[Federal Register Volume 69, Number 131 (Friday, July 9, 2004)]
[Rules and Regulations]
[Pages 41375-41383]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-15678]



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  Federal Register / Vol. 69, No. 131 / Friday, July 9, 2004 / Rules 
and Regulations  

[[Page 41375]]



DEPARTMENT OF AGRICULTURE

Office of the Secretary

7 CFR Part 16

RIN 0503-AA27


Equal Opportunity for Religious Organizations

AGENCY: Office of the Secretary, USDA.

ACTION: Final rule.

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SUMMARY: This final rule implements executive branch policy that, 
within the framework of constitutional church-state guidelines, 
religiously affiliated (or ``faith-based'') organizations should be 
able to compete on an equal footing with other organizations for United 
States Department of Agriculture (USDA) assistance. The final rule 
revises USDA regulations to remove barriers to the participation of 
faith-based organizations in USDA programs and to ensure that these 
programs are implemented in a manner consistent with the requirements 
of the Constitution, including the religion clauses of the first 
amendment.

DATES: Effective date: August 9, 2004.

FOR FURTHER INFORMATION CONTACT: Juliet McCarthy, Director, Faith-Based 
and Community Initiatives, United States Department of Agriculture, 
Office of the Secretary, Room 200A, Washington, DC 20250; electronic 
mail: [email protected]; telephone: 202-720-3631 (this is not a 
toll-free number). Hearing- or speech-impaired individuals may access 
this telephone number via TTY by calling the toll-free Federal 
Information Relay Service at 1-800-877-8339.

SUPPLEMENTARY INFORMATION:

I. Background--The March 5, 2004, Proposed Rule

    On March 5, 2004, USDA published a proposed rule (69 FR 10354) to 
adopt USDA regulations that would eliminate unwarranted barriers to the 
participation of faith-based organizations in USDA programs. The 
proposed rule was part of USDA's effort to fulfill its responsibilities 
under two Executive Orders issued by President Bush. One of these 
Orders, Executive Order 13280, which was published in the Federal 
Register on December 16, 2002 (67 FR 77145), created a Center for 
Faith-Based and Community Initiatives in USDA and charged USDA to 
identify and eliminate regulatory, contracting, and other programmatic 
barriers to the full participation of faith-based and community 
organizations in its programs. The second of these Orders, Executive 
Order 13279, also published in the Federal Register on December 16, 
2002 (67 FR 77141), charged executive branch agencies to give equal 
treatment to faith-based and community groups that apply for funds to 
meet social needs in America's communities. The President called for an 
end to discrimination against faith-based organizations and, consistent 
with the first amendment to the Constitution, ordered implementation of 
these policies throughout the executive branch, including, among other 
things, allowing organizations to retain their religious autonomy over 
their internal governance and composition of boards, and over their 
display of religious art, icons, scriptures, or other religious 
symbols, when participating in government-funded programs. The 
Administration believes that there should be an equal opportunity for 
all organizations--both religious and non-religious--to participate as 
partners in Federal programs.
    The March 5, 2004, rule proposed to add USDA regulations to achieve 
the following objectives:
    1. Equal Opportunity for faith-based organizations in USDA 
programs. The proposed rule provided that organizations would be 
eligible to participate in USDA programs without regard to their 
religious character or affiliation, and that organizations could not be 
excluded from competition for direct USDA assistance simply because 
they were religious. Specifically, religious organizations would be 
eligible to compete for USDA assistance on the same basis, and under 
the same eligibility requirements, as all other non-profit 
organizations. Under the proposed rule, USDA, as well as State and 
local governments administering USDA programs, would be prohibited from 
discriminating against organizations on the basis of religion, 
religious belief, or religious character in the administration or 
distribution of USDA assistance, including grants and commodities.
    2. Inherently religious activities. The proposed rule described 
requirements, which would be applicable to all recipient organizations, 
restricting the use of direct USDA assistance \1\ for inherently 
religious activities. Specifically, a participating organization could 
not use direct USDA financial assistance from USDA to support 
inherently religious activities, such as worship, religious 
instruction, or proselytization. If the organization engaged in such 
activities, it would be required to offer them separately, in time or 
location, from the programs or services supported by direct USDA 
assistance, and participation would have to be voluntary for the 
beneficiaries of such programs or services. This requirement would 
ensure that direct USDA assistance to religious organizations would not 
be used to support inherently religious activities.
---------------------------------------------------------------------------

    \1\ As used in this final rule, the term ``direct USDA 
assistance'' refers to direct aid within the meaning of the 
Establishment Clause of the first amendment. For example, direct 
USDA assistance may mean that the government or an intermediate 
organization with similar duties as a governmental entity under a 
particular USDA program selects an organization and purchases the 
needed services straight from that organization. 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.
---------------------------------------------------------------------------

    This requirement does not mean that an organization that receives 
direct USDA assistance cannot engage in inherently religious 
activities. It means that an organization cannot pay for these 
activities with direct USDA assistance or require program beneficiaries 
to participate in such activities as a condition of receiving services. 
The proposed rule further provided that these restrictions on 
inherently religious activities would not apply where indirect USDA 
assistance was provided to religious organizations as a result of a 
genuine and independent private choice of a beneficiary (e.g., under a 
program that gave a beneficiary a voucher, coupon, certificate, or

