In our federal system, grants are money given from a government entity to a recipient, which vary in types and forms. Categorical grants comprise 90 percent of the grants distributed by the national government. Their strength, particularly from the perspective of the national government, is that they must be used for a specific purpose. For example, the national government may give a categorical grant for highway funds to states. Attached are many stipulations. In this manner, many states changed their drinking age from 18 to 21—so that they would be eligible for the grant. States, generally, loathe the strings and may not accept the grant because it forces them to change their state laws to the preferences of the national government.
Block grants contain much fewer strings, if any at all, and “are targeted for a broad functioning area, such as law enforcement or community development” (Nice and Frederickson, 54). States generally like block grants because their public policy often differs from the neighboring state as well as their needs. Block grants enable the state governments to tailor the use for the money to specific weaknesses within their system. For example, a block grant in State A may use the money to hire more police, while State M might use the money to purchase new equipment for the police. These grants often influence policy, but limit regulatory arguments.
Revenue-sharing grants are more flexible than block grants and thus are the most preferred by states. These funds may be used for whatever the state so chooses. Again, states differ in their public needs and revenue sharing does not constrict their spending power. A weakness of this type of grant is that states may create many arguments about what to use the grant for, and some may indeed waste the money. These grants most often create fungibility.
Some grants are distributed by a formula. For instance, education funding by the national government may be awarded to school districts based on attendance. So, if every child is worth $1,000 and the school has 100 students, then the school would receive $100,000. A weakness of this type of grant is that many schools are very rich in America and many schools are very poor. This type of revenue distribution may be the ice rink in the rich district and only pay for teachers in the poor district. The grant may be equal in distribution, but equality of conditions is absent.
Project grants come through legislation that makes funds available once recipients fill out an application form which demonstrates how the money will be spent. Today’s critics complain of the “Beltway Bandits”—those PhD think tanks inside the beltway of WashingtonD.C. whom immediately turn out proposal after proposal—usurping all the money for special interests. Here, the township in rural Michigan that really needs that money might not be aware of the grant or submit an incomplete proposal—one without pictures and graphs!
Closed-end grants set an amount of money that is available to recipients. Once the money has been awarded, the grant is closed. Open-ended grants, on the other hand, do not have a monetary cap and will grow as the number of recipients grows. So if the education grant of $1,000 per student is an open-ended grant, then any amount will be made available from year to year as the population expands. Open-ended grants create less conflict than closed-end grants.
The purposes of requiring matching funds are to ensure that the local or state government has a stake in the project and that the money will be used efficiently. The criticisms of requiring matching funds are that smaller or needier communities may not be able to generate the revenue necessary to fulfill the stipulated matching funds required to be eligible.
If I were the funding agency, I would prefer categorical grants, because I would want to be accountable to taxpayers for how I redistributed their wealth. If I was the recipient of grant funds, I would prefer revenue sharing, because the national government doesn’t have a clue as to my immediate needs that would create a robust and healthy community.
Indubitably, Reagan (Republican) favored block grants, and many Republicans see categorical grants as a method for the national government to radically increase its authority over states.