[Federal Register Volume 68, Number 189 (Tuesday, September 30, 2003)]
[Rules and Regulations]
[Pages 56396-56408]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-24326]



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Part IV





Department of Housing and Urban Development





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24 CFR Part 92 et al.



Participation in HUD Programs by Faith-Based Organizations; Providing 
for Equal Treatment of all HUD Program Participants; Final Rule

  Federal Register / Vol. 68, No. 189 / Tuesday, September 30, 2003 / 
Rules and Regulations  

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 92, 570, 572, 574, 576, 582, 583, and 585

[Docket No. FR-4782-F-02]
RIN 2501-AC89


Participation in HUD Programs by Faith-Based Organizations; 
Providing for Equal Treatment of all HUD Program Participants

AGENCY: Office of the Secretary, HUD.

ACTION: Final rule.

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SUMMARY: This final rule revises HUD regulations to remove barriers to 
the participation of faith-based organizations in certain HUD programs. 
In general, no group of applicants competing for HUD funds should be 
subject, as a matter of HUD's discretion, to greater or fewer 
requirements than other organizations solely because of their religious 
character or affiliation, or absence of religious character or 
affiliation. Applicants for HUD funds and those applicants selected to 
receive HUD funding should generally be subject to the same 
requirements. The purpose of the revisions made by this rule is to 
ensure that faith-based organizations are able to compete on an equal 
footing with other organizations for HUD funding. This final rule 
follows publication of a January 6, 2003, proposed rule and takes into 
consideration the public comments received on the proposed rule.

DATES: Effective Date: October 30, 2003.

FOR FURTHER INFORMATION CONTACT: Ryan Streeter, Director, Center for 
Faith-Based and Community Initiatives, Department of Housing and Urban 
Development, Room 10184, 451 Seventh Street, SW., Washington, DC 20410, 
telephone: (202) 708-2404 (this is not a toll-free number). Hearing- or 
speech-impaired individuals may access this telephone number through 
TTY by calling the toll-free Federal Information Relay Service at 1-
800-877-8339.
    For program specific information, contact the following offices in 
HUD's Office of Community Planning and Development: For the HOME 
Program and the HOPE for Homeownership of Single Family Homes (HOPE 3) 
Program, Virginia Sardone, Director, Program Policy Division, Office of 
Affordable Housing Programs, (202) 708-2864; for the Community 
Development Block Grants Program, Robert Duncan, Office of Block Grant 
Assistance, (202) 708-3587; and for the remaining programs, John 
Garrity, Office of Special Needs Assistance Programs, (202) 708-4300. 
(These numbers are not toll-free numbers.) Hearing- or speech-impaired 
individuals may access these telephone numbers through TTY by calling 
the toll-free Federal Information Relay Service at 1-800-877-8339.

SUPPLEMENTARY INFORMATION:

I. Background--The January 6, 2003, Proposed Rule

    On January 6, 2003 (68 FR 648), HUD published a proposed rule to 
amend certain HUD regulations that imposed (or appeared to impose) 
unwarranted barriers to the participation of faith-based organizations 
in HUD programs. HUD recognizes that faith-based organizations are an 
important part of the social services network of the United States, 
offering a multitude of social services to those in need. These 
organizations frequently have the experience that HUD seeks to 
administer social services to beneficiaries under HUD programs. 
Consistent with the President's Executive Order 13198 (Agency 
Responsibilities with Respect to Faith-Based and Community 
Initiatives), issued January 31, 2001 (66 FR 8497), HUD undertook a 
comprehensive review of its program requirements and regulations, 
particularly those that would be expected to attract interest and 
participation by nonprofit organizations. Executive Order 13198 
directed five agencies, including HUD, to undertake this review and to 
take steps to ensure that Federal policy and programs are fully open to 
faith-based community groups in a manner that is consistent with the 
Constitution.
    In response to the directive of the President's Executive Order, 
HUD identified regulations for eight programs administered by HUD's 
Office of Community Planning and Development that imposed (or appeared 
to impose) barriers to participation of faith-based organizations in 
these programs. HUD's proposed rule of January 6, 2003, was designed to 
eliminate these barriers and to ensure that these HUD programs are open 
to all qualified organizations, regardless of their religious 
character. The January 6, 2003, rule proposed to amend the regulations 
for the following HUD programs:
    1. HOME Investment Partnerships (24 CFR part 92);
    2. Community Development Block Grants (CDBG) (24 CFR part 570);
    3. Hope for Homeownership of Single Family Homes (HOPE 3) (24 CFR 
part 572) \1\
    4. Housing Opportunities for Persons With AIDS (HOPWA) (24 CFR part 
574);
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    \1\ Funds are no longer being appropriated for the HOPE 3 
program; however, the part 572 regulations remain in place to 
provide regulatory guidance to existing HOPE 3 grantees. The 
regulations in part 572 are included within the scope of this rule 
to reflect the regulatory revisions applicable to faith-based 
participation and ensure their consistency with the similar 
regulations in the other parts covered by this final rule.
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    5. Emergency Shelter Grants (ESG) (24 CFR part 576);
    6. Shelter Plus Care (24 CFR part 582);
    7. Supportive Housing (24 CFR part 583); and
    8. Youthbuild (24 CFR part 585).
    The January 6, 2003, rule proposed to amend each set of program 
regulations to achieve the following objectives:
    1. Clarify that organizations are eligible to participate in HUD 
programs without regard to their religious character or affiliation. 
The proposed amendments clarified that faith-based organizations are 
eligible to compete for funding on the same basis and under the same 
eligibility requirements as all other nonprofit organizations. The fact 
that an organization is a faith-based organization is not a basis for 
exclusion from a competition for HUD funds. The Federal government, as 
well as State and local governments administering funds under HUD 
programs, are prohibited from discriminating against organizations on 
the basis of religion or their religious character.
    2. Clearly delineate eligible and ineligible uses of HUD funds for 
all program participants. The proposed rule provided that eligible and 
ineligible uses of HUD funds are applicable to all recipients of HUD 
funds. The proposed rule provided that a recipient organization may not 
use direct HUD funds to support inherently religious activities, such 
as worship, religious instruction, or proselytization. If the 
participating organization engages in these activities, the activities 
must be offered separately, in time or location, from the programs or 
services directly funded with HUD assistance, and participation must be 
voluntary for the beneficiaries of the HUD-funded programs or services. 
This requirement ensures that HUD funds provided directly to any 
recipient are not used to support inherently religious activities. This 
restriction does not mean that an organization that receives HUD funds 
cannot engage in inherently religious activities. It means that an 
organization cannot pay for these activities with direct HUD funds.
    3. Clarify that faith-based organizations will retain their 
independence. The proposed rule clarified that a faith-based 
organization that participates in HUD programs will

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retain its independence and may continue to carry out its mission, 
including the practice and expression of its religious beliefs, 
provided that it does not use direct HUD funds to support any 
inherently religious activities, such as worship, religious 
instruction, or proselytization. Among other things, faith-based 
organizations may use space in their facilities to provide HUD-funded 
services, without removing religious art, icons, scriptures, or other 
religious symbols. In addition, a faith-based organization 
participating in a HUD program may retain religious terms in its 
organization's name, select its board members on a religious basis, and 
include religious references in its organization's mission statements 
and other governing documents.
    4. Emphasize that participating organizations cannot discriminate 
in providing assistance. The proposed rule clarified that an 
organization that participates in a HUD program shall not, in providing 
program assistance, discriminate against a program beneficiary or 
prospective program beneficiary on the basis of religion or religious 
belief. Accordingly, faith-based organizations, in providing services 
funded in whole or in part by HUD, may not discriminate against current 
or prospective program beneficiaries on the basis of religion or 
religious belief.
    5. Clarify that HUD funds may not be used for acquisition, 
construction, or rehabilitation of structures to the extent those 
structures are used for inherently religious activities. The proposed 
rule clarified that HUD funds may be used for the acquisition, 
construction, or rehabilitation of structures only to the extent that 
those structures are used for conducting eligible activities under the 
specific HUD program. Where a structure is used for both eligible and 
inherently religious activities, the proposed rule clarified that HUD 
funds may not exceed the cost of those portions of the acquisition, 
construction, or rehabilitation that are attributable to eligible 
activities.
    6. Remove additional assurance requirements imposed only on faith-
based organizations. The proposed rule removed those provisions of 
HUD's regulations that required only faith-based organizations to 
provide assurances that they would conduct eligible program activities 
in a manner that is ``free from religious influences.'' HUD imposes no 
comparable assurance requirements in any other context. HUD determined 
that it is inappropriate to require that only faith-based organizations 
submit additional assurances of compliance with program requirements 
above and beyond those that any other applicant or recipient is 
required to provide. All organizations that participate in HUD 
programs, including faith-based organizations, must carry out eligible 
activities in accordance with all program requirements and other 
applicable requirements governing the conduct of HUD-funded activities, 
including those prohibiting the use of direct HUD funds to engage in 
inherently religious activities. In addition, to the extent that HUD's 
regulations may have disqualified faith-based organizations or 
indicated that faith-based organizations could be disqualified from 
participating in HUD's programs because the organizations are motivated 
or influenced by religious faith to provide social services, the 
proposed rule clarified that this type of restriction is inconsistent 
with governing law.
    7. Clarify the inapplicability of Executive Order 11246 in the 
context of grants. The proposed rule amended the CDBG regulations to 
provide that Executive Order (E.O.) 11246 (Equal Employment 
Opportunity), regarding equal employment opportunity, and the 
implementing regulations issued by the Department of Labor at 41 CFR 
part 60, do not apply to CDBG grantees.

