[Federal Register Volume 69, Number 42 (Wednesday, March 3, 2004)]
[Proposed Rules]
[Pages 10126-10129]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-4811]



[[Page 10125]]

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Part V





Department of Housing and Urban Development





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24 CFR Parts 5 and 570



Equal Participation of Faith-Based Organizations; Proposed Rule

  Federal Register / Vol. 69, No. 42 / Wednesday, March 3, 2004 / 
Proposed Rules  

[[Page 10126]]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 5 and 570

[Docket No. FR-4881-P-01]
RIN 2501-AD03


Equal Participation of Faith-Based Organizations

AGENCY: Office of the Secretary, HUD.

ACTION: Proposed rule.

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SUMMARY: This proposed rule would implement executive branch policy 
that, within the framework of constitutional church-state guidelines, 
faith-based organizations should be able to compete on an equal footing 
with other organizations for Federal funding. Executive Order 13279, 
entitled ``Equal Protection of the Laws for Faith-Based and Community 
Organizations,'' establishes fundamental principles and policymaking 
criteria to guide Federal agencies in formulating and developing 
policies that have implications for faith-based and community 
organizations to ensure the equal protection of the laws for these 
organizations in federally-assisted social service programs. Consistent 
with the Executive Order, this proposed rule describes HUD's policy for 
the participation of faith-based organizations in HUD programs and 
activities. In addition, this proposed rule would amend the regulations 
for the State Community Development Block Grant (CDBG) program to 
clarify that the requirements contained in HUD's September 30, 2003, 
final rule regarding the equal participation of faith-based 
organizations in certain HUD programs apply to the State CDBG program. 
HUD supports the participation of faith-based organizations in its 
programs.

DATES: Comment Due Date: May 3, 2004.

ADDRESSES: Interested persons are invited to submit comments regarding 
this rule to the Regulations Division, Office of General Counsel, Room 
10276, Department of Housing and Urban Development, 451 Seventh Street, 
SW., Washington, DC 20410-0500. Communications should refer to the 
above docket number and title. Facsimile (FAX) comments are not 
acceptable. A copy of each communication submitted will be available 
for public inspection and copying between 8 a.m. and 5 p.m. weekdays at 
the above address.

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-
0001; telephone (202) 708-2404 (this is not a toll-free number). 
Hearing-or speech-impaired individuals may access this number through 
TTY by calling the toll-free Federal Information Relay Service at (800) 
877-8339.

SUPPLEMENTARY INFORMATION:

I. Background

    On December 12, 2002, President George W. Bush signed Executive 
Order 13279, entitled ``Equal Protection of the Laws for Faith-Based 
and Community Organizations,'' published in the Federal Register on 
December 16, 2002, at 67 FR 77141. The Executive Order establishes 
fundamental principles and policymaking criteria to guide executive 
branch agencies in formulating and developing policies that have 
implications for faith-based and community organizations to ensure the 
equal protection of the laws for these organizations in programs 
receiving Federal financial assistance.
    Executive Order 13279 is part of the Administration's broader 
faith-based and community initiative. President Bush has directed the 
executive branch agencies, including HUD, to take steps to ensure that 
Federal policy and programs are fully open to faith-based and community 
organizations in a manner that is consistent with the Constitution. The 
Administration believes that all eligible organizations, including 
faith-based organizations, should be able to participate in Federal 
programs and activities and compete, where required, for Federal 
financial assistance on an equal footing.
    HUD recognizes that faith-based organizations are important 
contributors to HUD's mission of assisting low-income families to 
obtain housing and revitalizing distressed communities. These 
organizations frequently have the necessary experience to administer 
assistance 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, at 
66 FR 8497, HUD undertook a comprehensive review of its program 
requirements and regulations, particularly those that would be expected 
to attract the interest and participation of nonprofit organizations.
    In response to the directive of Executive Order 13198, HUD 
identified regulations for eight programs administered by HUD's Office 
of Community Planning and Development (CPD) that imposed (or appeared 
to impose) barriers to participation of faith-based organizations in 
these programs. On January 6, 2003 (68 FR 648), HUD published a 
proposed rule to eliminate these barriers and to ensure that these HUD 
programs are open to all qualified organizations, regardless of their 
religious character. After a period of public comment, HUD finalized 
this rule on September 30, 2003 (68 FR 56396).