[[Page 41376]]

another funding mechanism from USDA designed to give that beneficiary a 
choice among providers) or through other indirect means, provided the 
religious organizations otherwise satisfied the secular requirements of 
the program.
    3. Independence of faith-based organizations. The proposed rule 
also clarified that a religious organization that participated in USDA 
programs would retain its independence and could continue to carry out 
its mission, including the definition, practice, and expression of its 
religious beliefs, provided that it did not use direct USDA assistance 
to support any inherently religious activities, such as worship, 
religious instruction, or proselytization. Among other things, a faith-
based organization could use space in its facilities to provide 
services supported with direct USDA assistance without removing 
religious art, icons, scriptures, or other religious symbols. In 
addition, a religious organization could 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. Nondiscrimination in providing assistance. The proposed rule 
provided that an organization that received direct USDA assistance 
would not be allowed, in providing program assistance supported by such 
assistance, to discriminate against a program beneficiary or 
prospective program beneficiary on the basis of religion or religious 
belief.
    5. Use of USDA funds for acquisition, construction, or 
rehabilitation of structures. The proposed rule clarified that USDA 
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 USDA program 
involved. Where a structure is used for both eligible and inherently 
religious activities, the proposed rule clarified that USDA funds may 
not exceed the cost of those portions of the acquisition, construction, 
or rehabilitation that are attributable to eligible activities.

II. Discussion of Comments Received

    USDA received comments on the proposed rule from 22 different 
commenters, representing both individuals and organizations. Some of 
the commenters were generally supportive of the proposed rule without 
any specific recommendations or comments, while others were generally 
opposed without specific recommendations or comments.
    The following is a summary of specific comments and recommendations 
and USDA responses. The comments are organized first by general 
comments, second by comments in the order of the section of the rule 
that they address, and finally by comments that raise issues not 
specifically addressed by any section of the rule.

General Comments

    Comment: Insufficient justification for the proposed rule. Two 
commenters disagreed that there are currently barriers that prevent 
participation of faith-based organizations in USDA Food and Nutrition 
Service (FNS) programs. the commenters wrote that faith-based 
organizations have been participating in FNS programs and anti-hunger 
efforts for many years, and sometimes at a higher rate than secular 
organizations.
    USDA Response: The commenter is correct that many USDA programs 
have partnered extensively with faith-based organizations for years. 
The purpose of this rule is to ensure that all USDA programs are open 
to faith-based organizations to the same extent that they are open to 
other organizations, in accordance with Executive Order 13279. Some 
USDA mission areas may already follow a number of these provisions in 
practice, but this rule sets out a single set of overarching provisions 
for the entire USDA in regard to equal opportunity for faith-based 
organizations without singling out or distinguishing among many mission 
areas within USDA.
    Comment: Religious organizations are financially unaccountable. One 
commenter alleged that religious organizations are unaccountable since 
they do not have to file an annual report of revenue with the Internal 
Revenue Service (IRS). However, the commenter would revisit the concern 
if religious organizations are held to the same level of financial 
accountability as other non-profit organizations.
    USDA Response: USDA disagrees. Regardless of IRS filings, all 
organizations receiving USDA assistance--both religious and non-
religious--must comply with audit and Office of Management and Budget 
Circular requirements, applicable to assistance recipients. These 
requirements provide transparency and accountability for faith-based 
organizations just as they do for other organizations.
    Comment: Unclear if non-financial as well as financial assistance 
is included in the definition of ``direct USDA assistance.'' A number 
of commenters wondered if non-financial assistance, such as 
commodities, was included in the definition of direct USDA assistance 
and referenced when the proposed rule referred to ``funding.'' Several 
commenters wanted non-financial assistance included in the definition, 
while another wanted it excluded. The commenter wanting it excluded 
argued that it should be excluded from the definition and the rule 
because the restrictions would ``go too far'' for the mere acceptance 
of the non-financial assistance. The other commenter interpreted the 
rule as excluding commodities from the definition of direct assistance 
and insisted that it was constitutionally required to be a part of the 
definition.
    USDA Response: USDA intended for commodities to be included within 
the definition of ``direct USDA assistance.''
    Comment: Extend limitation on inherently religious activities to 
indirect funding. Two commenters observed that in the proposed rule the 
limitations on inherently religious activities applied only to direct 
funding, and they argued that the limitation should apply to indirect 
funding as well in order to protect the rights of beneficiaries.
    USDA Response: USDA has not revised the rule in response to these 
comments because the protections of the rights of beneficiaries in this 
rule coincide with current Supreme Court precedent. Any USDA-funded 
programs that involve indirect funding must, of course, comply with 
Federal law (including current legal precedent), and nothing in the 
proposed regulation provides otherwise. As explained above and in the 
preamble of the proposed rule, the term ``direct USDA assistance'' 
refers to direct funding within the meaning of the Establishment Clause 
of the First Amendment. In other words, USDA's use of the phrase 
``direct assistance'' in this rule incorporates current First Amendment 
jurisprudence into its definition.
    The religious freedom of beneficiaries in an indirect funding 
program is protected by the guarantee of genuine and independent 
private choice. Officials administering public funding under an 
indirect funding program would have an obligation to ensure that 
everyone who is eligible receives services from some provider, and no 
client maybe required to receive services from a provider to which the 
client has a religious objection. In other words, vouchers and services 
indirectly funded by the government must be available to all clients 
regardless of their religious belief, and those who object to a 
provider that has integrated inherently

