Federal grants given to state governments for things like the construction of new schools or highway construction and repair are examples of categorical grants. Categorical grants are intended for specific things and are typically accompanied by a set of specific requirements for use.
There are two primary categories of grants that are available through the federal government in the United States: block grants and categorical grants. Categorical grant funds are often granted by the United States Congress. These grants are most frequently given to state governments to complete specific projects, such as infrastructure improvements like maintenance repairs on interstate highway bridges. Because this type of grant usually comes with a set of restrictions and has a specifically stated purpose, it is most useful for the completion of specific, predetermined projects.
Categorical grants can be further split into two categories: project grants and formula grants. Project grants are those categorical grants that are funded for the completion of specific projects, like the repaving of major roads. Formula grants are grants that are given to the states by the federal government in amounts based on mathematical formulas designed to make these grants fair and equitable for each recipient state. For example, if a formula grant takes population into account, highly populated states like California and New York will receive more funding than less populated states like South Dakota.