[Federal Register Volume 69, Number 136 (Friday, July 16, 2004)]
[Rules and Regulations]
[Pages 42586-42595]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-16130]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Office of the Secretary

45 CFR Parts 74, 87, 92, and 96

RIN 0991-AB34


Participation in Department of Health and Human Services Programs 
by Religious Organizations; Providing for Equal Treatment of All 
Department of Health and Human Services Program Participants

AGENCY: Office of the Secretary, Department of Health and Human 
Services (HHS).

ACTION: Final rule.

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SUMMARY: On March 9, 2004, the Department of Health and Human Services 
(HHS) published a Notice of Proposed Rulemaking (NPRM) to implement 
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 the Department's funding without impairing the 
religious character of such organizations. It creates a new regulation 
on Equal Treatment for Faith-Based Organizations, and revises 
Department regulations to remove barriers to the participation of 
faith-based organizations in Department programs and to ensure that 
these programs are implemented in a manner consistent with applicable 
statutes and the requirements of the Constitution, including the 
Establishment, Free Exercise, and Free Speech Clauses of the First 
Amendment. The Secretary requested comments on the NPRM and gave 60 
days for individuals to submit their written comments to the 
Department. The Secretary has considered the comments received during 
the open comment period and is issuing the final regulation in light of 
those comments.

EFFECTIVE DATE: This rule is effective August 16, 2004.

FOR FURTHER INFORMATION CONTACT: Bobby Polito, Director, Department of 
Health and Human Services Center for Faith-Based and Community 
Initiatives, 200 Independence Ave., Room 120F, Washington, DC 20201, 
telephone (202) 358-3595.

SUPPLEMENTARY INFORMATION: On March 9, 2004, HHS published a Notice of 
Proposed Rulemaking (NPRM) to implement executive branch policy (69 FR 
10951). We provided a 60-day comment period that ended on May 10, 2004. 
We offered the public the opportunity to submit comments by surface 
mail, E-mail, or electronically via our Web site.

Background

    This final rule is part of the Department's effort to fulfill its 
responsibilities under two Executive Orders issued by President Bush. 
The first of these Orders, Executive Order 13198 of January 29, 2001, 
published in the Federal Register on January 31, 2001 (66 FR 8497), 
created Centers for Faith-Based and Community Initiatives in five 
cabinet departments--Housing and Urban Development, Health and Human 
Services, Education, Labor, and Justice--and directed these Centers to 
identify and eliminate regulatory, contracting, and other programmatic 
obstacles to the equal participation of faith-based and community 
organizations in the provision of social services by their Departments. 
The second of these Executive Orders, Executive Order 13279 of December 
12, 2002, 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. President Bush thereby called for an 
end to discrimination against faith-based organizations and ordered 
implementation of these policies throughout the executive branch in a 
manner consistent with the First Amendment to the United States 
Constitution. He further directed that faith-based organizations be 
allowed 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 nonreligious--to participate as 
partners in Federal programs.

Summary Description of Regulatory Provisions

    The following is a summary of the regulatory provisions included in 
this final rule which creates a new Part 87 Equal Treatment for Faith-
based Organizations, and revises the Department's uniform 
administrative requirements at 45 CFR Parts 74, 92, and 96 to 
incorporate the requirements of Part 87. The final rule is applicable 
only to those grants, agreements, and other financial assistance 
covered by such requirements.
    The rule has the following specific objectives:
    (1) Participation by faith-based organizations in Department of 
Health and Human Services programs. The rule provides that 
organizations are eligible to participate in Department programs 
without regard to their religious character or affiliation, and that 
organizations may not be excluded from the competition for Department 
grant funds simply because they are religious. Specifically, religious 
organizations are eligible to compete for funding on the same basis, 
and under the same eligibility requirements, as other organizations. 
The Department, as well as State and local governments administering 
funds under Department programs or intermediate organizations with the 
same duties as a governmental entity under this part, are prohibited 
from discriminating for or against organizations on the basis of 
religious character or affiliation in the selection of service 
providers. Nothing in the rule, however, precludes those administering 
Department-funded programs from accommodating religious organizations 
in a manner consistent with the Establishment Clause.
    (2) Inherently religious activities. The rule describes the 
requirements that are applicable to all recipient organizations 
regarding the use of Department grant funds for inherently religious 
activities. Specifically, a participating organization may not use 
direct financial assistance from the Department, as well as from State 
and local governments or intermediate organizations administering funds 
under Department programs, to support inherently religious activities, 
such as worship, religious instruction, or proselytization. If the 
organization engages in such activities, it must offer them separately, 
in time or location, from the programs or services funded with direct 
Department assistance, and participation must be voluntary for the 
beneficiaries of the Department-funded programs or services. This 
requirement ensures that direct financial assistance from the 
Department to participating organizations is not used to support 
inherently religious activities. Such assistance may not be used, for 
example, to conduct worship services, prayer