[[Page 41377]]

religious activities into the provision of its services have a right to 
services from some alternative provider. Again, for a program to be 
considered voucher-like, this choice among providers must be genuine. 
These requirements protect beneficiaries from having to participate in 
religious activities to which they object.
    Comment: Why is this rule restricted to programs for which non-
profit organizations are eligible? One commenter asked why the rule 
applied only to programs for which non-profit organizations are 
eligible, saying that such a restriction is unwarranted.
    USDA Response: We agree and have revised 16.1(a) and 16.2(a) to 
provide that a religious organization is eligible to the same extent an 
organization is otherwise eligible. The intent of this regulation is to 
ensure that religious organizations are given the same opportunity to 
participate that similar non-religious organizations are given. For 
example, if a secular charitable non-profit organization is not 
eligible for a particular program, then neither would a religious non-
profit organization be eligible. In contrast, if a secular for-profit 
corporation is eligible for a particular program, a religious for-
profit corporation would likewise be eligible.
    Comment: Title and language of rule is inconsistent. One commenter 
noted that the title of the rule and its sections refer to religious 
organizations; however, the language of the rule appears to place 
restrictions on all organizations, not just religious ones. For 
example, 16.3(c) states that any organizations that receive direct USDA 
assistance may not engage in inherently religious activities as part of 
the services supported with such assistance. It does not restrict this 
prohibition only to religious organizations. Therefore, the titles and 
language are inconsistent.
    USDA Response: USDA acknowledges this inconsistency in the language 
of the rule. In this final rule, USDA has changed the title to ``Equal 
Opportunity for Religious Organizations,'' reflecting the purpose 
section of the rule. It has also changed the appropriate heading to 
``Responsibilities of participating organizations'' (replacing 
``Responsibilities of religious organizations'').

Purpose and Applicability

    Comment: Change equal participation in purpose to equal opportunity 
or treatment. One commenter mentioned that 16.1(a) states the purpose 
of the rule is to set policy regarding equal participation of religious 
organizations and suggested that the language be changed to ``equal 
opportunity for religious organizations'' or ``promoting equal 
treatment of religious organizations.''
    USDA Response: USDA agrees with the commenter's suggestion and 
amends 16.1(a) to reference the purpose as ``equal opportunity for 
religious organizations to participate.'' It was not USDA's intent to 
establish participation rates for religious organizations in USDA 
programs; instead, as described in the preamble to the proposed rule, 
the purpose of the rule was to ensure that any organization wanting to 
participate in USDA programs, whether religious or secular, had an 
equal opportunity to do so.

Eligibility of Religious Organizations

    Comment: Allowing direct funding of pervasively sectarian 
organizations violates the Constitution. Some commenters disagreed with 
the proposed rule on the basis that it would allow Federal funds to be 
given to ``pervasively sectarian'' organizations. They maintain that 
the rule places no limitations on the kinds of religious organizations 
that can receive funds, and they argued that ``pervasively sectarian'' 
organizations are barred from receiving direct Federal funding.
    USDA Response: USDA does not agree that the Constitution requires 
USDA to distinguish between different religious organizations in 
providing direct USDA assistance. Religious organizations that receive 
direct USDA assistance may not use that assistance for inherently 
religious activities. These organizations must ensure that such 
religious activities are separate in time or location from services 
directly funded by USDA and also must ensure that participation in such 
religious activities is voluntary. Furthermore, they are prohibited 
from discriminating against a program beneficiary on the basis of 
religion or a religious belief, and program participants that violate 
these requirements will be subject to applicable sanctions and 
penalties. The regulations thus ensure that there is no direct USDA 
assistance of inherently religious activities, as required by current 
precedent.

Retain Independence

    Comment: Use of religious art or icons should not be permitted. 
Some 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 stated that the rule should 
require religious art or icons to be removed or covered and cite Spacco 
v. Bridgewater School USDA, 722 F. Supp. 834, 843 (D. Mass. 1989).
    USDA Response: USDA declines to impose this restriction on USDA 
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). 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 USDA programs will retain its independence and may 
continue to carry out its mission, provided that it does not use direct 
USDA assistance 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 services 
supported with direct USDA assistance, without removing religious art, 
icons, scriptures, or other religious symbols. Finally, the presence of 
religious symbols in the building of a religious organization that 
provides social services with USDA assistance is distinct from the 
situation addressed in Spacco, where a public school (i.e., the 
government itself) held classes in the facilities of a Catholic church.

Title VII Exemption

    Comment: Recognition of religious organizations' Title VII 
exemption. A number of commenters expressed views on the rule's 
provision that religious organizations do not forfeit their Title VII 
exemption by receiving direct USDA assistance, absent statutory 
authority to the contrary. Some expressed appreciation that a religious 
organization will retain its independence in this regard, while others 
disagreed with the provision retaining the Title VII exemption. Some 
argued that it is unconstitutional for the government to provide direct 
assistance for provision of social services to an organization that 
considers religion in its employment decisions. Others argued that 
Congress must expressly preserve religious organizations' Title VII 
exemption--as it has done in certain welfare reform and substance abuse 
programs--for such organizations that receive Federal funds to retain 
those exemptions, and in any event that it is unwise and unfair to 
secular organizations to preserve such religious exemptions as a matter 
of executive