II. Significant Differences Between the January 6, 2003, Proposed Rule 
and This Final Rule

    This final rule follows publication of the January 6, 2003, 
proposed rule and takes into consideration the public comments received 
on the proposed rule. After consideration of the public comments, the 
significant changes made at the final rule stage are the following:
    1. Clarification of applicability of nondiscrimination 
requirements. Some public commenters questioned whether the rule would 
reverse or supersede the applicability to program participants of 
nondiscrimination requirements. To the extent that statutory 
nondiscrimination requirements applied to participants in the HUD 
programs that were the subject of the January 6, 2003, proposed rule, 
those statutory requirements continue to apply. They are not altered by 
this rule.
    2. Clarification of when HUD funds may be used for acquisition, 
construction, or rehabilitation of real property. The final rule 
clarifies that HUD funds may not be used for acquisition, construction, 
or rehabilitation of sanctuaries, chapels, or any other rooms that a 
religious congregation that is a recipient or subrecipient of HUD 
assistance uses as its principal place of worship. Separate rooms 
located in a structure that contain sanctuaries, chapels, or other 
rooms that a HUD-funded religious congregation uses as its principal 
place of worship, however, may qualify for such assistance to the 
extent that they are used for eligible, HUD-funded activities. This 
final rule also clarifies the rules governing disposition of HUD-
improved real property after the term of the grant and where there is a 
change in the use of the property. The following provide examples of 
application of the revised rule:
    Example 1. A one-room church applies for CDBG funds to make 
several necessary repairs. On Sunday morning, the church serves as a 
place for congregational worship. During weekdays, the church is 
used to operate a ``soup kitchen'' for homeless individuals. 
Accordingly, except for the few hours on Sunday morning when the 
church holds worship services, the one-room church is used for the 
purpose of providing meals to homeless individuals--a purpose that 
is eligible for HUD assistance. The one-room church is ineligible 
for CDBG-funded improvements because it is the congregation's 
principal place of worship.
    Example 2. A synagogue with several rooms applies for CDBG funds 
to make necessary repairs to its ``soup kitchen,'' which is operated 
from two rooms located within the synagogue basement. The 
congregation does not use these rooms as its principal place of 
worship; they are used exclusively for the ``soup kitchen.'' 
Accordingly, repairs to the two rooms are eligible for CDBG 
assistance.
    Example 3. A church applies for HUD funding to construct a 
homeless shelter, which will contain several rooms for use as a 
shelter as well as a one-room chapel to be used for weekly religious 
services and nightly prayer meetings. With the exception of the 
chapel, the homeless shelter will be used exclusively for eligible 
HUD-funded activities; no inherently religious activities, such as 
worship or religious instruction, will be conducted outside of the 
chapel. Homeless individuals staying at the shelter will be offered 
the opportunity to participate in the religious services, but 
attendance will be purely voluntary. HUD may assist the construction 
on a prorated basis, excluding the costs of the chapel.
    Example 4. A mosque purchases an abandoned church and applies 
for HUD funding to renovate it and use it as an elderly daycare 
center. The planned renovation will retain the existing exterior 
facade of the former church, including the stained-glass windows. No 
inherently religious activities will be conducted within the new 
daycare center. Although the proposed rehabilitation involves a 
building formerly used as a church, the entire renovation is 
eligible for HUD funding because the building will be used solely 
for eligible HUD activities.

    3. Clarification of Applicability of E.O. 11246. The proposed 
rule's exclusion of E.O. 11246 from the CDBG regulations was intended 
only to reflect the exemption of religious organizations from the 
religious nondiscrimination requirements of E.O. 11246, as provided in 
an amendment to E.O. 11246 by E.O.

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13279 (Equal Protection of the Laws for Faith-Based and Community 
Organizations), issued by President Bush on December 12, 2002. The 
final rule reinstates the reference to E.O. 11246 in the CDBG 
regulations, and includes the amendment to E.O. 11246 by E.O. 13279, 
thus making E.O. 11246, as amended, applicable to HUD grantees to the 
same extent that it would otherwise apply.
    4. Clarification regarding the commingling of funds. This final 
rule clarifies that if a State or local government voluntarily 
contributes its own funds to supplement federally funded activities, 
the State or local government has the option to segregate the Federal 
funds or commingle them. However, if the funds are commingled, the 
requirements of this final rule apply to all of the commingled funds.

III. Discussion of the Public Comments Received on the January 6, 2003, 
Proposed Rule

    The public comment period on the proposed rule closed on March 7, 
2003. HUD received 188 public comments on the proposed rule. Comments 
were received from members of Congress, faith-based organizations, 
public housing agencies (PHAs) and other State and local community 
development agencies (as well as the national organizations 
representing PHAs and these State and local agencies), advocates of 
low-income housing, organizations concerned about First Amendment 
issues, law firms, and other interested members of the public.
    Approximately eight commenters expressed support for the proposed 
rule, without reservation or request for change. The commenters 
commended HUD for issuing the proposed rule, writing that the changes 
``are long overdue.'' The commenters stated their belief that the 
regulatory changes proposed by HUD are consistent with constitutional 
principles, and that the ``proposed regulation not only eliminates 
unnecessary obstacles, but retains those restrictions necessary under 
the Establishment Clause.'' One of the commenters urged HUD to expand 
the scope of the proposed rule to include all HUD programs, and not to 
limit regulatory changes to the eight community development programs 
identified in the rule.
    The majority of commenters opposed the proposed rule or expressed 
strong reservations about the rule. The reasons for opposition or 
reservation varied. In some instances, these commenters supported the 
overall goals of the proposed rule, but were concerned about certain 
aspects of the proposal. The majority of the commenters expressed 
concern that the proposed regulatory changes would conflict with the 
Establishment Clause and related Supreme Court cases by authorizing 
Federal funding for churches and other ``pervasively sectarian 
organizations.'' Other commenters expressed concerns about the civil 
rights implication of the proposed rule, writing that the proposed 
changes would open the door to discriminatory practices by faith-based 
organizations. Other commenters objected to any Federal funding for 
faith-based organizations on policy grounds.
    The following sections of this preamble present a more detailed 
discussion of the most significant issues and concerns raised by the 
public commenters on the January 6, 2003, proposed rule and HUD's 
responses to these comments. The summary of the public comments is 
organized as follows:
    Section IV of this preamble discusses general comments on the 
proposed rule.
    Section V of this preamble discusses the comments regarding faith-
based activities.
    Section VI of this preamble discusses the comments regarding the 
use of religious art, icons, scriptures, and other religious symbols.
    Section VII of this preamble discusses the comments regarding 
nondiscrimination in providing assistance.
    Section VIII of this preamble discusses the comments regarding 
Executive Order 11246 and consideration of religion in employment 
decisions.
    Section IX of this preamble discusses the comments regarding 
structures used for religious activities.
    Section X of this preamble discusses the comments regarding the 
removal of the assurance requirements.

IV. General Comments

    Several commenters submitted comments on the proposed rule 
generally, and did not raise issues or questions about a specific 
regulatory change.
    Comment: Insufficient justification for the proposed rule. Several 
commenters disagreed that there are currently barriers that prevent 
participation of faith-based organizations in HUD's programs. The 
commenters wrote that faith-based organizations have been successfully 
competing for HUD funds for many years. Another commenter stated that 
the impetus for the rule appeared to be based on anecdotal evidence. 
The commenter suggested that if some faith-based organizations are 
experiencing participation difficulties in localities, HUD should 
address those situations on a case-by-case basis. Another commenter 
suggested that the rule is unnecessary because religious institutions 
already receive a large government subsidy through tax exemption.
    HUD Response. HUD disagrees with the statement that obstacles 
addressed in the proposed rule are based only on anecdotal evidence or 
that the appropriate method to resolve obstacles is on a case-by-case 
basis. In its own review of its regulations, HUD found barriers to 
faith-based organizations partnering with HUD. For example, under the 
previous rule, HOME program funds, which communities around the country 
use to construct affordable housing, may not be provided to faith-based 
organizations ``for any activity, including secular activities'' (See 
24 CFR 92.257). This final rule, therefore, is necessary to remove 
these regulatory barriers (whether intentional or unintentional when 
promulgated) and to ensure that all organizations are able to compete 
on an equal footing for Federal financial assistance, in a manner that 
is consistent with constitutional church-state requirements.
    Comment: Determination of legitimate faith-based organizations. 
Several commenters asked how HUD would determine which organizations 
are legitimate faith-based organizations. The commenters wrote that 
without guidance or a definition of faith-based organization, the 
Federal faith-based initiative would be a source of confusion and 
controversy for both recipients and subrecipients. One commenter 
recommended that HUD set minimum neutral standards for all eligible 
grantees, including faith-based organizations, such as a governing 
board requirement, a plan for public service programs approved by the 
governing board, and a certification of board responsibility for the 
programs that are open to the public. Another commenter wrote that the 
final rule should define the terms ``faith-based'' and ``religious'' 
organization based on the definition contained in the Internal Revenue 
Code.
    HUD Response. HUD declines to adopt these suggestions. One of the 
objectives of this rule is to move away from unnecessary Federal 
inquiry into the religious nature, or absence of religious nature, of 
an applicant for HUD funds. With respect to any applicant for HUD 
funds, HUD's focus should always be that (1) the applicant is an 
eligible applicant for a program, as ``eligible applicant'' is defined 
for that program; (2) the applicant meets any