[[Page 42587]]

meetings, or any other activity that is inherently religious. The rule 
clarifies that this restriction does not mean that an organization that 
receives Department grant funds may not engage in inherently religious 
activities, but only that such an organization may not fund these 
activities with direct financial assistance from the Department.
    (3) Independence of faith-based organizations. The rule makes clear 
that a religious organization that participates in Department programs 
retains 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 direct financial assistance from 
the Department to support any inherently religious activities, such as 
worship, religious instruction, or proselytization. Among other things, 
a faith-based organization may use space in its facilities to provide 
Department-funded services without removing religious art, icons, 
scriptures, or other religious symbols. In addition, a religious 
organization that receives financial assistance from the Department 
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 in 
accordance with all program requirements, statutes, and other 
applicable requirements governing the conduct of Department-funded 
activities.
    (4) Employment practices. The rule makes clear the Department's 
view that religious organizations do not forfeit their exemption from 
the Federal prohibition on employment discrimination on the basis of 
religion set forth in Sec.  702(a) of the Civil Rights Act of 1964. 
Some Department programs, however, have independent statutory 
nondiscrimination requirements related to religious discrimination. 
Therefore, organizations should consult with the appropriate grant 
program office.
    (5) Nondiscrimination in providing assistance. The rule provides 
that an organization that receives direct financial assistance from the 
Department, as well as from State and local governments or intermediate 
organizations administering funds under Department programs may not, in 
providing program assistance supported by such funding, discriminate 
against a program beneficiary or prospective program beneficiary on the 
basis of religion or religious belief.
    (6) Assurance requirements. The final rule establishes that all 
organizations that participate in Department programs, including 
organizations with religious character or affiliations, are required to 
carry out eligible activities in accordance with all program 
requirements and other applicable requirements governing the conduct of 
Department-funded activities, including those prohibiting the use of 
direct financial assistance from the Department to support inherently 
religious activities. The Department will not require only religious 
organizations to provide assurances that they will not use monies or 
property for inherently religious activities. Any restrictions on the 
use of financial assistance shall apply equally to religious and non-
religious organizations. Thus, the Department, through this regulation, 
intends to create a ``level playing field.''

Discussion of Regulatory Provisions and Response to Public Comments

    The Department received comments on the proposed rule from four 
commenters, three of which were public interest or civil or religious 
liberties organizations, and one of which was a State Department of 
Human Services. Some of the comments were generally supportive of the 
proposed rule; others were critical. The following is a summary of the 
comments and the Department's responses.

I. Definition of ``Faith-Based Organization''

    One commenter noted that the term ``faith-based'' is not defined 
and requested that a comprehensive definition of a ``faith-based'' 
entity be included in the final regulation consistent with the 
Temporary Assistance for Needy Families (TANF) and Substance Abuse and 
Mental Health Services Administration (SAMHSA) Charitable Choice 
regulations. This commenter also suggested that the definition include 
an explanation as to whether the terms ``religious organization'' and 
``faith-based organization'' are used interchangeably.
    Throughout the proposed rule, we used the term ``religious 
organization'' and the term ``faith-based organization'' 
interchangeably. As we noted in the preamble of the SAMHSA charitable 
choice rule, however, neither the U.S. Constitution nor the relevant 
Supreme Court precedents contain a comprehensive definition of religion 
or a religious organization that must be applied to this rule. See 68 
FR 56431 (Sept. 30, 2003). Rather, an extensive body of judicial 
precedent has established guidelines advising States and religious 
organizations on how to abide by the Establishment and Free Exercise 
Clauses of the First Amendment to the United States Constitution. The 
Department does not believe it is necessary to further define the term 
``faith-based'' in the rule.

