- Block grants are given to state and local governments by the federal government. The funds from each block grant must be used to address a general issue set forth in the grant, such as drug-abuse prevention or homelessness. The grant recipient can decide when and how to spend the grant money as long as it is used in a way that addresses the problem specified in the grant. This includes distributing the money to local businesses and nonprofits that play a role in correcting the problem, making block grants a favorite among such nongovernmental organizations.
- Proponents of block grants contend that the flexibility afforded by the grants allows money to be used more effectively than categorical grant money, because recipients can use the money where it is needed most. They also say that block grants prevent funds from accumulating where they're not needed while other budget needs go unaddressed.
- Opponents of block grants say that recipients take advantage of the flexibility, often diverting money to other areas or reducing funding to the intended area so that the grant money makes no difference. Block grant funding often decreases over time, resulting in less overall funding in problem areas. In other instances, the federal government begins attaching spending directives to the money, ultimately turning the funding into a categorical grant.
- Categorical grants, like block grants, are provided to state and local governments by the federal government. However, categorical grants come with strict spending directives that tell recipients how and when the money must be spent. Additionally, recipients are sometimes required to match a portion of the grant funds. There are two types of categorical grants, known as project and formula grants. Project grants are distributed to recipients based upon the merits of the projects they submit. Formula grants, by contrast, are available to all state and local governments, in varying amounts, based upon a formula that accounts for such factors as population and unemployment rates.
- Proponents of categorical grants say that requiring recipients to match funds prevents state and local governments from defunding programs after receiving the grant money. In some instances, this results in an increase in overall funding for programs. In other instances, it helps prevent the decreases in funding typically seen over time with block grants.
- Those opposed to categorical grants argue that the restrictions attached to the grants often prevent the money from being used where it is needed. Opponents say that money becomes stockpiled in reserve accounts while other budget areas are left in need. Those in opposition also protest the fact that recipients must sometimes match the grant funds, saying that this can prevent those who most need such grant money from getting it.
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