A federal grant is a form of monetary assistance given to an individual or group from the government. In the U.S., federal grants may only be given to carry out public purposes of support as authorized by national law. Federal grants do not directly benefit the government. The U.S. has 26 federal agencies that offer over 1,000 different grant programs. In other countries, governments use subsidies or private charities to fund projects that require these grants.
A federal government grant can further be classified as competitive or formula. A competitive grant, or project grant, is one which several groups are vying for because the amount of money is limited. A group of peer reviewers makes the decision by scoring applications and assigning the one with the highest number of points the grant. A formula grant does not involve competition with other groups; the government simply distributes formula grants based on set standards. An application must be completed and submitted to the government, upon receipt of which the government hands out the grant.
A few additional types of federal grants include categorical, block and earmark grants. Categorical grants have restrictions and dictate that the free federal grants must only be spent on projects or causes that fall within certain categories. Groups who receive categorical grants are often asked to match a set amount of the grant awarded. About a third of categorical grants are formula grants, so since most of these grants are awarded competitively, the restrictions make sense.
Block grants are similar to categorical grants, except they are lumped together in one category. Even though the money can only be used for projects within one category, those who receive block grants have fewer restrictions on the use of the money than categorical grant recipients. All block grants awarded are formula grants. Earmark grants are regulated by the U.S. Congress and are controversial for their steep involvement in politics. They are not given out competitively; instead, political lobbyists pay high prices to receive them.