II. Religious Activities

    A number of comments addressed the extent to which religious 
organizations may receive and use public funds, and whether and how 
groups that are ``pervasively sectarian'' may use such funds under the 
law. One commenter expressed concern that the rule allows public funds 
to be given to ``pervasively sectarian'' organizations. One commenter 
asked for clarification regarding the mandate that any religious 
activity must be separate and apart from the provision of HHS services. 
This commenter believed the requirement that ``inherently religious'' 
activities must be offered ``separately, in time or location'' from 
government-funded services fails to meet current constitutional 
standards governing aid to religious institutions. Further, a commenter 
stated that the rule improperly allows religious art, icons, 
scriptures, and other symbols to be displayed in an area where HHS-
funded services are delivered.
    One comment commended the Department for emphasizing that secular 
as well as religious organizations are subject to the ban on using 
direct government funds to underwrite inherently religious activities 
and for stating clearly that governments using Department funds may not 
apply more extensive requirements to religious organizations than to 
their secular counterparts, specifically referring to Sec. Sec.  
87.1(e) and 87.2(e).
    In addition, several comments supported the mandate in the 
regulation that governments that use Department grant funds may not 
discriminate either for or against religious organizations and that 
religious organizations seeking support should not be discriminated 
against either because of their religious character or because of a 
religious affiliation.
    The Constitution does not require the Department to assess the 
overall religiousness of an organization and deny financial assistance 
to organizations that are ``pervasively sectarian.'' Rather, religious 
(and other) organizations that receive direct funding from the 
Department may not use such support for inherently religious activities 
and they must ensure that these activities are separate in time or 
location from services directly funded by the Department and that

[[Page 42588]]

participation in such activities by program beneficiaries is voluntary. 
Furthermore, under the rule, such religious organizations receiving 
direct funding are prohibited from discriminating for or against 
program beneficiaries on the basis of religion or religious belief and 
participating organizations that violate these requirements are subject 
to applicable sanctions and penalties. The rule would thus ensure that 
direct funding is not used for inherently religious activities, as 
required by current precedent.
    Moreover, the Supreme Court's ``pervasively sectarian'' doctrine no 
longer enjoys the support of a majority of the Court. Four Justices 
expressly abandoned the ``pervasively sectarian'' doctrine in Mitchell 
v. Helms and Justice O'Connor's opinion in that case, joined by Justice 
Breyer, set forth reasoning that is inconsistent with its underlying 
premises. 530 U.S. 793, 825-829, 857-858 (2000) (plurality opinion) 
(O'Connor, J., concurring in judgment) (requiring proof of ``actual 
diversion of public support to religious uses''). Thus, six members of 
the Court have rejected the view that aid provided to religious 
institutions will invariably advance the institutions' religious 
purposes that is the foundation of the ``pervasively sectarian'' 
doctrine. The Department therefore believes that under current 
precedent, the Department may fund programs of all organizations, 
without regard to religion and free of criteria that require the 
program to abandon its religious expression or character.
    Neither does current Supreme Court precedent require or support the 
view that government must exclude from its programs those organizations 
that convey religious messages or advance religion with their own 
funds. Where a religious organization receives direct government 
assistance, any inherently religious activities that the organization 
offers must simply be offered separately, in time or location, from the 
activities supported by direct government funding. 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.
    As to the comment about religious artwork, a number of Federal 
statutes affirm the principle embodied in this rule. See, e.g., 42 
U.S.C. Sec.  290kk-1(d)(2)(B). Moreover, for no other program 
participants do Department regulations prescribe the types of artwork 
and symbols that may be placed within the structures or rooms in which 
Department-funded services are provided. In addition, a prohibition on 
the use of religious icons would make it more difficult for many faith-
based organizations to participate in Department programs than for 
other organizations by forcing them to procure additional space. It 
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 Department programs will 
retain its independence and may continue to carry out its mission, 
provided that it does not use direct Department 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 Department-funded services, without removing 
religious art, icons, scriptures, or other religious symbols.
    One commenter urged that a clear statement be made as to the 
constitutional consequences of indirect as opposed to direct funding.
    As used in this final rule, the term ``direct funds'' refers to 
direct funding within the meaning of the Establishment Clause of the 
First Amendment. For example, under a direct funding method, the 
government or an intermediate organization with the same duties as a 
governmental entity may purchase the needed services straight from the 
provider. Direct Federal funds may not be used for inherently religious 
activities. Faith-based organizations that receive direct Federal funds 
must take steps to separate, in time or location, their inherently 
religious activities from the federally funded services they offer. In 
addition, any participation by a program beneficiary in such religious 
activities must be voluntary and understood to be voluntary.
    On the other hand, these restrictions on inherently religious 
activities do not apply where Federal funds are indirectly provided to 
religious organizations (for example, as a result of a genuine and 
independent private choice of a beneficiary through a voucher, 
certificate, coupon, or similar mechanism). Under indirect programs, 
religious organizations that receive Federal funds to provide services 
as a result of a beneficiary's genuine and independent private choice 
need not separate, in time or location, their inherently religious 
activities from the federally funded services they provide, on the 
condition that they otherwise satisfy the requirements of the program.
    The Supreme Court has consistently held that governments may fund 
programs that place the benefit in the hands of individuals, who in 
turn have the freedom to choose the provider to which they take their 
benefit and spend it, whether that institution is public or private, 
religious or nonreligious. Therefore, any consequential aid to religion 
having its origin in such a program is the result of the beneficiary's 
own choice. See, e.g., Zelman v. Simmons-Harris, 536 U.S. 639, 652 
(2002).