[[Page 41378]]

branch policy. These commenters requested that the proposed rule be 
amended to provide that discrimination on the basis of religion with 
respect to an employment position is not allowed if an organization is 
federally funded.
    USDA Response: USDA agrees with commenters who supported the 
preservation of the religious hiring autonomy of faith-based 
organizations, and it disagrees with the objections to the rule's 
recognition that a religious organization does not forfeit its Title 
VII exemption when administering services supported by USDA assistance. 
As an initial matter, applicable statutory nondiscrimination 
requirements are not altered by this rule. Congress establishes the 
conditions under which religious organizations are exempt from Title 
VII; this rule simply recognizes that these requirements, including 
their limitations, are fully applicable to organizations supported by 
USDA assistance unless Congress says otherwise. As to the suggestion 
that the Constitution restricts the government from providing funding 
for social services to religious organizations that consider faith in 
hiring, that view does not accurately represent the law. The employment 
decisions of organizations that receive extensive public funding are 
not attributable to the State, see Rendell-Banker v. Kohn, 457 U.S. 830 
(1982), and it has been settled for more than 100 years that the 
Establishment Clause does not bar the provision of direct Federal 
grants to organizations that are controlled and operated exclusively by 
members of a single faith. See Bradfield v. Roberts, 175 U.S. 291 
(1899); see also Bowen v. Kendrick, 487 U.S. 589, 609 (1988). 
Accordingly, numerous courts have held that a religious organization 
does not waive its Title VII exemption when it receives government 
funds. See, e.g., Hall v. Baptist Memorial Health Care Corp., 215 F.3d 
618, 625 (6th Cir. 2000); Little v. Wuerl, 929 F.2d 944, 951 (3d Cir. 
1991). Finally, USDA notes that allowing religious groups to consider 
faith in hiring when they receive government funds is much like 
allowing a federally funded environmental organization to hire those 
who share its views on protecting the environment: Both groups are 
allowed to consider ideology and mission, which improves their 
effectiveness and preserves their integrity. Thus, USDA declines to 
amend the final rule to require religious organizations to forfeit 
their Title VII rights.
    Comment: Faith-based organizations and state action. Two commenters 
claimed that there is a sufficient nexus between the organizations 
covered by the proposed regulation and the government such that the 
organizations are State actors subject to constitutional requirements.
    USDA Response: USDA disagrees with these comments. The receipt of 
government assistance does not convert a non-governmental organization 
into a State actor subject to constitutional norms. See Rendell-Baker 
v. Kohn, 457 U.S. 830 (1982) (holding that the employment decisions of 
a private school that receives more than 90 percent of its funding from 
the State are not State actors).
    Comment: Proposed rule raises additional Establishment Clause 
concerns. The commenter argues that the decision in Bob Jones 
University v. United States, 461 U.S. 574(1983), which held that the 
Federal government could deny a religiously run university tax benefits 
because the university imposed a racially discriminatory anti-
miscegenation policy, is analogous to a prohibition against 
organizations that receive Federal funding discriminating on the basis 
of religion when hiring for government-funded positions.
    USDA Response: USDA does not agree that the Bob Jones University 
decision is analogous or requires that the rule be changed in order to 
comply with the Establishment Clause. In the Bob Jones University 
decision, the Supreme Court merely said that the Free Exercise Clause 
permitted the government to deny tax-exempt status to religious 
educational institutions that prescribed and enforced racially 
discriminatory admission standards on the basis of religious doctrine. 
The Court's limited discussion of the Establishment Clause in the case 
(see 461 U.S. at 604 n.30) had nothing to do with whether organizations 
that consider faith in making employment decisions are ineligible for 
government funding. In addition, whereas the Court in Bob Jones 
University concluded that racial discrimination in education was 
contrary to public policy, permitting religious organizations to 
consider faith in employment decisions is consistent with the public 
policy established decades ago, and maintained today, in the civil 
rights laws enacted by Congress.

Nondiscrimination Toward Beneficiaries

    Comment: Neither organizations that receive direct USDA funding nor 
organizations that receive indirect USDA funding should be able to 
discriminate against a beneficiary or potential beneficiary on the 
basis of religion. Generally, commenters believed that non-
discrimination toward a beneficiary on the basis of religion or 
religious belief should apply to both direct and indirect USDA 
assistance. One commenter also suggested that the regulation state that 
participating organizations cannot deny beneficiaries for refusal to 
participate in a religious practice.
    USDA Response: As mentioned earlier, any USDA-funded programs that 
were to involve indirect funding would, of course, have to comply with 
Federal law (including current legal precedent), and nothing in the 
regulation provides otherwise. Moreover, the religious freedom of 
beneficiaries in an indirect funding program is protected by the 
guarantee of genuine and independent private choice. Officials 
administering public funding under an indirect funding program would 
have an obligation to ensure that everyone who is eligible receives 
services from some provider, and no client could be required to receive 
services from a provider to which the client had a religious objection. 
In other words, vouchers and services indirectly funded by the 
government must be available to all clients regardless of their 
religious belief, and those clients who object to a provider that has 
integrated activities into the provision of its services have a right 
to services from some alternative provider.
    USDA believes that the religious freedom of beneficiaries is 
sufficiently explicit. For example, inherently religious activities, 
such as worship, religious instruction, and proselytization, must be 
separate in time or location from programs or services supported with 
direct USDA assistance, and participation in those inherently religious 
activities must be voluntary for beneficiaries of programs or services 
supported with direct assistance. Additionally, organizations that 
participate in programs and activities supported by direct USDA 
assistance programs are prohibited from discriminating against a 
program beneficiary or prospective program beneficiary on the basis of 
religion or religious belief. These protections require no further 
elaboration.
    Comment: Discrimination on the basis of sexual orientation. One 
commenter objected to the ability of religious organizations, as well 
as other organizations, to discriminate on the basis of sexual 
orientation.
    USDA Response: Although Federal law prohibits persons from being 
excluded from USDA Federally assisted services or subjected to 
discrimination based on race, color, national origin, sex, age, or 
disability, it does not prohibit discrimination on the basis of

[[Page 41379]]

sexual orientation. We decline to impose such restrictions by 
regulation.