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other eligibility criteria that the program may require; and (3) the 
applicant commits to undertake only eligible activities with HUD funds 
and abide by all program requirements that govern those funds.
    Comment: Assessment of management and fiscal capability of faith-
based organizations. Several commenters questioned how HUD would 
determine the management and fiscal capability of faith-based 
organizations. Some of the commenters asked whether faith-based 
organizations would be required to be nonprofits with section 501(c)(3) 
status under the Internal Revenue Code. These commenters wrote that 
many faith-based organizations have secured section 501(c)(3) status in 
order to receive government funding. The commenters wrote that 
obtaining and maintaining this status demonstrates a certain level of 
competence and fiscal accountability, and suggested that section 
501(c)(3) status be a requirement for participation in HUD programs. 
One commenter wrote that faith-based organizations should be explicitly 
required to comply with OMB Circulars A-122 and A-133 to ensure the 
degree of financial separation necessary to protect the ``wall'' 
between church and state. The commenter wrote that ``Federal cost 
principles are carefully designed to preclude passing any element of an 
unallowable cost (such as lobbying) through to the government. These 
cost principles also apply to Federal grant funds (except block grants) 
that are passed through State or Local governments, as well as any 
matching funds raised from non-governmental sources.''
    HUD Response. As noted in the response to the preceding comment, 
faith-based organizations participating in HUD programs must generally 
meet the same criteria as all other applicants for HUD funds. These 
criteria help to ensure that Federal dollars are allocated only to 
those program providers with sufficient administrative and financial 
controls to properly administer the Federal funds. The purpose of this 
rule is to ensure that HUD is not imposing greater requirements on 
faith-based organizations because they are faith-based organizations. 
For example, if regulations for a HUD program require participating 
nonprofit organizations to have section 501(c)(3) status, then all 
participating organizations must have this status to receive HUD funds. 
If there is no section 501(c)(3) requirement imposed on nonprofit 
organizations by the HUD regulation, HUD is not going to impose this 
requirement on faith-based organizations simply because they are faith-
based organizations. Similarly, if the program regulations require 
grant recipients to comply with OMB cost accounting circulars, then all 
grantees, including grantees that are faith-based organizations, must 
comply with these circulars. If the program regulations, however, 
provide for other cost accounting procedures, then the grantees, 
including faith-based grantees, need comply only with the specified 
cost accounting procedures.
    Comment: Difficulty in overseeing and enforcing compliance with 
regulations by faith-based organizations. Several commenters wrote that 
the monitoring and enforcement of faith-based organizations would be 
administratively burdensome, and raise the constitutionally troubling 
prospect of excessive government oversight of religious activity. The 
commenters raised concerns about the enforceability of the rule as a 
whole, but some commenters focused on the provisions authorizing the 
acquisition, construction, and rehabilitation of religious structures. 
One of these commenters wrote: ``Allowing HUD and religious 
organizations to split the cost of building a facility (yet barring the 
use of such a facility for religious activity) will cause HUD and the 
religious organization to enter into what is, at best, unseemly 
negotiations as to what counts as religious activity or not.'' The 
commenters urged that HUD provide guidance on the monitoring and 
enforcement of the new requirements and consider the use of mandatory 
training sessions as part of this guidance.
    HUD Response. The enforcement of HUD regulations does not increase 
because some program participants are faith-based organizations. HUD 
has a responsibility to monitor all program participants to ensure that 
HUD funds (taxpayer funds) are used in accordance with HUD program and 
any government-wide requirements. Inappropriate use of HUD funds or 
failure to comply with HUD program requirements is not a possibility 
that arises only when program participants are faith-based 
organizations. Nonprofit organizations generally obtain funds for their 
social service purposes from several sources, not just HUD or the 
Federal government. Failure of a nonprofit organization (or any 
grantee) to ensure that the Federal portion of their funds is not used 
for non-Federal purposes or prohibited purposes (such as lobbying) will 
result in the imposition of sanctions or penalties on the organization. 
Violations of HUD program requirements can be committed by all types of 
program participants. All HUD program participants must carefully 
manage their various sources of Federal funds and abide by OMB cost 
accounting circulars, where applicable, or other cost accounting 
methods that may be specified in individual program regulations. 
Moreover, any inherently religious activities would be non-HUD 
activities, so the normal monitoring procedures would not require HUD 
to distinguish between religious and nonreligious ineligible activities 
and would more than suffice to address the commenters' concerns. 
Therefore, HUD does not see the need for additional requirements or 
guidance in this area.

V. Comments Regarding Inherently Religious Activities

    Comment: Define the term ``inherently religious activities.'' 
Several commenters requested a definition of ``inherently religious 
activities.'' The commenters wrote that while a definition need not be 
exhaustive of all possible inherently religious activities, the final 
rule should provide a list of activities that are clearly ineligible. 
Another commenter suggested that HUD should retain the current wording 
used in the regulations, which refers to activities being ``free from 
religious influences'' and/or ``entirely for secular purposes.''
    HUD Response. The final rule specifies that inherently religious 
activities include ``worship, religious instruction, or 
proselytization.'' As the commenters themselves note, it would be 
difficult to establish an acceptable list of all inherently religious 
activities. Inevitably, the regulatory definition would fail to include 
some inherently religious activities or include certain activities that 
are not inherently religious. Rather than attempt to establish an 
exhaustive regulatory definition, this final rule retains the language 
of the proposed rule, which provides examples of the general types of 
activities that are prohibited by the regulations. This approach is 
consistent with Supreme Court precedent, which likewise has not 
comprehensively defined inherently religious activities. For example, 
prayer and worship are inherently religious, but social services do not 
become inherently religious merely because they are conducted by 
individuals who are religiously motivated to undertake them or view the 
activities as a form of ``ministry.'' If HUD determines that additional 
guidance is needed regarding specific activities that are ``inherently 
religious,'' HUD will provide this guidance.
    Comment: Clarify the term ``separation in time or location.'' 
Several commenters requested that HUD clarify

[[Page 56400]]

the separation ``in time or location'' restriction. The commenters 
wrote that the vagueness of the current language would lead to 
confusion among service providers. Some commenters offered suggestions 
for how the language could be clarified. For example, one commenter 
wrote that the rule should provide that the term ``separation in time 
or location'' means that clients must be allowed the opportunity to not 
participate in religious activities in a meaningful manner such that 
they do not have to hear or see the inherently religious activities. 
Another commenter wrote that greater clarity could be provided by 
specifying that religious activities must be separated by both time and 
location. Yet another commenter wrote that the final rule could more 
clearly define ``time'' by providing guidelines on an acceptable length 
of time between activities, such as 15 or 30 minutes.
    HUD Response. HUD declines to adopt the suggestions raised by the 
commenters. HUD does not believe that the separation of time or 
location requirement is ambiguous and necessitates additional 
regulation for proper adherence. HUD believes that existing regulations 
and this rule are clear that faith-based organizations, using direct 
Federal funds for certain activities, must separate their inherently 
religious activities from the federally funded activities. HUD believes 
that a common sense approach to this regulation supported by HUD 
guidance, not a detailed regulatory approach, is the better one. For 
example, suppose that a community center is used for adult education in 
the evening, and that one of the organizations participating in the 
adult education initiative provides classes in English proficiency. The 
organization cannot use the English language class as a means of 
providing inherently religious instruction. The religious study class 
has to be provided in another classroom or building (separate in 
location) or at another time (if the same classroom is to be used). 
Concerning the recommendation that inherently religious activities be 
separated from HUD-funded activities by both time and location, HUD 
believes that this is legally unnecessary and that it would impose an 
unnecessarily harsh burden on small faith-based organizations, which 
may have access to only one location that is suitable for the provision 
of HUD-funded services.
    Comment: Restrict activities that are ``inherently infused with 
religious doctrine.'' Two commenters wrote that there might be services 
provided to clients that are not inherently religious activities, but 
that are inherently infused with religious doctrine. For example, case 
management services by counselors could be infused with religious 
teachings and doctrine. The commenters wrote that the final rule should 
prohibit any services that are infused with religious doctrine.
    HUD Response. HUD believes that existing HUD regulations and this 
rule are sufficiently explicit that direct HUD funds may not be used 
for religious proselytization. Program participants cannot use 
supportive services directly funded by HUD, such as counseling, to 
serve as a format for proselytization. This is a violation of program 
requirements, and the program participant that violates the prohibition 
on proselytization will be subject to applicable sanctions and 
penalties. No additional regulatory changes are required.
    Comment: Ensure the availability of secular alternative service 
providers. Several commenters wrote that HUD should clarify that 
beneficiaries have the right to receive services from a different or 
non-religious provider, and that the beneficiaries be informed of this 
right by the faith-based provider. Some commenters suggested that a 
list of alternative service providers be in place and distributed to 
all beneficiaries or potential beneficiaries. Other commenters 
suggested that HUD ensure that funding be made available to a variety 
of providers within a service area to ensure that secular alternatives 
are viable, appropriate, and available. The commenters wrote that 
without reasonable secular alternatives, beneficiaries might be forced 
to participate in programs provided by faith-based organizations where 
they may be required to participate in religious activity in order to 
receive essential government-funded benefits.
    HUD Response. HUD declines to adopt the recommendations of the 
commenters. Under this rule, no beneficiary served by a HUD-funded 
provider directly funded by HUD will be required to participate in 
inherently religious activities as a condition of receiving services. 
The commenters' recommendations run counter to the objectives that HUD 
is trying to achieve through this rule. HUD's general objective is to 
eliminate barriers to faith-based organizations, to welcome their 
participation in HUD programs, and most important, to ensure they are 
treated like other program participants. To develop a list that 
highlights which HUD program providers may be faith-based organizations 
and which are not, would defeat the ``neutrality'' objective sought by 
this rulemaking.