III. Employment Laws

    Several commenters maintained that longstanding principles of 
constitutional law prohibit the government from funding employee 
positions that are filled based on discriminatory criteria. They 
believed the rule improperly extends the Title VII exemption, under 
which religious organizations are exempt from the general Title VII 
prohibition against religious discrimination in employment, to 
religious organizations participating in programs directly funded by 
HHS.
    We do not agree that these comments accurately portray the law.
    In 1972, Congress broadened Sec.  702(a) of the Civil Rights Act to 
exempt religious organizations from the religious nondiscrimination 
provisions of Title VII, regardless of the nature of the job at issue. 
The broader, amended provision was unanimously upheld by the Supreme 
Court in 1987 and, absent a specific statutory repeal, remains 
applicable even when religious organizations are delivering federally 
funded social services. Thus, although Sec.  702(a) of the Civil Rights 
Act of 1964 is permissive--it does not require religious staffing--
religious organizations may consider their faith in making employment 
decisions without running afoul of Title VII. The effect of the 
explicit preservation of the Title VII exemption is no different from 
the rule that applies in other programs that are simply silent on the 
question of the applicability of Title VII in the funding context, and 
there are many such programs.
    The Department further disagrees with objections to the rule's 
recognition that a religious organization does not forfeit its Title 
VII exemption when administering Department-funded services. 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

[[Page 42589]]

applicable to federally funded organizations 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. As noted above, the employment decisions of organizations that 
receive extensive public funding are not attributable to the State, 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). Finally, the 
Department 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, the Department declines to amend the 
final rule to require religious organizations to forfeit their Title 
VII rights.
    One commenter believed the rule fails to make clear that program 
participants must comply with Federal statutory provisions requiring 
grantees not to discriminate in employment hiring practices. This 
commenter suggested that the rule be amended to make clear to grantees 
that they must comply with statutory requirements that prohibit 
employment discrimination on the basis of religion in HHS-funded 
programs that contain such statutory provisions.
    The Department understands that grantees need to be aware of such 
provisions and believes such information is most easily obtained and 
best explained by the appropriate Department offices. The purpose of 
this rulemaking is to eliminate undue administrative barriers that the 
Department has imposed to the participation of faith-based 
organizations in Department programs; of itself, the rule does not 
alter existing statutory requirements, which apply to Department 
programs to the same extent that they applied prior to this rule.

IV. Interaction With State and Local Law

    One commenter believed the rule disregards local laws pertaining to 
diversity requirements for governing boards and they proposed that the 
rule be modified to make clear that it does not preempt State and local 
diversity requirements that pertain to board membership of 
organizations operating publicly funded programs. Several commenters 
felt that the rule fails to preserve State and local laws that relate 
to discrimination in employment. Another commenter observed that some 
States do not allow discrimination in hiring practices based on sexual 
orientation and gender identity, although Federal law contains no such 
prohibition. To avoid confusion, the commenters believed, the rule 
should be clear that State and local governments will continue to be 
allowed to enforce provisions that restrict or prohibit the use of 
funds by religious organizations who participate in publicly funded 
programs.
    The commenters requested that additional language be added to Part 
87 to clarify that a religious organization using a Department program 
or receiving Department grant dollars is subject to all applicable 
Federal, State, and local civil rights laws.
    The requirements that govern funding under the Department 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 Federal requirements applicable to the 
program funds.
    Under this rule, a religious organization's exemption from the 
Federal prohibition on employment discrimination on the basis of 
religion, set forth in Sec.  702(a) of the Civil Rights Act of 1964 (42 
U.S.C. 2000e-1), is not forfeited when the religious organization 
receives direct or indirect financial assistance from the Department, 
although a Department program may contain independent statutory 
provisions governing employment. Thus, this rule will apply when a 
State or local government uses Federal funds to provide services under 
a Department program and the religious organization will remain free to 
make employment choices based on religion under Title VII. 
Additionally, if a State or local government contributes its own funds 
to the Federal funds and the funds are commingled, the provisions of 
this section shall apply to all of the commingled funds in the same 
manner, and to the same extent, as the provisions apply to the Federal 
funds.

