In December the Department of Health and Human Services (HHS) released proposed rules on “equal treatment” of faith-based organizations competing for grants in the Temporary Assistance to Families in Need (TANF), Community Service Block Grant (CSBG) and Substance Abuse and Mental Health Services Administration (SAMHSA) programs. The public comment period ended last week, with OMB Watch filing comments calling for stronger financial and programmatic accountability rules and opposing rules that allow discrimination against program beneficiaries and employees based on religion. Read the full text of the comments. The OMB Watch comments also “noted that these regulations propose to increase competition for federal funding at a time of diminishing federal financial commitment to our nation's social safety net. This is a cause of grave concern to us, and to the people served by the nonprofit community. Shifting diminishing funds from one provider to another through increased grant competition will not expand the reach of services.” OMB Watch supported the goal of equal treatment, but said the proposed rules fail to “distinguish between discrimination and application of special rules required to protect the character of religious organizations, make grants to them consistent with the Establishment Clause, and guard the religious freedom of program recipients. Such special rules address financial and programmatic separation of religious and government activities and make funding houses of worship possible. They do not constitute discrimination.” Other key points in the comments are that:

• All federal grantees – faith-based and secular – must qualify as a tax-exempt organization under 501(c)(3) of the Internal Revenue Code, and must file annual publicly available tax returns (i.e., IRS Form 990).
• All federal grantees – faith-based and secular – must comply with accounting standards established in OMB Circulars A-122 and A-133 in order to insure that no federal funds are used for unallowable religious activity and that larger grants will trigger a single-entity audit.
• The increased use of intermediaries to redistribute federal funds necessitates improved accountability standards. These include a requirement for intermediary tracking and reporting on the use of re-granted funds. It also requires subgrantees to follow the same accountability standards.
• More specific guidance is needed to ensure that government funded services do not contain religious content or are not presented in a religious context, and that program beneficiaries are not subjected to religious indoctrination.
• The use of indirect funding (e.g., vouchers) is not a “free and independent choice” that should allow accountability principles to be dropped. In other words, indirect funding should not become a back door approach to allow the commingling of federal funds with religious activity.
• Faith-based and secular grantees must face high standards and be treated equally. For example, the acceptance of federal funds should require all recipients to practice non-discrimination in hiring as it relates to those funds. Rules should not favor religious congregations that cannot separate their religious character, when, in fact, such organizations can establish affiliated organizations that meet required standards of independence.
• The proposed rules interchangeably use the terms “religious organizations” and “faith-based organizations” without definition. They should provide definitions and note that faith-based organizations have been receiving federal funding – both directly and as subgrantees – for many years, complying with existing accountability standards. The new rules seem to be directed to religious congregations and should be so noted.
• The requirement that state and local governments must provide access to alternative providers if TANF participants object to the religious character of federally funded providers is ill-conceived. The opt-out provision is nearly unworkable. Moreover, the proposed rule creates an unfunded mandate on state or local governments to pay for the creation of new secular services and, at a minimum, is subject to Section 202 of the Unfunded Mandates Reform Act of 1995, which requires a budgetary impact statement.

Read the full text of the comments.