Block Grants Vs. Categorical Grants

Block Grants Vs. Categorical Grants
A major difference between block and categorical grants is whether they are applicable to general issues or not. Buzzle compares block vs. categorical grants, using various aspects like their definition, history, advantages, disadvantages, and the like.
WealthHow Staff
Did You Know?
Though modern Democrats support categorical grants, and Republicans swear by the effectiveness of block grants, initial block grants in the US were passed by Democrats.
In a federal republic like USA, Congress and the regional governments are in charge of different issues. While the federal government looks over areas like military expenditure, the state and local agencies handle issues like social services, education, and transportation. However, if these regional bodies want to implement programs which would bring about an improvement in the issues under their control, they need to obtain funds for it. Regional governments can obtain funds in two ways - by collecting taxes, and by federal aids or grants.

Since the federal government is at a national level, it has a higher financial capability as compared to localized state governments or counties. It can use this advantage to fund projects of the lower agencies. Federal grants to the states is of three main types - block grants, categorical grants, and revenue sharing. These three differ in the freedom offered to the receiving government to utilize the funds.

To get a better understanding of the three, imagine an arrangement where categorical grants occupy a position on one side which represents the most stringent federal control and strict regulations on how the fund can be used. Revenue sharing occupies the opposite position, since they come without any kind of regulations whatsoever on how the states can use these funds. Then, in such an arrangement, block grants will occupy the middle position. Here is a better comparison of block vs. categorical grants or aids.
Definition
Block Grants
These are large funds given by the federal government to regional (state or local) administrations, to be used on broad-base issues like education and mental health.
Categorical Grants
These are federal funds given to regional governments or agencies, which are to be used only on specific issues like airport construction, or pavement repairs, with strict restrictions on their usage.
History
Block Grants
Block grants were first issued during the 1960s, when categorical grants began to face criticism, owing to the strict regulations they necessitated. To solve this problem, the first block grant related to public health was authorized by President Lyndon Johnson in 1966, by clubbing together 9 categorical grants. This was followed in the '70s and '80s by consolidating many categorical grants into corresponding block grants, under the presidencies of Richard Nixon, Ronald Reagan, and George H.W. Bush. Today, block grants are the fastest growing types of federal aid, of which they comprise about 15%.
Categorical Grants
Categorical grants played a major role in the revival of the American economy during the Great Depression of the 1930s. At the time, only the federal government had the fiscal capacity to finance projects at the local levels. The number of these grants increased steadily through the World War, and then shot up even more dramatically in the '70s. Today, 90% of all federal funding is in the form of categorical grants.
Federal Control
Block Grants
Though authorized under certain guidelines, they still allow a great deal of freedom to the state and local agencies in utilizing the money. They are based on the assumption that regional administrations are capable of discriminating between the issues which deserve funding, and those that do not.
Categorical Grants
They are subject to strict federal control, as first, they are authorized only for a set of issues decided by Congress, and second, the usage of funds is strictly monitored by the federal government. Additionally, in order to become eligible for such grants, interested states have to put up some of their own money in the form of matching funds.
Types
Block Grants
States do not have to compete amongst themselves to obtain these grants, which are mostly formula-based. Under this arrangement, the states are entitled to such grants if they satisfy a certain formula as decided by Congress. Formula-based block grants usually favor smaller states.
Categorical Grants
They may either be project-based, in which states compete amongst themselves, and the grant goes to the most suitable proposal, or formula-based, in which states receive the aid as a matter of right. Most grants authorized today fall under the project-based category. Another rare type is the project-formula grant, where states receive federal aid via a formula, and local agencies then apply to the states for the grant.
Number of Grants
Block Grants
By the end of 2014, there are 23 block grants in effect, out of which, 21 are funded, and the remaining 2 have received approval, but have not been funded as yet.
Categorical Grants
1,018 categorical grants have received approval till the end of 2014, which makes up about 90% of all federal aid.
Preferred By
Block Grants
They are preferred by state and local administrations, as it gives them more freedom in channeling funds where they are the most needed.
Categorical Grants
They are preferred by Congress, because it allows them to have a greater control over where the money will be used. Besides, these grants allow them to influence regional affairs by deciding the guidelines under which the funds will be approved.
Political Support
Block Grants
They have traditionally been supported by the Republicans, who prefer decentralization, and hail these grants as a way to give more power to local authorities.
Categorical Grants
Democrats support these grants because of the federal supervision they bring with them, which ensures better use of funds and higher efficiency, along with concentration of power at the top level of government.
Examples
Block Grants
  • Community Mental Health Block Grants
    These provide states and local governments with funds for carrying out the states' plans on providing community mental health services to adults with mental disorders, and juveniles with emotional disturbances.
  • Temporary Assistance for Needy Families
    One of the most popular block grants, TANF, provides states with federal aid to ensure that impoverished families with dependent children achieve self-sufficiency.
  • Social Services Block Grant
    SSBG were authorized to help states improve their social service systems, such as daycare and foster care for children, or security, and ensure that impoverished families achieve economic self-sufficiency, so that they don't remain dependent on social services for long.
Categorical Grants
  • Flood Mitigation Assistance Grant
    This grant, authorized by the Federal Emergency Management Agency (FEMA), provides states and local governments with aid for flood-protection of buildings, which are insured under the National Flood Insurance Program (NFIP).
  • Supplemental Nutrition Assistance Program
    SNAP provides federal aid to regional authorities for providing assistance to impoverished families, so that they can obtain access to healthy nutrition.
  • Housing Choice Vouchers
    This program provides funding for states to enable low-income families, the handicapped, and the elderly to purchase or rent safe and cost-effective housing in the private sector.
Advantages
Block Grants
Their biggest advantage is the liberty for fund utilization by the states, since local administrations are more aware of which issues require them the most. So, funds can be diverted to such issues by the state's discretion. Moreover, these grants require programs to be implemented under fewer restrictions. They support the concept of New Federalism, by empowering local administrations. These grants also remove the need for interested parties to compete among themselves.
Categorical Grants
The strict regulations under which these grants have to be used ensure the economical usage of funds, and efficiency of implementation. The importance of merit inspires regional governments to come up with good proposals. Besides, such grants allow the federal government to channel aid to those sectors and states which are in dire need of the same. Categorical grants also enable the country to work towards meeting national objectives.
Disadvantages
Block Grants
Though they are desirable for the freedom provided to regional administrations in utilizing funds, off late, Congress has been accused of adding more restrictions to such grants, which takes this advantage away. Such grants do not allow federal monitoring, which would have ensured cost-effectiveness. Moreover, the economic liberty offered by these type of grants may be misused by regional entities, which are not accountable since the grants are given by a formula.
Categorical Grants
These grants require strict adherence to federal regulations to obtain funds, which makes it difficult for local communities which may lack the resources to do so. Besides, states may not get funding for issues which require urgent attention, as the federal government may have authorized it for other types of projects.
To sum up, it can be said that, while both, block and categorical grants are types of federal aids, and both are subject to specific regulations, the former is authorized for wider areas, and offers more liberty, while the latter is for highly-specific issues, and involves more restrictions.