V. State Action

    One commenter suggested that the rule transforms organizations that 
are permitted to consider religion in employment decisions into state 
actors.
    The Department disagrees with this comment. The receipt of 
government funds does not convert the employment decisions of private 
institutions into ``state action'' that is subject to constitutional 
restrictions regarding religious discrimination in employment. See 
Rendell-Baker v. Kohn, 457 U.S. 830 (1982) (holding that the employment 
decisions of a private school that receives more than 90% of its 
funding from the State are not state action).

VI. Effect on State and Local Funds of Commingling of Funds

    One commenter requested that a statement be made that because of 
the use of Federal funds, Federal power preempts State and local 
procurement restrictions on religious staffing when the funds involved 
are Department funds or commingled State or local funds. Another 
commenter believed that the regulation impermissibly forces States to 
waive enforcement of state constitutional, statutory, and regulatory 
requirements that may be more restrictive than the applicable Federal 
requirements. Additionally, one commenter objected to the language in 
Sec. Sec.  87.1(h) and 87.2(h) that applies the rules to State and 
local funds when these funds are commingled with Federal funds, 
regardless of whether State or local funds are required as a condition 
for the receipt of Federal funds. One commenter noted that State or 
local governments cannot draw down particular Department grant funds 
without contributing matching funds and suggested that State or local 
matching funds should be subject to the rule whether or not the 
matching funds are commingled with the Department's funds because they 
are inherently a part of the Department-funded program.
    We disagree that the rule forces waiver or directly addresses 
preemption of State and local laws. When State and local governments, 
or other grantees, supplement the non-Federal share of the award, then 
the grantees have the option to commingle such supplemental funds with 
Federal funds or to separate them (i.e., where no Federal requirement 
mandates commingling). Federal rules apply if they choose to commingle 
their own supplemental funds with Federal funds. We agree with the last 
commenter and have edited the final rule accordingly. In Department 
programs Federal rules ordinarily apply to State ``matching'' funds or 
``cost sharing'' funds which are required as part of the grant award. 
Therefore, these Federal regulations remain applicable to State, local, 
or other grantee matching

[[Page 42590]]

funds that are required as part of the grant award.

VII. Assurances of Compliance and Oversight

    One commenter suggested that Sec.  87.2 include a requirement that 
State and local governments that receive Department funds in the form 
of formula or block grants must provide to the Department some kind of 
explicit assurance that they will follow, or evidence that they have 
followed, the rule.
    The Department declines to adopt this suggestion. It is a condition 
of any grant to comply with existing rules and each grantee must sign 
assurances certifying that the grantee will comply with the various 
laws applicable to the receipt of Federal grants. The Department 
believes that those signed assurances, plus existing compliance and 
auditing standards, provide appropriate oversight.
    Another commenter stated that the rule must provide safeguards to 
reduce potential constitutional violations and provide adequate 
oversight and monitoring of grantees so that, when government grant 
funds are given to faith-based institutions, additional safeguards 
adequate to prevent religious use of the funds are in place. This 
commenter did not feel that the rule outlines any oversight mechanisms 
to prevent the religious use of government funds and expressed concern 
that a pervasively sectarian entity could intermingle government funds 
and funds for ``inherently religious activities'' with no way to 
account for the expenditure of government funds.
    The Department has not revised the rule in response to these 
comments. The Department has a responsibility to monitor all program 
participants to ensure that Department grant funds are used in 
accordance with the particular Department program and any government-
wide requirements. Inappropriate use of grant funds or failure to 
comply with requirements is not a possibility that arises only when 
program participants are faith-based organizations. Failure of any 
organization receiving Federal funds to ensure that such funding is not 
used for prohibited purposes will subject the organization to the 
imposition of sanctions or penalties. All Department program 
participants must carefully manage their various sources of Federal 
funds and abide by OMB cost accounting circulars, where applicable, or 
other cost accounting method that may be specified in individual 
program regulations. With respect to discretionary grants, the 
Department is authorized to conduct any audits or reviews that are 
warranted, irrespective of the amount of Federal funds expended by the 
grantee annually, in order to ensure compliance with program 
requirements, including the restriction against direct funding of 
inherently religious activities. See 45 CFR 74.26, 74.51, 74.53, 92.26, 
92.40, 92.42. The Department may determine that such audits or reviews 
are warranted based upon any information received by the agency that 
raises an issue concerning the propriety of expenditures. With respect 
to block grants, the Department also has broad oversight authority to 
ensure compliance with program requirements including the restriction 
against direct funding of inherently religious activities. See 45 CFR 
Part 96, Subparts C and E, as well as specific authority provided under 
each block grant statute. In sum, the Department believes that signed 
assurances applicable to all grantees, plus existing compliance and 
auditing standards, provide the needed oversight and ensure that the 
States, localities and religious organizations are implementing the 
rule properly and that all beneficiaries' rights are being upheld as 
required.