Inherently Religious Activities

    Comment: ``Inherently religious'' does not capture the full range 
of prohibited activity. Some commenters asserted that the language 
describing proscribed religious activities is unclear or incomplete. 
These commenters suggest the rule be amended to make it clear that any 
religious activity is prohibited and that the provision of government-
funded services must be entirely secular.
    USDA Response: Concerning the treatment of ``inherently religious'' 
activities, 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 would include certain activities that are not inherently religious. 
Rather than attempt to establish an exhaustive regulatory definition, 
USDA has decided to retain 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 has not comprehensively defined inherently 
religious activities. For example, prayer and worship are inherently 
religious, but services supported by direct USDA assistance 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.''
    Finally, there is not constitutional support for the view that the 
government must exclude from its programs those organizations that 
convey religious messages or advance religion with their own funds. As 
noted above, the Supreme Court has held that the Constitution forbids 
the use of direct government funds for inherently religious activities, 
but the Court has rejected the presumption that religious organizations 
will inevitably divert such funds and use them for their own religious 
purposes. In sum, USDA believes that the requirement that when an 
organization receives direct USDA assistance, any inherently religious 
activities must be privately funded and separate in time or location 
from the USDA-assisted activities adequately sets out the parameters of 
the Supreme Court's jurisprudence.
    Comment: The provision on separation of inherently religious 
activities is inadequate. Some commenters suggested that the 
requirement is insufficient and that it be strengthened to require 
separation in time and location. One commenter stated that the rule 
failed to provide the separation requirement to food aid and 
commodities. Another commenter stated that the restriction that 
inherently religious activities need to be separated in time or 
location gives insufficient flexibility to small faith-based 
organizations. That commenters recommended adding the following 
language to 16.3(c): ``Responses to genuine and independent voluntary 
client-initiated requests for prayer or counseling, including the 
reading of religious texts or materials, do not require a separate time 
or location.''
    USDA Response: USDA does not believe that the requirement 
articulated in the regulation regarding separation necessitates any 
additional guidance or requirements for proper adherence to the 
Constitution. USDA believes that existing regulations and this rule are 
clear that faith-based organizations, or any organizations for that 
matter, using direct USDA assistance for certain activities must 
separate their inherently religious activities from the activities 
supported by such assistance. As to the suggestion that the rule must 
require separation in both time and location, USDA believes that such a 
requirement is not legally necessary 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 USDA-funded services. As commodities are a type of direct USDA 
assistance, commodities are also subject to the separation requirement. 
Nothing in this rule is intended to inhibit an organization's ability 
to respond to voluntary, client-initiated requests of any kind, 
including religious inquiries, provided that actual inherently 
religious activities are separated from services supported by direct 
USDA assistance. Thus, USDA disagrees that additional clarifying 
language is necessary in the regulatory text.
    Comment: Voluntary participation in any inherently religious 
activities. While some commenters were encouraged by the voluntary 
language of 16.3(c), others believed there were not enough safeguards 
for beneficiaries in this area. Some commenters recommended that the 
proposed rule be modified to require participating organizations to 
inform program beneficiaries at the outset of their receipt of services 
that participation in the organization's religious activities is 
voluntary.
    USDA Response: USDA believes that the language in the rule 
prohibiting faith-based organizations from requiring program 
beneficiaries to participate in religious activities is sufficiently 
explicit. USDA also declines to require that religious organizations 
provide a notice to a beneficiary or potential beneficiary assuring 
that participation in religious activities would be entirely on a 
voluntary basis. USDA recommends that both governmental officials 
administering USDA assistance and participating organizations work to 
ensure that clients and potential clients have a clear understanding of 
the services offered by the organization, including any religious 
activities, as well as the organization's expectations and 
requirements. The requirement that participation be voluntary, however, 
is sufficient to address concerns about the religious freedom of 
program beneficiaries.
    Comment: Clarify that students at religious schools that receive 
school lunch assistance may be required to attend religion classes and 
assemblies. One commenter noted that they appreciated the provision in 
16.3(b) that allowed religious schools receiving assistance under the 
School Lunch Act or the Child Nutrition Act to consider religion in 
their admission practices. They argued that a similar allowance needs 
to be made in 16.3(c) regarding the voluntariness language so that it 
is clear that students at a religious school can be required to attend 
the school's religion classes and assemblies.
    USDA Response: USDA agrees that 16.3(c) should contain the same 
allowance as is found in 16.3(b). Subsection (c) of the proposed rule 
has been renumbered subsection (b), and the language previously found 
in subsection (b) has been inserted into subsection (c) with a 
clarification that this rule does not affect either the admission or 
the attendance policies and curricular requirements of religious 
schools.
    Comment: A voucher program does not have adequate safeguards. Two 
commenters claimed that the proposed rule authorizes a voucher program 
for religious organizations without instituting adequate constitutional 
safeguards and requested that the rule be revised to comply with the 
framework instituted by Zelman v. Simmons Harris, 536 U.S. 639 (2002). 
These commenters stated that secular alternatives are not available in 
the social service context, eliminating the possibility of real choice 
by program beneficiaries.
    USDA Response: USDA respectfully declines to adopt the 
recommendations of the commenters. Any USDA-funded programs that were 
to involve indirect funding would, of course, have to

[[Page 41380]]

comply with Federal law--which includes current legal precedent such as 
Zelman. USDA believes that the above discussion and the rule adequately 
address these commenters' constitutional concerns.

