A formula grant is a type of mandatory grant that is awarded based on statistical criteria for specific types of work. The authorizing legislation and regulations define these statistical criteria and the amount of funds to be distributed. So, the term “formula” refers to the way the grant funding is allocated to recipients.
Medicaid is an example of a formula grant. Per legislation, there is an open-ended matching formula in which the federal government provides matching funds to state governments for all activities that fall within Medicaid coverage. So long as regulations are followed and the services are provided in compliance, the states receive the output of the formula (i.e., the matching grant funds).
Different than Other Grants
Formula grants are much different than discretionary grants, in which organizations (and sometimes individuals) submit applications for a competitive review and selection process. Formula grants, in contrast, are noncompetitive.
The formula has been set by legislation and regulations, so funds must be awarded per that formula. Additionally, formula grants are generally for U.S. state, local, or territory governments rather than for private organizations; individuals do not directly receive formula grants.
What Are the Formulas?
The formula is different for every program, so you will need to research the different government agency websites and authorizing legislation. Just so you know, though, the formulas are much more complicated than x + y = z.
For example, the Office of Juvenile Justice and Delinquency Prevention (OJJDP) manages a Formula Grants Program, which was authorized by the Juvenile Justice and Delinquency Prevention Act of 2002. The main purpose is to support state and local delinquency prevention and intervention efforts. Within this one formula grant program, there are 4 core requirements and 35 program areas where state governments may use the grant funds.
Here are just three basic elements of the formula:
- Formula grant funds are allocated to the states based on the proportionate population younger than age 18
- State governments must use two-thirds of the formula grant funds to award pass-through funds to local agencies to implement the programs
- Noncompliance in one of the 4 core requirements can lead to a 20% reduction in funding the next year
This example is meant to illustrate the complexity of formula grants and to show how federal formula grants make an impact on the local level. This is not an exhaustive coverage of OJJDP formula grants. Please refer to the links above (or right here) for more detailed info from OJJDP.
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