VI. Comments Regarding Religious Art, Icons, Scriptures, and Other 
Religious Symbols

    Comment: Use of religious art or icons should not be permitted. 
Several commenters wrote that the use of religious art or icons can 
constitute a subtle but powerful form of proselytization or may be 
offensive to some persons. The commenters suggested that HUD prohibit 
the use of rooms or other space for providing HUD-funded services 
unless such items have been removed. Two commenters wrote that although 
a faith-based organization should not be required to remove icons from 
an existing chapel or chapel annex if they are used for providing HUD-
funded services, the organization should not be permitted to have 
religious icons in the common area or the individual units of a HUD-
funded shelter or housing project, or other HUD-funded space that is 
not also used for inherently religious activities.
    HUD Response. HUD declines to impose this restriction on HUD 
program participants that are faith-based organizations. A number of 
Federal statutes affirm the principle embodied in this rule. (See, 
e.g., 42 U.S.C. 290kk-1(d)(2)(B).) For no other program participant do 
HUD regulations prescribe the types of artwork, statues, or icons that 
may be placed within or without the structures or rooms in which HUD-
funded services are provided. A prohibition on the use of religious 
icons would make it more difficult for many faith-based organizations 
to participate in the program than other organizations, and would thus 
be an inappropriate and excessive restriction, typical of the types of 
regulatory barriers that this final rule seeks to eliminate. Consistent 
with constitutional church-state guidelines, a faith-based organization 
that participates in HUD programs will retain its independence and may 
continue to carry out its mission, provided that it does not use direct 
HUD funds to support any inherently religious activities. Accordingly, 
this final rule continues to provide that faith-based organizations may 
use space in their facilities to provide HUD-funded services, without 
removing religious art, icons, scriptures, or other religious symbols.

VII. Comments Regarding Nondiscrimination in Providing Assistance

    Comment: Include a more explicit statement prohibiting faith-based 
organizations from requiring program beneficiaries to participate in 
religious

[[Page 56401]]

activities. Two commenters wrote that HUD should strengthen the 
provisions of the rule specifying that participation by a beneficiary 
in religious activities offered by a faith-based service provider is 
voluntary, and that the faith-based organization may not discriminate 
against a prospective beneficiary for refusing to participate in such 
activities. The commenters wrote that while the preamble to the 
proposed rule provides that a religious organization may not 
discriminate based on ``refusal to actively participate in a religious 
service,'' the regulatory text only prohibits discrimination on the 
basis of ``religion or religious belief.'' The commenters suggested 
that the regulatory text should be revised to track the stronger 
language of the preamble. The commenters, however, objected to the use 
of the word ``actively'' in this preamble language and urged that HUD 
clarify that faith-based organizations may not discriminate against 
clients who refuse to participate in religious activities--whether 
actively or passively.
    HUD Response. HUD believes that the language in the rule 
prohibiting faith-based organizations from requiring program 
beneficiaries to participate in religious activities is sufficiently 
explicit. A prohibition on discrimination against beneficiaries on the 
basis of religion or religious belief is straightforward and requires 
no further elaboration.
    Comment: Require fair housing training for staff of HUD-funded 
faith-based organizations. Require faith-based organizations to 
advertise HUD-funded services in a manner that welcomes all 
beneficiaries. Two commenters wrote that training of Fair Housing Act 
requirements is vital to ensure that the employees of faith-based 
organizations understand their responsibility to provide housing 
services free from discrimination. Two commenters stated that the final 
rule should require faith-based organizations to advertise HUD-funded 
services in a manner that welcomes all beneficiaries, regardless of 
religious persuasion. Another commenter stated that HUD's rule should 
prohibit organizations participating in HUD-funded programs from 
discussing religious beliefs with prospective beneficiaries.
    HUD Response. HUD believes that its existing regulations and this 
rule are clear that HUD program participants cannot discriminate in 
providing services to beneficiaries on the basis of their religious 
belief, or the absence of such belief. With respect to fair housing 
training and advertising standards, HUD declines to impose requirements 
on faith-based organizations participating in HUD programs that are not 
imposed on all program participants.
    Comment: Nondiscrimination provisions fail to properly take into 
account the distinction between ``direct'' and ``indirect'' assistance 
appearing elsewhere in the proposed rule. One commenter wrote that 
where the assistance is indirect, a faith-based organization, 
consistent with the Establishment Clause, may require beneficiaries to 
participate in its religious program.
    HUD Response. This rule does not subject religious organizations 
that receive HUD funds as the result of a genuine and independent 
choice of a beneficiary--for example, where the entity administering 
HUD funds has established a voucher, coupon, certificate, or similar 
funding mechanism--to the restrictions on inherently religious 
activities that apply to organizations directly funded by HUD. This 
rule does not, therefore, prohibit ``indirectly funded'' organizations 
from offering assistance that integrates faith and social services and 
requires participation in all aspects of their programs. As noted in 
section II of the preamble to this final rule, however, the proposed 
rule did not offer amendments to any nondiscrimination provisions of 
existing statutes. Thus, to the extent that such statutes restrict the 
activities of indirectly funded organizations, those restrictions 
remain in effect. Accordingly, the statute that applies to each program 
should be reviewed for the scope of its applicability.

VIII. Comments Regarding Executive Order 11246 and Religion as a Factor 
in Employment Decisions

    This final rule clarifies the applicability of E.O. 11246 to the 
CDBG regulations, and includes the amendment of E.O. 11246 by E.O. 
13279. E.O. 13279, issued by the President on December 12, 2002, allows 
a government contractor or subcontractor that is a religious 
organization, corporation, association, educational institution, or 
society to take religion into consideration in the employment of 
individuals to perform work connected with the carrying on by such 
corporation, association, educational institution, or society of its 
activities. Such contractors and subcontractors are not exempt or 
excused from complying with the other requirements contained in 
Executive Order 11246. Thus, E.O. 11246, as amended, is applicable to 
HUD grantees to the same extent that it would otherwise apply.
    Comment: HUD's rationale for eliminating compliance with E.O. 11246 
is flawed. Several comments advised that HUD's approach to E.O. 11246 
was flawed.
    HUD Response. As discussed earlier in this preamble, the final rule 
clarifies the applicability of E.O. 11246 as amended, to the same 
extent that it would otherwise apply.
    Comment: Do not permit faith-based organizations to consider 
religion in employment decisions. Rule should prohibit employment 
discrimination on the basis of sexual orientation. Several of the 
commenters wrote that the final rule should expressly prohibit 
discrimination against any employee or applicant for employment on the 
basis of religion. Other commenters wrote that faith-based 
organizations and other secular organizations may be generally able to 
discriminate on the basis of sexual orientation or gender identity 
because there does not currently exist a Federal law prohibiting this 
discrimination.
    HUD Response. The purpose of this rulemaking is to eliminate 
barriers that HUD has imposed administratively to the participation of 
faith-based organizations in HUD programs. The purpose of this rule is 
not to establish nondiscrimination requirements or to alter existing 
nondiscrimination requirements. Current requirements of statute or 
Executive Order apply to HUD programs to the same extent that they 
applied under the prior rule.
    Comment: Clarify that any equal employment opportunity exemption is 
consistent with Title VII. Several commenters suggested that HUD 
clarify that any exemption to the employment nondiscrimination 
requirements contained in the rule is consistent with the exemption 
provided by Title VII, and does not constitute a blanket exemption of 
equal employment opportunity. The commenters wrote that, under Title 
VII, religious organizations are allowed to employ individuals of a 
particular religion to perform the work of the religious organization, 
but are not exempt with respect to any other type of discrimination.
    HUD Response. Again, it was not HUD's objective in this rulemaking 
to revise program requirements imposed by statute. HUD's objective in 
this rulemaking was to identify program requirements, imposed by HUD 
through rulemaking as a matter of administrative discretion, that 
constitute unwarranted barriers to the participation of faith-based 
organizations in HUD programs. As noted earlier in this preamble, 
existing nondiscrimination

[[Page 56402]]

requirements are not altered by this rule.
    Comment: Faith-based organizations should be required to abide by 
State and local civil rights laws. Several commenters wrote that HUD 
should clarify that the rule will not preempt State and local laws 
regarding the funding of faith-based organizations, including civil 
rights statutes governing employment nondiscrimination. The commenters 
wrote that some States and localities have stringent laws regarding the 
funding of faith-based groups with Federal, State, and local funds, and 
that it is unclear whether the proposed rule, as written, would preempt 
these laws that have been in effect for decades.
    HUD Response. The requirements that govern funding under the HUD 
programs at issue in these regulations do not raise a question of 
preemption of State or local laws. Federal funds, however, carry 
Federal requirements. No organization is required to apply for funding 
under these programs, but organizations that apply and are selected for 
funding must comply with the requirements applicable to the program 
funds. As noted above in this preamble, language has been added to the 
rule clarifying that if a State or local government voluntarily 
contributes its own funds to supplement federally funded activities, 
the State or local government has the option to segregate the Federal 
funds or commingle them; however, if the funds are commingled, these 
regulations apply to all of the commingled funds.

