Categorical grants are grants that are earmarked for use for specific purposes and usually require some sort of matching program in order for a recipient to benefit from the grant. National governments often use this approach as a means of structuring grant programs that assist states or provinces with specific programs administered at a local level. In order to receive the categorical grant, the state must comply with all terms and conditions related to the grant request and provide a specified percentage of funds on its own to match the funds provided through the grant program.
A categorical grant is different from a similar type of grant program that is known as a block grant. With block grants, the funds are awarded and may used for a range or block of different projects, with the recipient making decisions about how much of the grant money is ultimately allocated to each of those projects that are classed under rather broad groups such as general administration or law enforcement. In contrast, the categorical grant requires that only projects that are specified at the time of the grant request may be funded with the proceeds from the grant. In many nations, strict processes and procedures are in place that make it possible to audit the use of the grant money and make sure it is actually going directly to those approved projects.
The structuring of distribution of funds obtained as part of a categorical grant may involve the inclusion of what is known as a project basis or a formula basis. With a project basis, states or provinces must compete for grant money set aside for specific purposes, with each jurisdiction responsible for putting together a proposal that convinces grant administrators that the project is within the scope of the grant’s requirements, and that there are compelling reasons why that project should receive a portion of the available grant money. In contrast, a formula basis makes use of a specific calculation that is used to determine what percentage of the available funds is ultimately awarded to all projects that are approved by the grant administrator.
A categorical grant that is structured with either a project or formula basis may be used to provide additional funding for a number of different programs that ultimately aid in providing essential services within a community. Programs connected with the education of young people, providing healthcare to citizens who are disabled or retirees who are on fixed incomes, and even programs that help with providing foods to economically challenged households have been funded with grants of this type in the past. In nations like the United States, the United Kingdom, Canada and other countries around the world, the use of a categorical grant approach continues to be a viable means of helping to support these types of initiatives today.