Construction of Structures

    Comment: The provision allowing use of funds for acquisition, 
construction, or rehabilitation of structures is unconstitutional. Two 
commenters content that Supreme Court rulings only permit use of 
Federal funds on structures when those structures are used for solely 
secular purposes in perpetuity. Another indicated that the guidance was 
too vague on how to apportion costs for a dual-use structure. Finally, 
one argued that enforcement of this provision would lead to unseemly 
negotiations between the organizations and government over what are and 
are not religious activities.
    USDA Response: USDA believes that the prorated funding of 
improvements to a structure that has a mixed use--both religious and 
non-religious--it 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 USDA 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 USDA funds are not used to support any 
ineligible activity.
    USDA disagrees with those who commented that preventing the use of 
direct USDA 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. Because inherently religious 
activities are non-program activities, USDA need not distinguish 
between program participants' religious and non-religious non-program 
activities; the same mechanism by which USDA policies 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 not greater than that involved in other publicly funded 
programs that the Supreme Court has sustained.
    Comment: Technical, non-substantive changes. One commenter 
recommended in section 16.3(d)(1) that ``conducting activities'' should 
be replaced with ``conducting USDA programs and activities.'' Another 
commenter recommended that in the same section the first and second 
sentences be reversed since the second sentence states the general rule 
and the first sentence the exception to that rule.
    USDA Response: USDA agrees with these recommendations and adopts 
them in the final rule.

Effect on State and Local Funds and Laws

    Comment: Need to clarify if the rule is intended to preempt State 
and local civil rights and diversity requirements. A number of 
commenters stated that the language regarding State and local agencies 
disbursing Federal funds and the addition of State and local funds to 
Federal funds is unclear as to whether the rules regarding the Federal 
funds preempt any additional requirements that may be imposed by State 
and/or local laws or regulations. One commenter suggested that it be 
made clear that Federal rules govern these funds, while two commenters 
suggested that various areas of State and local law be retained when 
using these funds. The first commenter requested an explicit statement 
that Federal power preempts State/local procurement restrictions on 
religious staffing with USDA or commingled funds. One of the other 
commenters requested that the regulation expressly require that any 
recipients of this funding abide by State and local civil rights laws. 
The final commenter requested that local/State laws requiring board 
diversity not be preempted. That commenter also suggested that 16.2(b) 
not be interpreted to preempt State and local laws in general and 
employment restrictions specifically.
    USDA Response: The requirements that govern funding under the USDA 
programs at issue in these regulations do not directly address 
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.
    Comment: State and local governments should be required to 
segregate funds. One commenter requested that USDA require that State 
and local funds be kept separate from any Federal funds.
    USDA Response: USDA disagrees with these comments. As an initial 
matter, USDA believes it would be inappropriate to require States and 
local governments to separate their own funds from Federal funds in 
circumstances in which there is no matching or other required grantee 
contribution. Where no matching requirement or other required grantee 
contribution is applicable, whether to commingle State and Federal 
funds is a decision for the States and local governments to make. In 
addition, for the same reasons that language concerning voluntarily 
commingled funds does not require clarification, USDA believes the rule 
requires no clarification as to whether it applies to State funds. When 
State and local governments have the option to commingle their funds 
with Federal funds or to separate State and local funds from Federal 
funds, Federal rules apply only if they choose to commingle their own 
funds with Federal funds. Where a USDA program explicitly requires that 
Federal rules apply to State ``matching'' funds, ``maintenance of 
effort'' funds, or other grantee contributions that are commingled with 
Federal funds (i.e., are part of the grant budget), Federal rules 
remain applicable to both the Federal and State or local funds that 
implement the program.

Compliance

    Comment: Lack of an oversight mechanism. Some commenters were 
concerned that the lack of special oversight/reporting requirements/
assurances would make it possible for religious organizations to 
commingle Federal funds and not account for expenditure of the Federal 
funds. A couple of commenters requested that religious organizations be 
required to form separate 501(c)(3) organizations to receive Federal 
funds. One commenter also noted that there was no notice to 
beneficiaries of how to secure their rights or address a grievance if 
they believe a religious organization is not fulfilling the 
requirements of this regulation.
    USDA Response: USDA generally does not impose such requirements. It 
would be unfair to require religious organizations alone to comply with 
these additional burdens. Further, USDA finds no basis for requiring 
greater oversight and monitoring of faith-based organizations than of 
other program participants simply because they are faith-based 
organizations. As the Supreme Court stated in Allen,

[[Page 41381]]

``Absent evidence, we cannot assume that school authorities * * * are 
unable to distinguish between secular and religious [materials] or that 
they will not honestly discharge their duties under the law.'' Board of 
Ed. of Central Sch. Dist. No. 1 v. Allen, 392 U.S. 236, 244-245 (1968). 
All program participants must be monitored for compliance with program 
requirements, and no program participant may use USDA funds for any 
ineligible activity, whether that activity is an inherently religious 
activity or a non-religious activity that is outside the scope of the 
program at issue. Many secular organizations participating in USDA 
programs also receive funding from several sources (private, State, or 
local) to carry out activities that are ineligible for funding under 
USDA programs. In many cases, the non-eligible activities are secular 
activities but not activities eligible for funding under USDA 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.
    Applicable policies, guidelines, and regulations prescribe the cost 
accounting procedures that are to be followed in using USDA funds. 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 different from that 
involved in other publicly funded programs that the Supreme Court has 
upheld.

