Which type of grant is characterized by federal funds distributed based on specific formulas?

The classification of grants based on how federal funds are distributed is important in understanding the funding landscape in governmental finance. A formula grant is specifically designed to allocate funds according to a predefined formula set by federal guidelines. This formula often considers factors like population size, income levels, or specific needs of the state or local government, ensuring a systematic and equitable distribution of resources based on measurable criteria.

In contrast, project grants provide funds for specific projects or programs but do not follow a predetermined formula, which means the allocation can vary widely based on project proposals or merit. Categorical grants are similar in that they are designated for specific purposes, but like project grants, they also do not rely on a formula for distribution; rather, they are often awarded based on application processes. Block grants provide general funds to state or local governments, allowing flexibility in how the funds are used, which also diverges from the formula-based approach. Each of these other grant types serves different needs and objectives, but only formula grants utilize specific criteria for fund distribution.