
There are many other opportunities for governments to cooperate and pool their resources in order to accomplish projects that are too large for either to accomplish easily on its own. For instance, a state wants to make repairs to the interstate highway that runs through it. The federal and state governments may pool money, manpower, and other resources to accomplish the repairs in a timely manner. This is known as “cooperative federalism.”
Categorical grants are an example of how cooperative federalism is accomplished. As an example of categorical grants in action, the federal government may offer the states money for implementing a seat belt program, for which there are certain requirements the state must fulfill. The federal government achieves its goal of making the roads safer for the majority of Americans, without stepping on the authority of the individual states.
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.
Availability of Grant Information
The Congressional Budget Office (“CBO”) is responsible for tracking and analyzing budgetary issues, and to support Congress in the budgetary process. The CBO is nonpartisan, providing impartial analysis and reports, which are available to the public through its website.
Categorical Grants Example in Head Start
Head Start began in 1965 as a summer school program designed to help children of low income families to catch up before starting their first year in school. The program has since ballooned to provide assistance with education, nutrition, health, and encouraging parental involvement, to over 1 million low-income children and their families each year. Head Start programs across the nation are partially funded by categorical grants. In fact, Congress awarded more than $500 million in grants to 275 Head Start program recipients in 2014.
Each recipient of a Head Start categorical grant must not only meet certain application requirements, but must continue to adhere to the grant conditions, providing periodic reports to the U.S. Department of Health and Human Services. In addition, recipients of more than a specified amount on a yearly basis must submit to an annual financial audit.
President Barak Obama expressed a desire to make high-quality preschool available to all four-year old children in low- and moderate-income families. This means expanding existing programs to reach a larger number of children, and implementing new programs as needed. The Administration for Children and Families, through the Early Learning Initiative offers over $600 million in grants for new and existing Early Head Start – Child Care programs.
Early Head Start, in addition to preschool education, offers comprehensive services to children and their families, including:
- Establishing higher health, nutrition, and safety standards for children
- Providing Health, developmental, and behavioral screenings
- Increasing professional development opportunities for early childhood teachers
- Working to increase parent engagement opportunities
Categorical Grants Example of Fraud
In October 2014, the federal government filed a civil lawsuit against Columbia University in New York for allegedly submitting fraudulent claims regarding millions of dollars in federal categorical grants it received that were earmarked to fund AIDS and HIV research. The lawsuit claimed that the university failed to verify that all of the nearly 200 employees who were working on the grant projects had actually performed the work charged to those grants. The complaint alleged that the University was aware of the failure to accurately report as required by the categorical grants, yet continued to charge for work that was not done on the specified projects.
Columbia University settled with the U.S. government by agreeing to pay over $9 million in damages and penalties. In addition, as a condition of the settlement, the university admitted to failing to verifying whether the salary charges applied to the categorical grants were actually due to work done on those grants. This settlement makes this case one of the largest U.S. Health and Human Services grant fraud cases against an educational institution ever in the U.S.
Following the announcement of Columbia University’s settlement of the civil lawsuit, the U.S. Attorney who brought the case, Preet Bharara, said:
“Columbia University and ICAP applied to the federal government and received many millions of dollars to fund AIDS and HIV projects around the world. We admire and applaud Columbia’s work in combatting AIDS and HIV. But grantees cannot disregard the terms under which grant money is provided. Grantees are required to use federal money for the purpose for which the grant was given and nothing else. The applicable rules are clear, and they are at the core of ensuring that tax dollars are appropriately spent. Educational institutions, like everyone else, should be held accountable when they fail to follow those rules.”
This example of categorical grants fraud illustrates how important it is to comply with the requirements of receiving categorical grants from the U.S. government. The U.S. Health and Human Services is the largest grant-making organization in the U.S. government. As such, it must take great steps to ensure the grants are used for the programs for which they are intended.
Related Legal Terms and Issues
- Civil Lawsuit – A lawsuit brought about in court when one person claims to have suffered a loss due to the actions of another person.
- Lawsuit Settlement – A resolution between parties to a lawsuit, reached either before or after court action begins.
- Subsidized – To support something by providing it with money or other resources.