Not all federal grants are created equal. Mandatory grants and discretionary grants each come with separate sets of rules and criteria. In this blog article, we highlight some of the key features and differences of each and provide you with examples of these programs.
Mandatory grants come from spending that is dictated by the legislation that authorizes it. Mandatory spending exists mostly in the form of “entitlement” spending, which means the government is legally required to provide funds to eligible organizations. This spending can be “capped” or “uncapped” and be made by direct or annual appropriation. Uncapped spending costs are determined by the number of eligible participants, such as Medicaid and Supplemental Nutrition Assistance Program (SNAP).
Discretionary grants come from spending that is determined through the government’s annual appropriations process. These grants include block grants, which have fixed funding for general purposes and are distributed to states by a formula, and categorical grants, which have a more specifically defined purpose. Formula grants, a type of discretionary grant, are non-competitive and are predetermined by a formula that considers various factors such as population, income, etc. Project grants are competitive and require fixed project dates, services to provide, and other additional elements.
Being competitive, project grants allow applicants, to write proposals directly to the government agency with the funds. One example in the transportation realm is the TIGER grant, via which the U.S. Department of Transportation (USDOT) has funded over $4 billion in projects since 2009.
The USDOT has number of formula grants as well, including the Rural Program, part of the MAP-21 legislation. With these grants, money is made available to the states to support public transportation in rural areas. To access these funds, cities need to work with their state departments of transportation.
Discretionary programs receive funding through a two-step process. First a program is created by enactment of legislation, which specifies the maximum amount of to be spent on such funding. Next, the program is funded through an appropriations process. It is possible that programs would have been previously funded but will “run out” of funding if it is not renewed or currently authorized. Examples of discretionary grant programs include Community Services Block Grant, Community Health Centers, Head Start, etc.
Does the type of funding matter? It certainly can. Most mandatory grant programs are exempt from sequestration and budget cuts, although they do require an authorization. Furthermore, organizations cannot apply for grants directly from mandatory programs. In the case of a government shutdown, mandatory programs will continue, provided that their authorization is current. Discretionary programs can continue without receiving authorization, but the budget for these programs is set each year by Congress. Formula grants are usually channeled through state departments, so working with the state is critical to obtaining formula funds. Project grants are open, and organizations can apply for them directly to the federal government with a grant proposal.
It is good to know how funding is awarded and made available. When counting on federal dollars as a part of your program’s or project’s budget, it might be helpful to consider whether or not those dollars will always be there or whether they will be at the mercy of Congress and/or yearly budget cuts made by your state. If you need help sorting through the types of grants and requirements for which you are interested in applying, please contact us. Our experts would be happy to help you get on the right track and avoid any unwelcome surprises.
Image credit: Oregon Department of Transportation