There are three general forms of federal grants to local and state governments. They include the unfunded mandate, block grants, and categorical grants. Block grants are huge grants offered by the federal government to local or state governments for general purpose use. Block grants can be utilized just for a uniquely aided program set and they are normally unlimited to activities that are narrowly defined. An unfunded mandate is the federal obligations requiring the others to do tasks for state or local government for which they do not have funds for. Categorical grants can be employed just for an explicitly aided program and they are normally limited to activities that are narrowly defined.
Categorical grants can be further categorized into four groups that include open-end reimbursement, project, formula-project, and formula categorical grants. Project categorical grants are given on a competitive basis via an application process detailed by the federal agency creating the grant. Formula categorical grants are distributed among recipients based on factors identified in enabling administrative or legislation regulations such as poverty, population, per capita income, and median household income. Formula-project categorical grants employ a mixture of means of fund allocation, characteristically involving the employment of a formula definite in permitting administrative or legislation regulations to assign accessible funds among states. Open-end reimbursement categorical grants offer reimbursement of a unique recipient program costs proportion, eliminating recipients’ competition and the essential for allocation formula (FAS, 2019). Federalism refers to a power division between the individual state government and the federal government. Fiscal federalism implies that federal funding is assigned to the state with unique conditions attached. Block grant demonstrates fiscal federalism by being implemented toward a specific goal. Categorical grans ensure fiscal federalism by assigning federal grant to a specific activity based on set criteria. Unfunded mandate demonstrates fiscal federalism by adhering to the set conditions.
Preferred State and Federal Funding Mechanism
The preferred state funding mechanism is block grants funding mechanism. This is because the mechanism involves the release of a huge amount of money without narrowly defined obligations. This means the state has the obligation of allocating the money to a specific purpose. With this freedom, the state can choose the issues it wishes to address first or to allocate more funds, unlike in other mechanisms where the money is released for the specific operation and a follow up is done to ensure the money was only used for that specific purpose. On the other hand, the federal government prefers categorical grants. This is because these are grants allocated for a specific task and must be used to accomplish the designated obligation. In this regard, it is easy for the federal government to monitor their use and to demand accountability from the state government. The amount used on each purpose is known and the chances of diverting the money to other activities are nil. Therefore, the federal government prefers this form of funding than block funding where it is hard to dictate on the use (Tollestrup, 2016).