For months Senators Rick Santorum (R-PA) and Joe Lieberman (D-CT) have indicated willingness to work out a compromise with the White House on the President's proposed Faith Based Initiative. The issue stalled after the House passed its version (HR 7) last summer.

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HR 7 included a variety of controversial provisions around federal grants to faith-based organizations and very little in the way of tax incentives for charitable giving. (See the OMB Watch summary and analysis of HR 7). The Santorum-Lieberman compromise picked up steam in December as Congress was preparing to recess, but a deal did not get worked out.

Santorum, Lieberman and the White House have reached an agreement on a compromise that includes:
1.) tax incentives for giving,
2.) provisions for equal treatment of nongovernmental organizations that apply for federal grants,
3.) fast track processing by the IRS of applications for 501(c)(3) status by small organizations applying for federal funds, and
4.) funding for six new programs.

President Bush made an announcement about the agreement on February 7, and the bill (S. 1924) the Charity Aid, Recovery and Empowerment (CARE) Act was introduced February 8th. Below is a summary of the bill.

In December, it appeared that the faith-based compromise would be tied to the economic stimulus bill or a tax bill that might move. Now that the economic stimulus bill appears dead, it likely means that the faith-based initiative would move on its own. Even if it passes in the Senate in a version comparable to the compromise, it will likely face a conference with the House unless the House chooses to adopt the Senate version.

While the bill has not been officially "scored" by the Joint Committee on Taxation yet, it is expected to cost between $11-13 billion, wich the charitable giving tax incentives expected to account for $8-10 billion of the total cost.

I. TAX INCENTIVES FOR CHARITABLE GIVING

The main elements include:

• Charitable Deduction for Contributions by Nonitemizers: Allows taxpayers who do not itemize to deduct charitable contributions in 2002 and 2003. The cap on the amount that can be deducted is $400 ($800 for a couple);
• Deduction for Charitable Gifts from IRS Rollovers: Allows individuals 67 and older to donate money tax free from Individual Retirement Accounts to 501(c)(3) organizaitons;
• The ceiling on corporate charitable deductions would be raised for 2002 and 2003. In 2002 it would go from 10% to 13% of taxable income; in 2003 it would go to 15%. In 2004 and thereafter, it would revert to 10%;
• Incentives for donations of food and book inventories during 2002 and 2003;
• Lower excise taxes on private foundations from 2% to 1% for 2002 and 2003 (and permanently in certain cases);
• For 2002 and 2003, broadening of what scientific property used for research can be counted as a charitable contributions as well as what computer technology and equipment used for education purposes can be counted;
• Individual Development Accounts, which is added to the bill as a separate title called Savings for Working Families Act of 2002;
• Miscellaneous provisions on trusts and S Corporations

II. EQUAL TREATMENT FOR NGOs IN FEDERAL GRANT PROCESS

Rather than extend "charitable choice" as included in welfare reform and the Community Services Block Grant Program, the compromise prohibits discrimination against nongovernmental organizations (NGOs) applying for federal funds on the basis of:

• Prior grant experience
• Religious criteria for membership on board of directors
• Presence of religious symbols and art or religious references in the organization's name
• Mission statements that contain religious language.

Subgrantees and subcontractors would also have to abide by these provisions.

The bill applies to federal social service programs which are defined as "services directed at helping people in need, reducing poverty, improving outcomes of low-income children, revitalizing low-income communities, and empowering low-income families and low-income individuals to become self-sufficient." The bill lists a broad range of services, such as transportation, child care, job training, delivery of meals, health support, juvenile delinquency and substance abuse, housing assistance, and literacy programs. It specifically excludes assistance under the Elementary and Secondary Education Act and the Higher Education Act.

The law would allow grant applicants that feel their rights under this bill are violated to sue the federal agency or state or local government administering a grant for injunctive relief. The draft does not specify what would happen to programs (and people that need services) if a court froze funds while a suit is pending.

Presumably any federal grantee must still comply with federal grant rules, which would preclude the use of federal funds for religious activity.

3. EZ PASS RECOGNITION OF 501(C)(3) STATUS

The bill directs the Treasury Department to adopt procedures for expedited consideration of Form 1023 applications for recognition of charitable status for groups that:

• Have social services as their primary purpose;
• Have applied for a federal grant for social services;
• Must have 501(c)(3) status in order to obtain the federal grant;
• Have the grant application included with the tax exemption application; and
• Meets other criteria established by the Treasury Secretary.

The organization may obtain a fee waiver if it certifies that it has had $50,000 or less in revenue during the preceding 4 years.

4. NEW PROGRAMS: COMPASSION CAPITAL FUNDS, AND GROUP HOMES FOR UNWED MOTHERS

Compassion Capital Fund

The bill provides for separate Compassionate Capital Funds for the Department of Health and Human Service (HHS), Department of Housing and Urban Development (HUD), Department of Justice Justice (DOJ) and the Corporation for National and Community Service (CNCS). The primary difference between the provisions is the amounts authorized for FY 2003, which are:

For FY 2004-2007 the bill authorizes such funds "as may be necessary." No Community Based Organization can get more than one grant for the same purpose.

For each agency the Secretary is authorized to award grants/cooperative agreements with nongovernmental organizations to:

• Provide technical assistance for community based organizations, which can include grant writing and management, incorporation and tax exempt status applications and referrals to NGOs with legal, accounting or other relevant expertise;
• Provide information and assistance to community based organizations on capacity building, best practices for delivery of social services and regional organizations that strengthen capacity of CBOs;
• Assist with replicating social services programs that have proven effective, and
• Research on best practices of social service organizations.

"Community based organizations" are defined as nonprofits with no more than 6 employees involved in social service delivery or having an annual budget of less than $450,000. In addition, HHS may award seed money to states and localities for the creation of state or local of faith-based and community initiatives.

Other Programs

The bill modifies the Social Services Block Grant to limit to 10% the amount of the block grant that can be used for state programs, and it restores funds to SSBG (draft versions would have increased funding over 10 years, but the final bill only increases funding for 2 years). The bill also expands how Runaway and Homeless Youth funds can be used to include groups homes the provide support to young mothers and their children, and also provides for an evaluation of these Maternity Group Homes.