Additional Comments

    Comment: Ensure the availability of secular alternate service 
providers. Some commenters wrote that USDA should clarify that 
beneficiaries have a right to receive services from a different, non-
religious provider, and that the beneficiaries should be informed of 
this right by the faith-based provider.
    USDA Response: USDA declines to adopt the recommendations of the 
commenters. Under this final rule, directly assisted religious 
organizations are prohibited from discriminating against program 
beneficiaries on the basis of ``religions or religious belief.''
    In addition, the rule provides that religious organizations may not 
use direct USDA assistance for inherently religious activities, that 
such activities must be offered separately, in time or location, from 
services directly assisted by USDA, and that no beneficiary served in a 
program supported with direct USDA assistance will be required to 
participate in inherently religious activities as a condition of 
receiving services. These requirements sufficiently protect the rights 
of program beneficiaries.
    Comments: Inadequate protection in relation to what organizations 
will receive funding. One commenter expressed concern that the 
regulation fails to prevent government funds from flowing to ``anti-
Semitic, racist, or bigoted organizations.''
    USDA Response: The existing protections of applicable civil rights 
laws are not altered in any way by these regulations. Faith-based 
organizations that receive funding must adhere to all of these 
applicable Federal requirements.
    Comment: Religious organizations hold a special place in society 
and the Constitution. One commenter argued that equating or treating as 
equal religious and non-religious organizations fails to recognize the 
unique position religious organizations have in our society and 
Constitutional scheme because religion should be above the fray of 
government funding, government regulation, and government auditing, not 
reduced to it.
    USDA Response: USDA agrees with the commenter that religious 
organizations have a unique position in our society and Constitutional 
scheme; however, USDA does not agree that the unique nature of 
religious organizations should prevent them from receiving an equal 
opportunity to participate in federally funded programs, and this rule 
does not present any violation of the Establishment Clause or Free 
Exercise Clause. Rather, this rule governs the conscious decision of a 
religious organization to administer regulated activities, by accepting 
public funds to do so. Therefore, we have retained language that 
enables faith-based organizations to compete on an equal footing for 
funding within the framework of constitutional parameters. Whether to 
participate in government funding is a decision of the particular 
religious organization.
    Comment: Barriers to specific USDA programs. Some commenters also 
included examples of barriers they have encountered in specific USDA 
programs.
    USDA Response: Because these barriers have their roots in statutes 
or regulations for specific programs and are not specific to faith-
based or community organizations it is not within our scope to address 
them, but we encourage the commenters to direct their concerns to the 
relevant divisions at USDA.
    Comment: Rulemaking is unauthorized and undemocratic. One commenter 
objected to the rule because the Constitution does not contain 
rulemaking as a power of the executive branch. The commenter went on to 
say that there is very weak link between rulemaking and democracy since 
the rules are published in a obscure venue and are made through strict 
processes. This makes participation and democratic accountability 
difficult, if not impossible. Finally, the commenter expressed concern 
about the sweeping nature of rules as opposed to administrative 
adjudication, which decides just a specific case.
    USDA Response: Rulemaking is a necessary component of the executive 
branch's responsibly to uphold the Constitution and faithfully execute 
legislation passed by Congress and programs contained. Moreover, the 
Secretary is authorized to issue rules pursuant to 5 U.S.C. 301.

III. Findings and Certifications

Executive Order 12866--Regulatory Planning and Review

    The final rule is issued in conformance with Executive Order 12866 
on Regulatory Planning and Review. The Office of Management and Budget 
has determined that this is a significant regulatory action as defined 
by Executive Order 12866. Accordingly, the Office of Management and 
Budget has reviewed this final rule.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 
1531-1538) established 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 the Unfunded Mandates Reform Act 
of 1995.

Executive Order 13132, Federalism

    Executive Order 13132, Federalism, requires that Federal agencies 
consult with state and local governments and their officials in the 
development of regulatory policies with federalism implications. 
Consultation was accomplished through solicitation of comment on the 
proposed rule.

Regulatory Flexibility Act

    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

[[Page 41382]]

economic impact on a substantial number of small entities. The final 
rule would not impose any new costs, or modify existing costs, 
applicable to USDA assistance recipients. Rather, the purpose of the 
rule is to remove policy prohibitions that currently restrict equal 
participation of faith-based organizations in USDA assistance programs.

Government Paperwork Elimination Act

    USDA is committed to compliance with the Government Paperwork 
Elimination Act (Pub. L. 105-277), which requires government agencies 
to provide the public the option of submitting information or 
transacting business electronically to the maximum extent possible.

Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (44 U.S.C. Chap. 35; see 5 CFR 
1320) requires that the Office of Management and Budget approve all 
collections of information by a Federal agency from the public before 
they can be implemented. There is no additional information collection 
burden imposed by this final rule.

List of Subjects in 7 CFR Part 16

    Administrative practice and procedure, Agriculture, Grant programs, 
Reporting and recordkeeping requirements.