II. This Proposed Rule

    Consistent with Executive Order 13279, this proposed rule describes 
HUD's policy for the equal participation of faith-based organizations 
in HUD's programs and activities. The proposed rule would add a new 
Sec.  5.109 to HUD's regulations in 24 CFR part 5, subpart A. The 
regulations in subpart A of part 5 contain the definitions and Federal 
requirements generally applicable to all of HUD's programs. By placing 
the requirements of the Executive Order in those HUD regulations that 
contain across-the-board requirements, HUD is ensuring the broadest 
application of the faith-based requirements of Executive Order 13279.
    The equal participation policies and requirements contained in 
Sec.  5.109 would be generally applicable to faith-based organizations, 
which are referred to in the rule text as ``religious organizations,'' 
in all HUD programs and activities. More specific policies and 
requirements regarding the participation of faith-based organizations 
in individual HUD programs may be provided in the regulations for those 
programs. The policies and requirements contained in proposed Sec.  
5.109 are similar, and in many cases identical, to those contained in 
HUD's September 30, 2003, rule for several of its Community Planning 
and Development programs.
    Two of the HUD programs that will be affected by the proposed 
regulatory changes are the Section 202 Supportive Housing for the 
Elderly Program and the Section 811 Supportive Housing for Persons with 
Disabilities Program. The regulations for these programs are located in 
24 CFR part 891. Specifically, the equal participation requirements 
contained in this proposed rule would permit faith-based organizations 
to take part in these programs as project owners. This is a change from 
the existing procedures governing these two programs, which prohibit a 
project owner from having a religious purpose in its articles of 
incorporation.
    This proposed rule would not apply to HUD's Native American housing 
programs. HUD has determined that making the policies and procedures

[[Page 10127]]