IX. Comments Regarding Structures Used for Religious Purposes

    As noted in section II of the preamble to this final rule, the 
final rule clarifies this requirement by stating that HUD funds may not 
be used for acquisition, construction, or rehabilitation of 
sanctuaries, chapels, or any other rooms that a religious congregation 
that is a recipient or subrecipient of HUD assistance uses as its 
principal place of worship. This final rule also clarifies the rules 
governing disposition of HUD-improved real property after the term of 
the grant and where there is a change in the use of the property.
    Comment: Government funding for religious structures is 
unconstitutional. Several commenters objected to the use of any HUD 
funds in the acquisition, construction, or rehabilitation of religious 
structures. The objection to this proposal included the comment that 
the proposed ``attribution'' requirements would be unenforceable by 
State and local agencies administering the HUD grant, and are contrary 
to Supreme Court decisions that prohibit spending government funds on 
structures that are not exclusively secular in their use. Other 
comments offered that, even if the proposed rule could be effectively 
enforced, it would require such excessive monitoring as to constitute 
excessive government entanglement with religious institutions. The 
commenters wrote that HUD would need to establish effective safeguards 
to avoid the perceived constitutional pitfalls.
    Other comments stated that nothing in the rule would prevent a 
faith-based organization from converting a HUD-funded portion of a 
structure for religious use at some future date. The overall concern 
expressed by these commenters was that these provisions would 
inevitably lead to the unconstitutional government funding of religion. 
One of the commenters wrote that, under governing legal precedent, 
public funds may be used by religious institutions for capital 
improvements only when the structures are wholly limited to secular 
use. Other commenters suggested that HUD require that the HUD-funded 
portions of a structure be used for secular purposes for the life of 
the building. Several commenters suggested that HUD establish 
procedures for recapturing the Federal assistance if the HUD-funded 
portion of the structure is ever used for a religious purpose.
    HUD Response. In the preamble to this final rule, HUD previously 
addressed the issue of monitoring and enforcement. HUD finds no basis 
for requiring greater oversight and monitoring of faith-based 
organizations than other program participants simply because they are 
faith-based organizations. All program participants must be monitored 
for compliance with program requirements, and no program participant 
may use HUD funds for any ineligible activity, whether that activity is 
an inherently religious activity or a nonreligious activity that is 
outside the scope of the program at issue. Many nonreligious 
organizations participating in HUD programs also receive funding from 
several sources (private sources, State, or local sources) to carry out 
activities that are ineligible for funding under HUD programs. In many 
cases, the non-eligible activities are secular activities but not 
activities eligible for funding under HUD programs. All program 
participants receiving funding from various sources and carrying out a 
wide range of activities must ensure through proper accounting 
principles that each set of funds is applied only to the activities for 
which the funding was provided. The regulations for the programs 
prescribe the cost accounting procedures that are to be followed in 
using HUD funds.
    With respect to structures, HUD believes that the prorated funding 
of improvements to a structure that has a mixed use--both religious and 
nonreligious--is not itself a violation of the Constitution. In a 
neutral program in which the government directly funds the capital 
improvements of institutions that administer Federal social welfare 
programs, the government need only put in place safeguards to ensure 
that public money is not used to finance inherently religious 
activities. The proposed rule satisfied this requirement by prohibiting 
the use of HUD funds for the acquisition, construction, or 
rehabilitation of structures to the extent that those structures are 
used for inherently religious activities--a prohibition that is 
enforced by generally applicable cost-accounting standards carefully 
designed to ensure that HUD monies are not used to support any 
ineligible activity. Therefore, the final rule's prohibition on the 
funding of capital improvements for sanctuaries, chapels, or any other 
rooms that a religious congregation that is a recipient or subrecipient 
of HUD assistance uses as its principal place of worship simply 
provides extra assurance that HUD-funded capital improvements will not 
be used to support inherently religious activities, and HUD's rule is 
well within the bounds of the Constitution.
    HUD disagrees with those who commented that preventing the use of 
direct HUD capital-improvement funds for inherently religious 
activities would necessarily fail or, in the process, excessively 
entangle the government in the affairs of recipients or subrecipients 
that are religious organizations. As to the question whether limiting 
HUD funding to eligible, nonreligious activities is possible, it merits 
emphasis that HUD must generally perform the very same cost-accounting 
functions to all organizations. Because inherently religious activities 
are non-HUD activities, HUD need not distinguish between program 
participants' religious and nonreligious non-HUD activities; the same 
mechanism by which HUD polices the line between ineligible and eligible 
activities will serve to exclude inherently religious activities from 
funding. This system of monitoring is more than sufficient to address 
the commenters' concerns, and the amount of oversight of religious 
organizations necessary to accomplish these purposes is no greater than 
that involved in other publicly funded programs that the Supreme Court 
has sustained.

[[Page 56403]]

    With respect to the concern about the funding of capital 
improvements for religious structures that are later converted to non-
HUD uses, the final rule clarifies that disposition of HUD-improved 
property after the term of grants to religious organizations, and 
changes in the use of property improved for use by religious 
organizations, are subject to government-wide regulations governing 
real property disposition. HUD has regulations (see 24 CFR parts 84 and 
85) that address the terms under which such grantees must use the 
property for eligible activities, and the terms under which federally 
funded improvements must be ``bought back'' if such grantees decide to 
discontinue their involvement in the program.

X. Comments Regarding the Removal of Assurance Requirements

    Comment: HUD should not remove the assurance requirements. Several 
commenters wrote that by removing the assurance requirements, HUD is 
condoning religious influences and activities in HUD-funded programs. 
The commenters wrote that the Federal government has rightly recognized 
that faith-based organizations are unique in their mission and require 
unique assurances. The commenters disagreed with HUD's rationale for 
removing the requirements, writing that HUD requires many 
certifications and assurances that grantees will comply with various 
laws and regulations. The commenters wrote that retaining this 
assurance would not be inconsistent with requiring other assurances of 
compliance with laws and regulations. Two commenters agreed that it is 
unfair to apply the assurance requirement only to faith-based 
organizations, and suggested that rather than eliminating the 
requirement, HUD should make it applicable to all grantees.
    HUD Response. The final rule remains unchanged from the proposed 
rule on this matter. Additional assurances, such as those that are 
being removed by this rule, only perpetuate, and unfairly so, a 
presumption that program requirements applicable to all program 
participants are insufficient to bind faith-based organizations, and 
additional requirements and assurances must be imposed on these 
organizations. No additional requirements are needed.
    In issuing this rule, HUD's general approach is that faith-based 
organizations are not a category of applicants or program participants 
that require additional requirements or additional oversight in order 
to ensure compliance with program regulations. In issuing this rule, 
HUD's approach is that faith-based organizations well understand that 
inherently religious activities cannot be undertaken with Federal 
funding and must remain separate from federally funded activities, and 
no additional requirements are necessary. The requirements for use of 
funds under a HUD program apply to, and are binding on, all HUD program 
participants.

XI. Findings and Certifications

Regulatory Planning and Review

    The Office of Management and Budget (OMB) reviewed this rule under 
Executive Order 12866, Regulatory Planning and Review. OMB determined 
that this rule is a ``significant regulatory action'' as defined in 
section 3(f) of the Order (although not an economically significant 
regulatory action under the Order). Any changes made to the rule as a 
result of that review are identified in the docket file, which is 
available for public inspection in the Regulations Division, Room 
10276, 451 Seventh Street, SW., Washington, DC 20410-0500.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 
1531-1538) establishes requirements for Federal agencies to assess the 
effects of their regulatory actions on State, local, and tribal 
governments and the private sector. This final rule does not impose any 
Federal mandates on any State, local, or tribal governments or the 
private sector within the meaning of Unfunded Mandates Reform Act of 
1995.

Executive Order 13132, Federalism

    Executive Order 13132, Federalism, requires that Federal agencies 
consult with State and local governments in the development of 
regulatory policies with federalism implications. Consistent with 
Executive Order 13132, HUD specifically solicited comment from State 
and local government officials on the January 6, 2003, proposed rule, 
and no comments from these entities were submitted that raised 
federalism concerns.

Environmental Impact

    A Finding of No Significant Impact with respect to the environment 
was made at the proposed rule stage, in accordance with HUD regulations 
at 24 CFR part 50, which implement section 102(2)(C) of the National 
Environmental Policy Act of 1969 (42 U.S.C. 4332). That Finding remains 
applicable to this final rule and is available for public inspection 
between the hours of 7:30 a.m. and 5:30 p.m. weekdays in the 
Regulations Division, Office of General Counsel, Room 10276, Department 
of Housing and Urban Development, 451 Seventh Street, SW., Washington, 
DC 20410-0500.

