Federal grants are funded by Congress through the annual appropriations process. Just over 60% of federal spending is "non-discretionary."
This type of spending is for programs like Social Security, whose annual costs are already determined by law based on the number of people served and their eligibility.
The remaining percentage is "discretionary." This includes areas like defense or education funding, for which the spending is set each year by Congress.
Discretionary spending requires a two-part process. It is created or "authorized" in one bill, and then the actual money is "appropriated" in another bill. Most grant programs are discretionary.
Congress expects funds to be used in the fiscal year for which they are appropriated. The federal fiscal year runs from October 1 to September 30.
While federal departments administer and distribute grant funds, usually through a grant competition, these programs must adhere to the purposes identified by Congress
Congress must enact annual appropriations bills before the beginning of the each fiscal year or provide temporary funding through a "continuing resolution" or "CR."
Sometimes, Congress will combine several appropriations bills at the end of the year and pass them all together as an "omnibus."
How the process works
An appropriations bill is introduced by Members of the House and Senate and hearings are held in committee.
Appropriations bills fall under under the House and Senate Appropriations Committees. These committees are divided into smaller sub-committees that oversee specific departments, such as Defense or Homeland Security.
Committees amend the bills and vote on them and then they are voted on by the full House and Senate. If passed, the bill is sent to the President to sign or veto.
Unlike other legislation, the appropriations process generally follows an annual timeline. The House begins the process with the Appropriations Committee holding extensive hearings on each spending bill. The Senate starts later.
Hearings begin in the House usually in March, soon after the President submits a budget to Congress.
After the President signs the bill, agencies review the new law, make the regulatory changes mandated by Congress, and begin allocating funds to programs and projects, including grant programs, referenced in the law.
Grants to the States
The majority of federal grant funds are distributed to the states that then disburse the funds to entities within their borders. Each state may choose a different method to distribute funds.
For example, a state government may distribute funds to entities by formula based on regional population. Others states may open competitive grant competitions to decide which entities get funds.
For this reason, it’s important to know the State Administering Agency (SAA) that oversees funds pertaining to your organization to know how the state will distribute funds it receives from the federal government.