VIII. Rights of Beneficiaries

    Several commenters stated that the rule fails to adequately protect 
the rights of beneficiaries in direct funding programs. They believed 
the rule should outline procedures for beneficiaries to file complaints 
regarding their treatment and access to services from organizations 
that fail to respect the rights of beneficiaries. The commenters argued 
that to meet current constitutional standards regarding beneficiaries' 
participation in religious activities, beneficiaries should receive a 
notice of their rights and how they may address any grievances. One of 
these commenters also felt that language prohibiting discrimination 
based on religion or religious beliefs should be strengthened to ensure 
that Federal monies cannot be used to discriminate on the basis of 
sexual orientation or gender identity. This commenter suggested that 
the rule fails to provide the necessary constitutional safeguards to 
protect the religious liberty of program beneficiaries and felt that 
the rule does not provide meaningful ways in which beneficiaries can 
secure their rights. The commenter also believed that the rule fails to 
provide any protections for beneficiaries of indirect aid programs and 
expressed concern that there is no requirement that a beneficiary be 
given notice of her rights in redeeming publicly funded, Department-
approved vouchers. The commenter felt that the rule should prohibit the 
participation of organizations in voucherized programs that have a 
policy of discriminating in the admittance of a beneficiary to a 
program or in the provision of services.
    One commenter expressed concern that the rule contains no 
requirements pertaining to notice, referral and provision of 
alternative services for beneficiaries who object to the religious 
character of a Department participating organization. This commenter 
felt the rule should be modified to require that a non-religious 
alternative must be made available to beneficiaries who object to a 
religious participating organization. The commenter also believed that 
the rule should require that notice of the availability of an 
alternative provider be given to all beneficiaries at the outset of 
their receipt of services.
    The Department declines to adopt these recommendations. It believes 
that the existing language prohibiting organizations receiving direct 
funds from discriminating against program beneficiaries on the basis of 
``religion or religious belief'' is sufficiently explicit. In addition, 
the rule provides that religious organizations may not use direct 
Federal funding from the Department for inherently religious activities 
and that any such activities must be offered separately, in time or 
location, and must be voluntary for program beneficiaries. These 
requirements further protect the rights of program beneficiaries, for 
whom traditional channels of airing grievances are generally available. 
While some Department programs (e.g., SAMHSA and TANF Charitable 
Choice) contain statutory requirements of notice and referral and 
provision of alternative services, we have declined to adopt such 
requirements by regulation for all Department programs.
    As for indirect programs, 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 have an obligation to ensure that 
everyone who is eligible receives services from some provider, and no 
client may be 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 
religious provider have a right to services from some alternative 
provider.

[[Page 42591]]

    As to the comment about sexual orientation and gender identity, 
although Federal law prohibits persons from being excluded from 
participation in Department services or subjected to discrimination 
based on race, color, national origin, sex, age, or disability, it does 
not prohibit discrimination on the basis of sexual orientation or 
gender identity. We decline to impose such additional requirements by 
this rule.
    One commenter requested clarification of the statements in the 
regulation that religious organizations which accept Department grant 
funds comply with ``all program requirements and other applicable 
requirements governing the conduct of Department-funded activities'' in 
Sec. Sec.  87.1(c) and (e) and Sec. Sec.  87.2(c) and (e). The 
commenter expressed concern that this statement would subordinate the 
protections for the religious character of the grantee provided for in 
this regulation to individual Department program requirements.
    Some Department programs have independent statutory requirements 
that must be met, and thus organizations that receive grant funds 
distributed under such a program must comply with these Federal 
requirements. Absent such requirements, we reiterate that under this 
rule, when a religious organization participates in Department-funded 
programs, it retains its independence and may continue to carry out its 
mission. This may include the definition, practice, and expression of 
its religious beliefs, provided that it does not use direct financial 
assistance from the Department to support any inherently religious 
activities, such as worship, religious instruction, or proselytization. 
Organizations that have further questions should consult with the 
appropriate grant office.
    One commenter requested that the rule be extended to cover non-
financial assistance such as technical assistance.
    This regulation is designed to amend the Department's uniform 
administrative requirements at 45 CFR Parts 74, 92, and 96 and is 
applicable only to those grants, agreements, and any other assistance 
covered by such requirements. Thus, such other assistance offered by 
the Department, such as technical assistance provided by the 
Department, is not appropriately addressed by this rule. However, when 
an organization receives a grant from the Department to provide 
technical assistance on behalf of the Department, the provisions of 
this rule apply just as they apply to other grants.
    Another commenter noted that this regulation does not address the 
provision of alternative services as required by the Charitable Choice 
regulations and requested clarification as to whether there is to be an 
additional burden on the States regarding provision of these services.
    At this time, we decline to incorporate alternative service 
requirements into this rule, because this rule is a general rule and 
does not address other programs already in place. It is designed 
primarily to remove barriers to participation in Department funding 
opportunities by faith-based organizations and it does not alter other 
program-specific regulations.