contained in this proposed rule applicable to its Native American 
programs requires prior consultation with Indian tribal governments in 
accordance with Executive Order 13175 (entitled ``Consultation and 
Coordination with Indian Tribal Governments''). The Executive Order 
requires Federal departments and agencies, to the greatest extent 
practicable and permitted by law, to consult with tribal governments 
prior to taking actions that have substantial direct effects on 
federally recognized tribal governments. HUD will consult with Indian 
tribal governments regarding the applicability of this proposed rule to 
its Native American housing programs and may initiate additional 
rulemaking addressing the equal participation of faith-based 
organizations in these programs based on the outcome of the 
consultation.
    The specific policies and requirements that would be codified by 
this proposed rule are as follows:
    1. Equal participation of faith-based organizations in HUD programs 
and activities. This proposed rule clarifies that faith-based 
organizations are eligible, on the same basis as any other 
organization, to participate in HUD's programs and activities. The 
phrase ``participate in HUD's programs and activities'' and its 
variants are used in this rule to mean the full range of HUD programs 
and activities, including programs that make funds available through 
contracts, grants, cooperative agreements, or other instruments for 
eligible goods, services, and activities, and programs that do not make 
funds available, but involve other forms of benefit or resources. For 
example, certain Federal Housing Administration (FHA) programs do not 
provide funds, but make mortgage insurance or foreclosed properties 
available to qualifying organizations. Neither the Federal Government, 
nor a State or local government, nor any other entity that administers 
any HUD program or activity shall discriminate against an organization 
on the basis of the organization's religious character or affiliation. 
Nothing in the rule would preclude those administering Department-
funded programs from accommodating religious organizations in a manner 
consistent with the Establishment Clause.
    2. Inherently religious activities. Organizations that receive 
direct HUD funds \1\ under a HUD program or activity may not engage in 
inherently religious activities, such as worship, religious 
instruction, or proselytization, as part of the programs or services 
funded under the HUD program or activity. If an organization conducts 
such activities, the activities must be offered separately, in time or 
location, from the programs, activities, or services supported by 
direct HUD funds, and participation must be voluntary for the 
beneficiaries of these programs, activities, or services.
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    \1\ As used in this proposed rule, the term ``direct HUD funds'' 
refers to direct funding within the meaning of the Establishment 
Clause of the First Amendment. For example, direct HUD funding may 
mean that the government or an intermediate organization with 
similar duties as a governmental entity under a particular HUD 
program selects an organization and purchases the needed services 
straight from the organization (e.g., via a contract or cooperative 
agreement). In contrast, indirect funding scenarios may place the 
choice of service provider in the hands of a beneficiary, and then 
pay for the cost of that service through a voucher, certificate, or 
other similar means of payment.
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    3. Independence of faith-based organizations. Proposed Sec.  5.109 
would clarify that a faith-based organization that participates in a 
HUD program or activity 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 engage in any inherently 
religious activities, such as worship, religious instruction, or 
proselytization, as part of the programs or services supported by 
direct HUD funds. Among other things, faith-based organizations may use 
space in their facilities to provide services under a HUD program, 
without removing religious art, icons, scriptures, or other religious 
symbols. In addition, a faith-based organization participating in a HUD 
program retains its authority over its internal governance, and it may 
retain religious terms in its organization's name, select its board 
members, and otherwise govern itself on a religious basis and include 
religious references in its organization's mission statements and other 
governing documents.
    4. Exemption from Title VII employment discrimination requirements. 
This proposed rule clarifies that a faith-based organization's 
exemption from the Federal prohibition on employment discrimination on 
the basis of religion, set forth in section 702(a) of the Civil Rights 
Act of 1964 (42 U.S.C. 2000e-1), is not forfeited when the organization 
participates in a HUD program. Some HUD programs, however, contain 
independent statutory provisions that impose certain nondiscrimination 
requirements on all grantees. Accordingly, grantees should consult with 
the appropriate Department program office to determine the scope of any 
applicable requirements.
    5. Nondiscrimination requirements. This proposed rule clarifies 
that an organization that receives direct HUD funds shall not, in 
providing program assistance, discriminate against a program 
beneficiary or prospective program beneficiary on the basis of religion 
or religious belief. Organizations participating in HUD programs and 
activities must also comply with any other applicable fair housing and 
nondiscrimination requirements.
    6. Acquisition, construction, and rehabilitation of structures. HUD 
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. 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 a HUD program or activity. Where a structure is used 
for both eligible and inherently religious activities, HUD 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 the HUD 
program or activity. Sanctuaries, chapels, and other rooms that a HUD-
funded religious congregation uses as its principal place of worship, 
however, are ineligible for HUD-funded improvements. Disposition of 
real property after use for the authorized purpose, or any change in 
use of the property for the authorized purpose, is subject to 
government-wide regulations governing real property disposition (see, 
e.g., 24 CFR parts 84 and 85).
    7. Commingling of Federal and State and local funds. This proposed 
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 proposed Sec.  5.109 will apply to all of the 
commingled funds. If a State or local government is required to 
contribute matching funds to supplement a federally funded activity, 
the matching funds are considered commingled with the Federal 
assistance and therefore subject to the requirements of proposed Sec.  
5.109. Some HUD program requirements govern any project or activity 
assisted under those programs. Accordingly, grantees should consult 
with the appropriate HUD

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program office to determine the scope of applicable requirements.

