What’s the Difference Between a Competitive and Formula Grant? And Why Should You Care?

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Federal grants come in lots of forms. Two of the most common are competitive and formula grants.

The difference is straightforward, but it’s an important distinction for nonprofits to make when looking at grant opportunities.

What’s the difference between a competitive grant and a formula grant?

A competitive grant is awarded based on the merits of your application. A wide variety of entities, including nonprofits, higher education institutions, K-12 schools, occasionally small businesses, and more, are usually eligible.

Competitive grants are discretionary, which means they don’t have to be awarded. If the granting agency doesn’t like any of the proposals, it is not legally obligated to award a grant at all.  

Formula grants are awarded to support larger programs. Think Medicaid or TANF. The formula is determined by a legislative body, so funds must be awarded according to the approved statistical formula. Matching funds are often required.

Formula grants are always awarded to states, local governments, territories, tribal governments or other types of governmental entities. Depending on the program, the awardee may be able to pass some of the money on to other entities, such as nonprofits, schools, universities and colleges and more.

Do states apply for formula grants?

The best answer is “sometimes.” The federal government doesn’t always announce formula grants or open an application process. Oftentimes, the feds just give formula dollars directly to states. (This happened a lot with COVID-19 relief.)

However, some programs require states to ask for the money.

With these programs, states, territories and tribal governments must prove they have the means to meet the societal need the grant funds are meant to address. These entities must follow a very complicated set of rules to ensure they stay in grant compliance.

Hybrid infrastructure grants

The federal government is rolling out $1.2 trillion in spending as part of the Bipartisan Infrastructure Law of which $470 billion is going to states and local governments. Of that amount, 38% or $180 billion will be awarded on a competitive basis. Think of these hybrid grants – they are formula-based grants, but states must outline how they will spend the money before it’s awarded.  

That means states and other governing bodies will compete for the money. Population, number of bridges or miles of streets won’t be the only stats used to divvy up the money. Instead, the federal departments of transportation, agriculture, energy and the interior will also consider the strength of state’s applications when awarding money.

For example, the Broadband Equity, Access, and Deployment (BEAD) Program requires states to submit detailed action plans to get some of the $42.5 billion in allocated funding. Additionally, the National Electric Vehicle Infrastructure Formula Program requires states to develop action plans that detail how they will how and where they will install charging infrastructure.

Why does this matter to nonprofits?

With many formula grants, states and governing bodies just sit back and wait to receive the money from Uncle Sam. Since they’ll be competing for some of the infrastructure dollars, states will be looking to strengthen their applications.

That means they’ll be seeking partnerships with nonprofits, NGOs, businesses and more to strengthen their proposed program.

The takeaway? Don’t overlook these infrastructure formula grants.

While nonprofits generally aren't eligible to apply, you may benefit from passthrough dollars. Here are some practical things to do.

  • Seek out opportunities to partner with state agencies that need your expertise and service delivery.
  • Forge relationships at the state and local level to position your nonprofit to benefit from infrastructure grants.
  • Network appropriately so your organization immediately comes to mind when an agency needs partner organizations.
  • Follow state and local organization on social media, subscribe to newsletters and read new media stories to get an idea of what state agencies are up to.

This is a long-term strategy. Don’t expect immediate results. But by finding ways to capitalize on formula grants, may position your nonprofit to win competitive grants when they become available.

Position your nonprofit for success

Make sure your organization is ready for success with any type of grant. Our educational e-books are a great place to start getting grant ready. Check them out and use code SPRING to receive a 25% discount.




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