Impact on Small Entities

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)) has reviewed and approved this final rule and in so 
doing certifies that this rule will not have a significant economic 
impact on a substantial number of small entities. The final rule will 
not impose any new costs, or modify existing costs, applicable to HUD 
grantees. Rather, the purpose of the final rule is to remove regulatory 
prohibitions that currently restrict the equal participation of faith-
based organizations (large and small) in HUD's programs.

Catalog of Federal Domestic Assistance Numbers

    The Catalog of Federal Domestic Assistance numbers for the programs 
affected by this rule are 14.218, 14.219, 14.225, 14.227, 14.228, 
14.231, 14.235, 14.237, 14.238, 14.239, 14.241, 14.243, 14.246, 14.248, 
14.512, 14.514, and 14.515.

List of Subjects

24 CFR Part 92

    Administrative practice and procedure, Grant programs--housing and 
community development, Grant programs--Indians, Indians, Low and 
moderate income housing, Manufactured homes, Rent subsidies, Reporting 
and recordkeeping requirements.

24 CFR Part 570

    Administrative practice and procedure, American Samoa, Community 
development block grants, Grant programs--education, Grant programs--
housing and community development, Guam, Indians, Lead poisoning, Loan 
programs--housing and community development, Low and moderate income 
housing, New communities, Northern Mariana Islands, Pacific Islands 
trust territory, Pockets of poverty, Puerto Rico, Reporting and 
recordkeeping requirements, Small cities, Student aid, Virgin Islands.

24 CFR Part 572

    Condominiums, Cooperatives, Fair housing, Government property, 
Grant programs--housing and community development, Low and moderate 
income housing, Nonprofit organizations, Reporting and recordkeeping 
requirements.

[[Page 56404]]

24 CFR Part 574

    AIDS/HIV, Community facilities, Disabled, Grant programs--health 
programs, Grant programs--housing and community development, Grant 
programs--social programs, Homeless, Housing, Low and moderate income 
housing, Nonprofit organizations, Rent subsidies, Reporting and 
recordkeeping requirements, Technical assistance.

24 CFR Part 576

    Community facilities, Emergency shelter grants, Grant programs--
housing and community development, Grant programs--social programs, 
Homeless, Reporting and recordkeeping requirements.

24 CFR Part 582

    Homeless, Rent subsidies, Reporting and recordkeeping requirements.

24 CFR Part 583

    Homeless, Rent subsidies, Reporting and recordkeeping requirements.

24 CFR Part 585

    Grant programs--housing and community development, Homeless, Low 
and very low-income families, Reporting and recordkeeping requirements, 
Homeless, Housing, Low and moderate income housing, Nonprofit 
organizations, Rent subsidies, Reporting and recordkeeping 
requirements, Technical assistance.

0
For the reasons stated in the preamble, HUD amends title 24 of the Code 
of Federal Regulations as follows:

PART 92--HOME INVESTMENT PARTNERSHIPS PROGRAM

0
1. The authority citation for 24 CFR part 92 continues to read as 
follows:

    Authority: 42 U.S.C. 3535(d) and 12701-12839.


0
2. Revise Sec.  92.257 to read as follows:


Sec.  92.257  Faith-based activities.

    (a) Organizations that are religious or faith-based are eligible, 
on the same basis as any other organization, to participate in the HOME 
program. Neither the Federal government nor a State or local government 
receiving funds under HOME programs shall discriminate against an 
organization on the basis of the organization's religious character or 
affiliation.
    (b) Organizations that are directly funded under the HOME program 
may not engage in inherently religious activities, such as worship, 
religious instruction, or proselytization, as part of the assistance 
funded under this part. If an organization conducts such activities, 
the activities must be offered separately, in time or location, from 
the assistance funded under this part, and participation must be 
voluntary for the beneficiaries of the assistance provided.
    (c) A religious organization that participates in the HOME program 
will retain its independence from Federal, State, and local 
governments, and may continue to carry out its mission, including the 
definition, practice, and expression of its religious beliefs, provided 
that it does not use direct HOME funds to support any inherently 
religious activities, such as worship, religious instruction, or 
proselytization. Among other things, faith-based organizations may use 
space in their facilities, without removing religious art, icons, 
scriptures, or other religious symbols. In addition, a HOME-funded 
religious organization retains its authority over its internal 
governance, and it may retain religious terms in its organization's 
name, select its board members on a religious basis, and include 
religious references in its organization's mission statements and other 
governing documents.
    (d) An organization that participates in the HOME program shall 
not, in providing program assistance, discriminate against a program 
beneficiary or prospective program beneficiary on the basis of religion 
or religious belief.
    (e) HOME funds may not be used for the acquisition, construction, 
or rehabilitation of structures to the extent that those structures are 
used for inherently religious activities. HOME funds may be used for 
the acquisition, construction, or rehabilitation of structures only to 
the extent that those structures are used for conducting eligible 
activities under this part. Where a structure is used for both eligible 
and inherently religious activities, HOME funds may not exceed the cost 
of those portions of the acquisition, construction, or rehabilitation 
that are attributable to eligible activities in accordance with the 
cost accounting requirements applicable to HOME funds in this part. 
Sanctuaries, chapels, or other rooms that a HOME-funded religious 
congregation uses as its principal place of worship, however, are 
ineligible for HOME-funded improvements. Disposition of real property 
after the term of the grant, or any change in use of the property 
during the term of the grant, is subject to government-wide regulations 
governing real property disposition (see 24 CFR parts 84 and 85).
    (f) If a state or local government voluntarily contributes its own 
funds to supplement federally funded activities, the State or local 
government has the option to segregate the Federal funds or commingle 
them. However, if the funds are commingled, this section applies to all 
of the commingled funds.


Sec.  92.504  [Amended]

0
3. In Sec.  92.504, remove paragraph (c)(3)(x) and redesignate 
paragraph (c)(3)(xi) as paragraph (c)(3)(x).

PART 570--COMMUNITY DEVELOPMENT BLOCK GRANTS

0
4. The authority citation for 24 CFR part 570 continues to read as 
follows:

    Authority: 42 U.S.C. 3535(d) and 5301-5320.

0
5. Revise Sec.  570.200(j) to read as follows:


Sec.  570.200  General policies.

* * * * *
    (j) Faith-based activities. (1) Organizations that are religious or 
faith-based are eligible, on the same basis as any other organization, 
to participate in the CDBG program. Neither the Federal government nor 
a State or local government receiving funds under CDBG programs shall 
discriminate against an organization on the basis of the organization's 
religious character or affiliation.
    (2) Organizations that are directly funded under the CDBG program 
may not engage in inherently religious activities, such as worship, 
religious instruction, or proselytization, as part of the programs or 
services funded under this part. If an organization conducts such 
activities, the activities must be offered separately, in time or 
location, from the programs or services funded under this part, and 
participation must be voluntary for the beneficiaries of the HUD-funded 
programs or services.
    (3) A religious organization that participates in the CDBG program 
will retain its independence from Federal, State, and local 
governments, and may continue to carry out its mission, including the 
definition, practice, and expression of its religious beliefs, provided 
that it does not use direct CDBG funds to support any inherently 
religious activities, such as worship, religious instruction, or 
proselytization. Among other things, faith-based organizations may use 
space in their facilities to provide CDBG-funded services, without 
removing religious art, icons, scriptures, or other religious symbols. 
In addition, a CDBG-funded religious organization retains its authority 
over its internal governance, and it may retain religious terms in its 
organization's name, select its board members on a religious basis, and

[[Page 56405]]

include religious references in its organization's mission statements 
and other governing documents.
    (4) An organization that participates in the CDBG program shall 
not, in providing program assistance, discriminate against a program 
beneficiary or prospective program beneficiary on the basis of religion 
or religious belief.
    (5) CDBG funds may not be used for the acquisition, construction, 
or rehabilitation of structures to the extent that those structures are 
used for inherently religious activities. CDBG funds may be used for 
the acquisition, construction, or rehabilitation of structures only to 
the extent that those structures are used for conducting eligible 
activities under this part. Where a structure is used for both eligible 
and inherently religious activities, CDBG funds may not exceed the cost 
of those portions of the acquisition, construction, or rehabilitation 
that are attributable to eligible activities in accordance with the 
cost accounting requirements applicable to CDBG funds in this part. 
Sanctuaries, chapels, or other rooms that a CDBG-funded religious 
congregation uses as its principal place of worship, however, are 
ineligible for CDBG-funded improvements. Disposition of real property 
after the term of the grant, or any change in use of the property 
during the term of the grant, is subject to government-wide regulations 
governing real property disposition (see 24 CFR parts 84 and 85).
    (6) If a State or local government voluntarily contributes its own 
funds to supplement federally funded activities, the State or local 
government has the option to segregate the Federal funds or commingle 
them. However, if the funds are commingled, this section applies to all 
of the commingled funds.


Sec.  570.503  [Amended]

0
6. Amend Sec.  570.503 as follows:
0
a. Remove paragraph (b)(6);
0
b. Redesignate paragraphs (b)(7) and (b)(8) as paragraphs (b)(6) and 
(b)(7), respectively; and
0
c. In newly designated paragraph (b)(7)(ii), replace all references to 
``paragraph (b)(8)(i) of this section'' with ``paragraph (b)(7)(i) of 
this section.''
0
7. Revise Sec.  570.607 to read as follows:

Sec.  570.607  Employment and contracting opportunities.