III. Conforming Change to State CDBG Program Regulations

    As noted above in this preamble, on September 30, 2003, HUD 
published a final rule revising the regulations for eight of its CPD 
programs to remove barriers to the participation of faith-based 
organizations in these programs. Among the regulations amended by the 
final rule were those for the Community Development Block Grants (CDBG) 
Program at 24 CFR part 570 (see Sec.  570.200(j)). Since publication of 
the September 30, 2003, final rule, however, questions have arisen 
regarding the applicability of the regulatory amendments to the State 
CDBG Program codified in subpart I of the part 570 regulations 
(Sec. Sec.  570.480-570.497). Section 570.480 of those regulations 
provides that ``[o]ther subparts of part 570 are not applicable to the 
State CDBG Program, except as expressly provided otherwise.'' The 
September 30, 2003, final rule did not revise the subpart I regulations 
to reference the applicability of amended Sec.  570.200(j). This 
proposed rule would clarify that the amendments made by HUD's September 
30, 2003, final rule apply to the State CDBG Program by adding a new 
Sec.  570.480(e) expressly providing that faith-based organizations are 
eligible to participate under the program as provided in Sec.  
570.200(j).

IV. Findings and Certifications

Regulatory Planning and Review

    The Office of Management and Budget (OMB) reviewed this rule under 
Executive Order 12866 (entitled ``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 action, as provided under section 3(f)(1) of the Order). 
Any changes made to the rule subsequent to its submission to OMB are 
identified in the docket file, which is available for public inspection 
in the Regulations Division, Room 10276, Office of General Counsel, 
Department of Housing and Urban Development, 451 Seventh Street, SW., 
Washington, DC 20410-0500.

Regulatory Flexibility Act

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)) has reviewed and approved this proposed rule and in so 
doing certifies that this rule will not have a significant economic 
impact on a substantial number of small entities. The proposed rule 
would not impose any new costs, or modify existing costs, applicable to 
HUD grantees. Rather, the purpose of the proposed rule is to ensure the 
equal participation of faith-based organizations (irrespective of size) 
in HUD's programs. Notwithstanding HUD's determination that this rule 
will not have a significant economic effect on a substantial number of 
small entities, HUD specifically invites comments regarding less 
burdensome alternatives to this rule that will meet HUD's objectives as 
described in this preamble.

Environmental Impact

    This proposed rule sets forth nondiscrimination standards. 
Accordingly, under 24 CFR 50.19(c)(3), this proposed rule is 
categorically excluded from environmental review under the National 
Environmental Policy Act of 1969 (42 U.S.C. 4332).

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) (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 proposed rule does not 
impose any Federal mandate on State, local, or tribal government or the 
private sector within the meaning of UMRA.

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 solicits comment from State and 
local government officials on this proposed rule.

Catalog of Federal Domestic Assistance Numbers

    The proposed regulatory amendments contained in this proposed rule 
would apply to all HUD assistance programs for which faith-based 
organizations are eligible to participate. The Catalog of Federal 
Domestic Assistance number for a particular HUD program may be found on 
the CFDA Web site at http://www.cfda.gov.

List of Subjects

24 CFR Part 5

    Administrative practice and procedure, Aged, Claims, Drug abuse, 
Drug traffic control, Grant programs--housing and community 
development, Grant programs--Indians, Individuals with disabilities, 
Loan programs--housing and community development, Low and moderate 
income housing, Mortgage insurance, Pets, Public housing, 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, Loan programs-housing 
and community development, Low and moderate income housing, Northern 
Mariana Islands, Pacific Islands Trust Territory, Puerto Rico, 
Reporting and recordkeeping requirements, Student aid, Virgin Islands.
    Accordingly, for the reasons described in the preamble, HUD 
proposes to amend 24 CFR parts 5 and 570 as follows:

PART 5--GENERAL HUD PROGRAM REQUIREMENTS; WAIVERS

    1. The authority citation for 24 CFR part 5 continues to read as 
follows:

    Authority: 42 U.S.C. 3535(d), unless otherwise noted.

    2. Add Sec.  5.109 to read as follows:


Sec.  5.109  Equal participation of religious organizations in HUD 
programs and activities.