IX. Interaction With Charitable Choice

    One commenter suggested that the rule be made explicitly 
inapplicable to preexisting Charitable Choice regulations concerning 
participation by religious organizations.
    We accept this comment and agree that this regulation shall not be 
applicable to the programs governed by the Charitable Choice 
regulations found at 42 CFR Parts 54 and 54a and 45 CFR Parts 96, 260, 
and 1050. The final rule has been changed accordingly.

X. Religious Freedom Restoration Act (RFRA)

    One commenter suggested that the rule, like the SAMHSA Charitable 
Choice regulation, rely on Religious Freedom Restoration Act (RFRA) 
against program-specific restrictions on religious staffing and asked 
that the rule provide specific guidance for how religious organizations 
may preserve their religious staffing freedom when participating in 
such programs.
    The Department declines to adopt this suggestion at this time. 
RFRA, which applies to all Federal law and its implementation, is 
applicable regardless of whether it is specifically mentioned in this 
rule. No explicit recognition or treatment of the application of RFRA 
is required in this rule.

XI. Contracts and Vouchers

    One commenter requested that the rule be amended to include 
contracts as well as grants because State or local governments often 
administer human services programs by using contracts rather than 
grants.
    We decline to accept this suggestion, believing that further 
clarification is unnecessary. This rule applies to assistance 
distributed by the Department through grants, agreements, and other 
financial assistance. States and localities may not circumvent the 
requirements of this rule by simply using a different label for the 
form in which they distribute the Department funds.
    One commenter insisted that redeemable vouchers that give 
beneficiaries choices between programs are only as real as the choices 
among programs. This commenter believed that the Department must ensure 
that secular alternatives are real and viable options for program 
beneficiaries. Another commenter believed that the voucher program 
authorized by the rule lacks adequate constitutional safeguards. This 
commenter believed that a voucher program is not completely neutral 
with respect to religion, that use of vouchers at a religious 
institution must be the result of wholly genuine and independent 
private choice, that the vouchers must pass directly through the hands 
of the beneficiaries, that the voucher program must not provide 
incentives to choose a religious institution over a non-religious one, 
that the program must provide genuine, legitimate secular options, and 
that there must be a secular purpose for the program. This commenter 
felt that the rule is confusing, as it is unclear whether it applies to 
programs attended exclusively by voucher beneficiaries, or extends to 
programs in which some but not all beneficiaries are using forms of 
redeemable disbursement.
    This rule does not create a voucher program. Rather the rule 
applies to all grants, including voucher programs, covered by 45 CFR 
Parts 74, 92, and 96 which are not governed by pre-existing Charitable 
Choice regulations. Moreover, any voucher program that the Department 
operates will comply with Federal law, including the Constitution.

XII. Textual Concerns

    One commenter observed generally that the text of Sec. Sec.  87.1 
and 87.2 did not include language that was in the preamble and remarked 
that if the narrative phrases added materially to the proper 
understanding of the relevant provisions, the regulation should be 
reworded to include such language.
    We believe that the preamble and the text of Sec. Sec.  87.1 and 
87.2 are clear and unambiguous. Further, the text of these sections 
explicitly covers the six objectives of the rule outlined in the 
preamble.

XIII. Tax Exempt Organization Status

    One commenter commended the Department for making it clear that an 
organization can be a nonprofit organization without having Internal 
Revenue Code Sec.  501(c)(3) (I.R.C.) status. One commenter expressed 
concern, however, that the rule does not require religiously affiliated 
providers who contract with the Department to obtain tax-exempt status 
under I.R.C.

[[Page 42592]]

Sec.  501(c)(3) in order to be eligible for Federal funds, which the 
commenter felt may allow entities claiming religious affiliation and 
alternative ``nonprofit'' status, with little documentation, to compete 
for these funds.
    Under this rule, religious organizations that otherwise are not 
required to be recognized as exempt from tax under Sec.  501(c)(3) of 
the Internal Revenue Code may, but are not required to, establish a 
separate structure, including incorporating or operating the separated 
part recognized as exempt from tax under Sec.  501(c)(3) of the I.R.C. 
Because religious organizations do not have to incorporate or operate 
as a non-profit organization, however, we do not preclude from 
participation organizations that do not obtain, and are not required to 
obtain, recognition of tax-exempt status under I.R.C. Sec.  501(c)(3).