    To the extent that they are otherwise applicable, grantees shall 
comply with:
    (a) Executive Order 11246, as amended by Executive Orders 11375, 
11478, 12086, and 12107 (3 CFR 1964-1965 Comp. p. 339; 3 CFR, 1966-1970 
Comp., p. 684; 3 CFR, 1966-1970., p. 803; 3 CFR, 1978 Comp., p. 230; 3 
CFR, 1978 Comp., p. 264 (Equal Employment Opportunity), and Executive 
Order 13279 (Equal Protection of the Laws for Faith-Based and Community 
Organizations), 67 FR 77141, 3 CFR, 2002 Comp., p. 258; and the 
implementing regulations at 41 CFR chapter 60; and
    (b) Section 3 of the Housing and Urban Development Act of 1968 (12 
U.S.C. 1701u) and implementing regulations at 24 CFR part 135.

PART 572--HOPE FOR HOMEOWNERSHIP OF SINGLE FAMILY HOMES PROGRAM 
(HOPE 3)

0
8. The authority citation for 24 CFR part 572 continues to read as 
follows:

    Authority: 42 U.S.C. 3535(d) and 12891.


0
9. Revise Sec.  572.405(d) to read as follows:


Sec.  572.405  Nondiscrimination and equal opportunity requirements.

* * * * *
    (d) Faith-based activities. (1) Organizations that are religious or 
faith-based are eligible, on the same basis as any other organization, 
to participate in the HOPE 3 program. Neither the Federal government 
nor a State or local government receiving funds under HOPE 3 programs 
shall discriminate against an organization on the basis of the 
organization's religious character or affiliation.
    (2) Organizations that are directly funded under the HOPE 3 program 
may not engage in inherently religious activities, such as worship, 
religious instruction, or proselytization, as part of the programs or 
services funded under this part. If an organization conducts such 
activities, the activities must be offered separately, in time or 
location, from the programs or services funded under this part, and 
participation must be voluntary for the beneficiaries of the HUD-funded 
programs or services.
    (3) A religious organization that participates in the HOPE 3 
program will retain its independence from Federal, State, and local 
governments, and may continue to carry out its mission, including the 
definition, practice, and expression of its religious beliefs, provided 
that it does not use direct HOPE 3 funds to support any inherently 
religious activities, such as worship, religious instruction, or 
proselytization. Among other things, faith-based organizations may use 
space in their facilities to provide HOPE 3-funded services, without 
removing religious art, icons, scriptures, or other religious symbols. 
In addition, a HOPE 3-funded religious organization retains its 
authority over its internal governance, and it may retain religious 
terms in its organization's name, select its board members on a 
religious basis, and include religious references in its organization's 
mission statements and other governing documents.
    (4) An organization that participates in the HOPE 3 program shall 
not, in providing program assistance, discriminate against a program 
beneficiary or prospective program beneficiary on the basis of religion 
or religious belief.
    (5) HOPE 3 funds may not be used for the acquisition, construction, 
or rehabilitation of structures to the extent that those structures are 
used for inherently religious activities. HOPE 3 funds may be used for 
the acquisition, construction, or rehabilitation of structures only to 
the extent that those structures are used for conducting eligible 
activities under this part. Where a structure is used for both eligible 
and inherently religious activities, HOPE 3 funds may not exceed the 
cost of those portions of the acquisition, construction, or 
rehabilitation that are attributable to eligible activities in 
accordance with the cost accounting requirements applicable to HOPE 3 
funds in this part. Sanctuaries, chapels, or other rooms that a HOPE 3-
funded religious congregation uses as its principal place of worship, 
however, are ineligible for HOPE 3-funded improvements. Disposition of 
real property after the term of the grant, or any change in use of the 
property during the term of the grant, is subject to government-wide 
regulations governing real property disposition (see 24 CFR parts 84 
and 85).
    (6) If a State or local government voluntarily contributes its own 
funds to supplement federally funded activities, the State or local 
government has the option to segregate the Federal funds or commingle 
them. However, if the funds are commingled, this section applies to all 
of the commingled funds.

PART 574--HOUSING OPPORTUNITIES FOR PERSONS WITH AIDS

0
10. The authority citation for 24 CFR part 574 continues to read as 
follows:

    Authority: 42 U.S.C. 3535(d) and 12901-12912.


0
11. Revise Sec.  574.300(c) to read as follows:


Sec.  574.300  Eligible activities.

* * * * *
    (c) Faith-based activities. (1) Organizations that are religious or 
faith-

[[Page 56406]]

based are eligible, on the same basis as any other organization, to 
participate in the HOPWA program. Neither the Federal government nor a 
State or local government receiving funds under HOPWA programs shall 
discriminate against an organization on the basis of the organization's 
religious character or affiliation.
    (2) Organizations that are directly funded under the HOPWA program 
may not engage in inherently religious activities, such as worship, 
religious instruction, or proselytization, as part of the programs or 
services funded under this part. If an organization conducts such 
activities, the activities must be offered separately, in time or 
location, from the programs or services funded under this part, and 
participation must be voluntary for the beneficiaries of the HUD-funded 
programs or services.
    (3) An organization that participates in the HOPWA program will 
retain its independence from Federal, State, and local governments, and 
may continue to carry out its mission, including the definition, 
practice, and expression of its religious beliefs, provided that it 
does not use direct HOPWA funds to support any inherently religious 
activities, such as worship, religious instruction, or proselytization. 
Among other things, faith-based organizations may use space in their 
facilities to provide HOPWA-funded services, without removing religious 
art, icons, scriptures, or other religious symbols. In addition, a 
HOPWA-funded religious organization retains its authority over its 
internal governance, and it may retain religious terms in its 
organization's name, select its board members on a religious basis, and 
include religious references in its organization's mission statements 
and other governing documents.
    (4) An organization that participates in the HOPWA program shall 
not, in providing program assistance, discriminate against a program 
beneficiary or prospective program beneficiary on the basis of religion 
or religious belief.
    (5) HOPWA funds may not be used for the acquisition, construction, 
or rehabilitation of structures to the extent that those structures are 
used for inherently religious activities. HOPWA funds may be used for 
the acquisition, construction, or rehabilitation of structures only to 
the extent that those structures are used for conducting eligible 
activities under this part. Where a structure is used for both eligible 
and inherently religious activities, HOPWA funds may not exceed the 
cost of those portions of the acquisition, construction, or 
rehabilitation that are attributable to eligible activities in 
accordance with the cost accounting requirements applicable to HOPWA 
funds in this part. Sanctuaries, chapels, or other rooms that a HOPWA-
funded religious congregation uses as its principal place of worship, 
however, are ineligible for HOPWA-funded improvements. Disposition of 
real property after the term of the grant, or any change in use of the 
property during the term of the grant, is subject to government-wide 
regulations governing real property disposition (see 24 CFR parts 84 
and 85).
    (6) If a State or local government voluntarily contributes its own 
funds to supplement federally funded activities, the State or local 
government has the option to segregate the Federal funds or commingle 
them. However, if the funds are commingled, this section applies to all 
of the commingled funds.

PART 576--EMERGENCY SHELTER GRANTS PROGRAM: STEWART B. McKINNEY 
HOMELESS ASSISTANCE ACT

0
12. The authority citation for 24 CFR part 576 continues to read as 
follows:

    Authority: 42 U.S.C. 3535(d) and 11376.


0
13. Revise Sec.  576.23 to read as follows:


Sec.  576.23  Faith-based activities.

    (a) Organizations that are religious or faith-based are eligible, 
on the same basis as any other organization, to participate in the 
Emergency Shelter Grants program. Neither the Federal government nor a 
State or local government receiving funds under Emergency Shelter 
Grants programs shall discriminate against an organization on the basis 
of the organization's religious character or affiliation.
    (b) Organizations that are directly funded under the Emergency 
Shelter Grants program may not engage in inherently religious 
activities, such as worship, religious instruction, or proselytization 
as part of the programs or services funded under this part. If an 
organization conducts such activities, the activities must be offered 
separately, in time or location, from the programs or services funded 
under this part, and participation must be voluntary for the 
beneficiaries of the HUD-funded programs or services.
    (c) A religious organization that participates in the Emergency 
Shelter Grants program will retain its independence from Federal, 
State, and local governments, and may continue to carry out its 
mission, including the definition, practice, and expression of its 
religious beliefs, provided that it does not use direct Emergency 
Shelter Grants funds to support any inherently religious activities, 
such as worship, religious instruction, or proselytization. Among other 
things, faith-based organizations may use space in their facilities to 
provide Emergency Shelter Grants-funded services, without removing 
religious art, icons, scriptures, or other religious symbols. In 
addition, an Emergency Shelter Grants-funded religious organization 
retains its authority over its internal governance, and it may retain 
religious terms in its organization's name, select its board members on 
a religious basis, and include religious references in its 
organization's mission statements and other governing documents.
    (d) An organization that participates in the Emergency Shelter 
Grants program shall not, in providing program assistance, discriminate 
against a program beneficiary or prospective program beneficiary on the 
basis of religion or religious belief.
    (e) Emergency shelter grants may not be used for the rehabilitation 
of structures to the extent that those structures are used for 
inherently religious activities. Emergency shelter grants may be used 
for the rehabilitation of structures only to the extent that those 
structures are used for conducting eligible activities under this part. 
Where a structure is used for both eligible and inherently religious 
activities, emergency shelter grants may not exceed the cost of those 
portions of the rehabilitation that are attributable to eligible 
activities in accordance with the cost accounting requirements 
applicable to emergency shelter grants in this part. Sanctuaries, 
chapels, or other rooms that an Emergency Shelter Grants-funded 
religious congregation uses as its principal place of worship, however, 
are ineligible for Emergency Shelter Grants-funded improvements. 
Disposition of real property after the term of the grant, or any change 
in use of the property during the term of the grant, is subject to 
government-wide regulations governing real property disposition (see 24 
CFR parts 84 and 85).
    (f) If a State or local government voluntarily contributes its own 
funds to supplement federally funded activities, the State or local 
government has the option to segregate the Federal funds or commingle 
them. However, if the funds are commingled, this section applies to all 
of the commingled funds.