    (a) Purpose. Consistent with Executive Order 13279 (issued on 
December 12, 2002), entitled ``Equal Protection of the Laws for Faith-
Based and Community Organizations,'' this section describes HUD's 
policy for the equal participation of religious organizations in HUD's 
programs and activities. The equal participation policies and 
requirements contained in this section are generally applicable to 
religious organizations in all HUD programs and activities. More 
specific policies and requirements regarding the participation of 
religious organizations in individual HUD programs may be provided in 
the regulations for those programs.
    (b) Equal participation of religious organizations in HUD programs 
and activities. Religious organizations are eligible, on the same basis 
as any other organization, to participate in HUD's programs and 
activities. Neither the Federal Government, nor a State or local 
government, nor any other entity that administers any HUD program or 
activity shall discriminate against an organization on the basis of the 
organization's religious character or affiliation.
    (c) Inherently religious activities. Organizations that receive 
direct HUD

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funds under a HUD program or activity may not engage in inherently 
religious activities, such as worship, religious instruction, or 
proselytization, as part of the programs or services funded under a HUD 
program or activity. If an organization conducts such inherently 
religious activities, the inherently religious activities must be 
offered separately, in time or location, from the programs, activities, 
or services supported by direct HUD funds and participation must be 
voluntary for the beneficiaries of the programs, activities or services 
provided under the HUD program.
    (d) Independence of religious organizations. A religious 
organization that participates in a HUD program or activity 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 
engage in any inherently religious activities, such as worship, 
religious instruction, or proselytization as part of the programs or 
services supported by direct HUD funds. Among other things, religious 
organizations may use space in their facilities to provide services 
under a HUD program without removing religious art, icons, scriptures, 
or other religious symbols. In addition, a religious organization 
participating in a HUD program 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.
    (e) Exemption from Title VII employment discrimination 
requirements. A religious organization's exemption from the Federal 
prohibition on employment discrimination on the basis of religion, set 
forth in section 702(a) of the Civil Rights Act of 1964 (42 U.S.C. 
2000e-1), is not forfeited when the organization participates in a HUD 
program. Some HUD programs, however, contain independent statutory 
provisions that impose certain nondiscrimination requirements on all 
grantees. Accordingly, grantees should consult with the appropriate HUD 
program office to determine the scope of applicable requirements.
    (f) Nondiscrimination requirements. An organization that receives 
direct HUD funds shall not, in providing program assistance, 
discriminate against a program beneficiary or prospective program 
beneficiary on the basis of religion or religious belief.
    (g) Acquisition, construction, and rehabilitation of structures. 
HUD 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. 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 a HUD program or activity. Where a structure is used 
for both eligible and inherently religious activities, HUD 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 the HUD 
program or activity. Sanctuaries, chapels, and other rooms that a HUD-
funded religious congregation uses as its principal place of worship, 
however, are ineligible for HUD-funded improvements. Disposition of 
real property after use for the authorized purpose, or any change in 
use of the property from the authorized purpose, is subject to 
government-wide regulations governing real property disposition (see, 
e.g., 24 CFR parts 84 and 85).
    (h) Commingling of Federal and State and local funds. 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 section apply to all 
of the commingled funds. Further, if a State or local government is 
required to contribute matching funds to supplement a federally funded 
activity, the matching funds are considered commingled with the Federal 
assistance and therefore subject to the requirements of this section. 
Some HUD programs requirements govern any project or activity assisted 
under those programs. Accordingly, grantees should consult with the 
appropriate HUD program office to determine the scope of applicable 
requirements.

PART 570--COMMUNITY DEVELOPMENT BLOCK GRANTS

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

    Authority: 42 U.S.C. 3535(d) and 5301-5320.
    4. Add Sec.  570.480(e) to read as follows:


Sec.  570.480  General.

* * * * *
    (e) Religious organizations are eligible to participate under the 
State CDBG Program as provided in Sec.  570.200(j).

    Dated: February 13, 2004.
Alphonso Jackson,
Acting Secretary.
[FR Doc. 04-4811 Filed 3-2-04; 8:45 am]
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