0
For the reasons stated in the preamble, USDA proposes to add part 16 of 
Title 7 of the Code of Federal Regulations as follows:

PART 16--EQUAL OPPORTUNITY FOR RELIGIOUS ORGANIZATIONS

Sec.
16.1 Purpose and applicability.
16.2 Rights of religious organizations.
16.3 Responsibilities of participating organizations.
16.4 Effect on State and local funds.
16.5 Compliance.

    Authority: 5 U.S.C. 301; E.O. 13279, 67 FR 77141, 3 CFR, 2002 
Comp., p. 258; E.O. 13280, 67 FR 77145, 3 CFR, 2002 Comp., p. 262.


Sec.  16.1  Purpose and applicability.

    (a) The purpose of this part is to set forth USDA policy regarding 
equal opportunity for religious organizations to participate in USDA 
assistance programs for which other private organizations are eligible.
    (b) Except as otherwise specifically provided in this part, the 
policy outlined in this part applies to all recipients and 
subrecipients of USDA assistance to which 7 CFR parts 3015, 3016, or 
3019 apply, and to recipients and subrecipients of Commodity Credit 
Corporation assistance that is administered by agencies of USDA.


Sec.  16.2  Rights of religious organizations.

    (a) A religious organization is eligible, on the same basis as any 
other eligible private organization, to access and participate in USDA 
assistance programs. Neither the Federal government nor a State or 
local government receiving USDA assistance shall, in the selection of 
service providers, discriminate for or against a religious organization 
on the basis of the organization's religious character or affiliation.
    (b) A religious organization that participates in USDA assistance 
programs will retain its independence and may continue to carry out its 
mission, including the definition, practice, and expression of its 
religious beliefs, provided that it does not use USDA direct assistance 
to support any inherently religious activities, such as worship, 
religious instruction, or proselytization. Among other things, a 
religious organization may:

    (1) Use space in its facilities to provide services and programs 
without removing religious art, icons, scriptures, or other 
religious symbols,
    (2) Retain religious terms in its organization's name,
    (3) Select its board members and otherwise govern itself on a 
religious basis, and
    (4) Include religious references in its organizations' mission 
statements and other governing documents.

    (c) In addition, 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 an organization receives USDA 
assistance.


Sec.  16.3  Responsibilities of participating organizations.

    (a) An organization that participates in programs and activities 
supported by direct USDA assistance programs shall not discriminate 
against a program beneficiary or prospective program beneficiary on the 
basis of religion or religious belief.
    (b) Organizations that receive direct USDA assistance under any 
USDA program may not engage in inherently religious activities, such as 
worship, religious instruction, or proselytization, as part of the 
programs or services supported with direct USDA assistance. If an 
organization conducts such activities, the activities must be offered 
separately, in time or location, from the programs or services 
supported with direct assistance from USDA, and participation must be 
voluntary for beneficiaries of the programs or services supported with 
such direct assistance. These restrictions on inherently religious 
activities do not apply where USDA funds or benefits are provided to 
religious organizations as a result of a genuine and independent 
private choice of a beneficiary or through other indirect funding 
mechanisms, provided the religious organizations otherwise satisfy the 
requirements of the program.
    (c) Nothing in paragraphs (a) or (b) shall be construed to prevent 
religious organizations that receive USDA assistance under the Richard 
B. Russell National School Lunch Act, 42 U.S.C. 1751 et seq., the Child 
Nutrition Act of 1966, 42 U.S.C. 1771 et seq., or USDA international 
school feeding programs from considering religion in their admissions 
practices or from imposing religious attendance or curricular 
requirements at their schools.
    (d)(1) Direct USDA assistance may be used for the acquisition, 
construction, or rehabilitation of structures only to the extent that 
those structures are used for conducting USDA programs and activities 
and only to the extent authorized by the applicable program statutes 
and regulations. Direct USDA assistance may not be used for the 
acquisition, construction, or rehabilitation of structures to the 
extent that those structures are used by the USDA funding recipients 
for inherently religious activities. Where a structure is used for both 
eligible and inherently religious activities, direct USDA assistance 
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 USDA funds. Sanctuaries, chapels, or other rooms that an 
organization receiving direct assistance from USDA uses as its 
principal place of worship, however, are ineligible for USDA-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 7 CFR parts 3015, 3016 and 3019).
    (2) Any use of direct USDA assistance funds for equipment, 
supplies, labor, indirect costs and the like shall be prorated between 
the USDA program or activity and any use for other purposes by the 
religious organization in accordance with applicable laws, regulations, 
and guidance.
    (3) Nothing in this section shall be construed to prevent the 
residents of

[[Page 41383]]

housing receiving direct USDA assistance funds from engaging in 
religious exercise within such housing.


Sec.  16.4  Effect on State and local funds.

    If a State or local government voluntarily contributes its own 
funds to supplement activities carried out under programs governed by 
this part, the State or local government has the option to separate out 
the direct USDA assistance funds or commingle them. If the funds are 
commingled, the provisions of this part shall apply to all of the 
commingled funds in the same manner, and to the same extent, as the 
provisions apply to the direct USDA assistance.


Sec.  16.5  Compliance.

    USDA agencies will monitor compliance with this part in the course 
of regular oversight of USDA programs.

Ann M. Veneman,
Secretary of Agriculture.
[FR Doc. 04-15678 Filed 7-7-04; 11:16 am]
BILLING CODE 3410-90-M