Certified Government Financial Manager (CGFM) Practice Exam 2025 – Your All-in-One Guide to Exam Success!

Formula grants are a type of federal funding that is allocated to states and local governments based on predetermined criteria or formulas established by law. The two primary types of formula grants are categorical grants and block grants.

Categorical grants are designed for specific purposes and come with strict regulations and guidelines on how the funds must be used. This specificity allows the federal government to direct funds for particular projects or programs (e.g., education, health, or transportation).

Block grants, on the other hand, provide recipients with more flexibility in how they use the funds. These grants are typically aimed at broad policy areas, allowing state and local governments to allocate the resources according to their specific needs within that area.

This distinction between categorical and block grants is fundamental in understanding how federal funding operates, as it impacts the level of control and flexibility that states and local governments have over the funding received.