34 C.F.R. § 76.51
A State distributes funds by formula or competition
If applicable statutes and regulations authorize a State to make subgrants, the statute:
(a) Requires the State to use a formula to distribute funds;
(b) Gives the State discretion to select subgrantees through a competition among the applicants or through some other procedure; or
(c) Allows some combination of these procedures.