PART 582--SHELTER PLUS CARE

0
14. The authority citation for 24 CFR part 582 continues to read as 
follows:


[[Page 56407]]


    Authority: 42 U.S.C. 3535(d) and 11403-11470b.


0
15. Revise Sec.  582.115(c) to read as follows:


Sec.  582.115  Limitations on assistance.

* * * * *
    (c) Faith-based activities. (1) Organizations that are religious or 
faith-based are eligible, on the same basis as any other organization, 
to participate in the S+C program. Neither the Federal government nor a 
State or local government receiving funds under S+C programs shall 
discriminate against an organization on the basis of the organization's 
religious character or affiliation.
    (2) Organizations that are directly funded under the S+C program 
may not engage in inherently religious activities, such as worship, 
religious instruction, or proselytization as part of the programs or 
services funded under this part. If an organization conducts such 
activities, the activities must be offered separately, in time or 
location, from the programs or services funded under this part, and 
participation must be voluntary for the beneficiaries of the HUD-funded 
programs or services.
    (3) A religious organization that participates in the S+C program 
will retain its independence from Federal, State, and local 
governments, and may continue to carry out its mission, including the 
definition, practice and expression of its religious beliefs, provided 
that it does not use direct S+C funds to support any inherently 
religious activities, such as worship, religious instruction, or 
proselytization. Among other things, faith-based organizations may use 
space in their facilities to provide S+C-funded services, without 
removing religious art, icons, scriptures, or other religious symbols. 
In addition, an S+C-funded religious organization retains its authority 
over its internal governance, and it may retain religious terms in its 
organization's name, select its board members on a religious basis, and 
include religious references in its organization's mission statements 
and other governing documents.
    (4) An organization that participates in the S+C program shall not, 
in providing program assistance, discriminate against a program 
beneficiary or prospective program beneficiary on the basis of religion 
or religious belief.
    (5) If a State or local government voluntarily contributes its own 
funds to supplement federally funded activities, the State or local 
government has the option to segregate the Federal funds or commingle 
them. However, if the funds are commingled, this section applies to all 
of the commingled funds.
* * * * *

PART 583--SUPPORTIVE HOUSING PROGRAM

0
16. The authority citation for 24 CFR part 583 continues to read as 
follows:

    Authority: 42 U.S.C. 11389 and 3535(d).
0
17. Revise Sec.  583.150(b) to read as follows:


Sec.  583.150  Limitations on use of assistance.

* * * * *
    (b) Faith-based activities. (1) Organizations that are religious or 
faith-based are eligible, on the same basis as any other organization, 
to participate in the Supportive Housing Program. Neither the Federal 
government nor a State or local government receiving funds under 
Supportive Housing programs shall discriminate against an organization 
on the basis of the organization's religious character or affiliation.
    (2) Organizations that are directly funded under the Supportive 
Housing Program may not engage in inherently religious activities, such 
as worship, religious instruction, or proselytization as part of the 
programs or services funded under this part. If an organization 
conducts such activities, the activities must be offered separately, in 
time or location, from the programs or services funded under this part, 
and participation must be voluntary for the beneficiaries of the HUD-
funded programs or services.
    (3) A religious organization that participates in the Supportive 
Housing Program will retain its independence from Federal, State, and 
local governments, and may continue to carry out its mission, including 
the definition, practice, and expression of its religious beliefs, 
provided that it does not use direct Supportive Housing Program funds 
to support any inherently religious activities, such as worship, 
religious instruction, or proselytization. Among other things, faith-
based organizations may use space in their facilities to provide 
Supportive Housing Program-funded services, without removing religious 
art, icons, scriptures, or other religious symbols. In addition, a 
Supportive Housing Program-funded religious organization retains its 
authority over its internal governance, and it may retain religious 
terms in its organization's name, select its board members on a 
religious basis, and include religious references in its organization's 
mission statements and other governing documents.
    (4) An organization that participates in the Supportive Housing 
Program shall not, in providing program assistance, discriminate 
against a program beneficiary or prospective program beneficiary on the 
basis of religion or religious belief.
    (5) Program funds may not be used for the acquisition, 
construction, or rehabilitation of structures to the extent that those 
structures are used for inherently religious activities. Program funds 
may be used for the acquisition, construction, or rehabilitation of 
structures only to the extent that those structures are used for 
conducting eligible activities under this part. Where a structure is 
used for both eligible and inherently religious activities, program 
funds may not exceed the cost of those portions of the acquisition, 
construction, or rehabilitation that are attributable to eligible 
activities in accordance with the cost accounting requirements 
applicable to Supportive Housing Program funds in this part. 
Sanctuaries, chapels, or other rooms that a Supportive Housing Program-
funded religious congregation uses as its principal place of worship, 
however, are ineligible for Supportive Housing Program-funded 
improvements. Disposition of real property after the term of the grant, 
or any change in use of the property during the term of the grant, is 
subject to government-wide regulations governing real property 
disposition (see 24 CFR parts 84 and 85).
    (6) If a State or local government voluntarily contributes its own 
funds to supplement federally funded activities, the State or local 
government has the option to segregate the Federal funds or commingle 
them. However, if the funds are commingled, this section applies to all 
of the commingled funds.

PART 585--YOUTHBUILD PROGRAM

0
18. The authority citation for 24 CFR part 585 continues to read as 
follows:

    Authority: 42 U.S.C. 3535(d) and 8011.


0
19. Revise Sec.  585.406 to read as follows:


Sec.  585.406  Faith-based activities.

    (a) Organizations that are religious or faith-based are eligible, 
on the same basis as any other organization, to participate in the 
Youthbuild program. Neither the Federal government nor a State or local 
government receiving funds under Youthbuild programs shall discriminate 
against an organization on the basis of the organization's religious 
character or affiliation.
    (b) Organizations that are directly funded under the Youthbuild 
program may not engage in inherently religious

[[Page 56408]]

activities, such as worship, religious instruction, or proselytization, 
as part of the programs or services funded under this part. If an 
organization conducts such activities, the activities must be offered 
separately, in time or location, from the programs or services funded 
under this part, and participation must be voluntary for the 
beneficiaries of the HUD-funded programs or services.
    (c) A religious organization that participates in the Youthbuild 
Program will retain its independence from Federal, State, and local 
governments, and may continue to carry out its mission, including the 
definition, practice, and expression of its religious beliefs, provided 
that it does not use direct Youthbuild Program funds to support any 
inherently religious activities, such as worship, religious 
instruction, or proselytization. Among other things, faith-based 
organizations may use space in their facilities to provide Youthbuild 
Program-funded services, without removing religious art, icons, 
scriptures, or other religious symbols. In addition, a Youthbuild 
Program-funded religious organization retains its authority over its 
internal governance, and it may retain religious terms in its 
organization's name, select its board members on a religious basis, and 
include religious references in its organization's mission statements 
and other governing documents.
    (d) An organization that participates in the Youthbuild program 
shall not, in providing program assistance, discriminate against a 
program beneficiary or prospective program beneficiary on the basis of 
religion or religious belief.
    (e) Youthbuild funds may not be used for the acquisition, 
construction, or rehabilitation of structures to the extent that those 
structures are used for inherently religious activities. Youthbuild 
funds may be used for the acquisition, construction, or rehabilitation 
of structures only to the extent that those structures are used for 
conducting eligible activities under this part. Where a structure is 
used for both eligible and inherently religious activities, Youthbuild 
funds may not exceed the cost of those portions of the acquisition, 
construction, or rehabilitation that are attributable to eligible 
activities in accordance with the cost accounting requirements 
applicable to Youthbuild funds in this part. Sanctuaries, chapels, or 
other rooms that a Youthbuild-funded religious congregation uses as its 
principal place of worship, however, are ineligible for Youthbuild-
funded improvements. Disposition of real property after the term of the 
grant, or any change in use of the property during the term of the 
grant, is subject to government-wide regulations governing real 
property disposition (see 24 CFR parts 84 and 85).
    (f) If a State or local government voluntarily contributes its own 
funds to supplement federally funded activities, the State or local 
government has the option to segregate the Federal funds or commingle 
them. However, if the funds are commingled, this section applies to all 
of the commingled funds.

    Dated: September 22, 2003.
Mel Martinez,
Secretary.
[FR Doc. 03-24326 Filed 9-29-03; 8:45 am]
BILLING CODE 4210-32-P