Regulatory Flexibility Analysis

    The Regulatory Flexibility Act (RFA), 5 U.S.C. Sec.  601 et seq., 
requires agencies to consider the potential impact of regulatory 
actions on small entities--small businesses, small governmental units, 
and small not-profit organizations. We certify that this rule will not 
have a significant impact on a substantial number of small entities 
within the meaning of the RFA, since the rule involves only a 
modification in the Department's grant-management procedures. 
Therefore, a regulatory flexibility analysis as provided for by the RFA 
is not required.

Executive Order 12866

    Executive Order 12866 requires that regulations be reviewed to 
ensure that they are consistent with the priorities and principles set 
forth in the Executive Order. The Department has determined that this 
rule is consistent with these priorities and principles. This rule is 
considered a ``significant regulatory action'' under the Executive 
Order, and therefore has been reviewed by the Office of Management and 
Budget, but is not an economically significant rulemaking. This 
rulemaking reflects our response to comments received on the NPRM that 
we issued on March 9, 2004.

Unfunded Mandates

    Section 202 of the Unfunded Mandates Reform Act of 1995 requires 
that a covered agency prepare a budgetary impact statement before 
promulgating a rule that includes any Federal mandate that may result 
in the expenditure by State, local, and Tribal governments, in the 
aggregate, or by the private sector, of $100 million or more in any one 
year.
    The Department has determined that this rule would not impose a 
mandate that will result in the expenditure by State, local, and Tribal 
governments, in the aggregate, or by the private sector, of more than 
$100 million in any one year, and therefore no such analysis has been 
included.

Assessment of Federal Regulations and Policies on Families

    We certify that we have made an assessment of this rule's impact on 
the well-being of families, as required under Sec.  654 of The Treasury 
and General Government Appropriations Act of 1999. The purpose of the 
Department's programs and therefore this rule is to strengthen the 
economic and social stability of families.

Executive Order 13132

    Executive Order 13132, Federalism, requires that Federal agencies 
consult with State and local government officials in the development of 
regulatory policies with Federalism implications. In the NPRM, we 
specifically solicited comments from State and local government 
officials and received one comment from a State.

Paperwork Reduction Act

    No new information collection requirements are imposed by these 
regulations, nor are any existing requirements changed as a result of 
their promulgation. Therefore, the requirements of the Paperwork 
Reduction Act of 1995 (44 U.S.C. Sec.  3507(d)), regarding reporting 
and recordkeeping, do not apply.

List of Subjects

45 CFR Part 74

    Administrative practice and procedures, Grants.

45 CFR Part 92

    Administrative practice and procedures, Grants.

45 CFR Part 96

    Administrative practice and procedures, Block grants.

45 CFR Part 87

    Administrative practice and procedures, Grant programs--social 
programs, public assistance programs, nonprofit organizations.


0
For the reasons stated in the preamble, the Department is amending 
chapter I of Title 45 of the Code of Federal Regulations as follows:

PART 74--UNIFORM ADMINISTRATIVE REQUIREMENTS FOR AWARDS AND 
SUBAWARDS TO INSTITUTIONS OF HIGHER EDUCATION, HOSPITALS, OTHER 
NONPROFIT ORGANIZATIONS, AND COMMERCIAL ORGANIZATIONS

0
1. The authority citation for part 74 continues to read as follows:

    Authority: 5 U.S.C. 301.

0
2. In subpart B add Sec.  74.18 to read as follows:


Sec.  74.18  Participation by faith-based organizations.

    The funds provided under this part shall be administered in 
compliance with the standards set forth in part 87 (Equal Treatment for 
Faith-based Organizations) of this chapter.

0
3. In Sec.  74.17, add paragraph (a) and add and reserve (b) to read as 
follows:


Sec.  74.17  Certifications and representations.

* * * * *
    (a) The funds provided under this part shall be administered in 
compliance with the standards set forth in part 87 (Equal Treatment for 
Faith-based Organizations) of this chapter.
    (b) [Reserved]

PART 92--UNIFORM ADMINISTRATIVE REQUIREMENTS FOR GRANTS AND 
COOPERATIVE AGREEMENTS TO STATE, LOCAL, AND TRIBAL GOVERNMENTS

0
4. The authority for part 92 continues to read as follows:

    Authority: 5 U.S.C. 301.

0
5. In subpart B add Sec.  92.13 and 92.14 to read as follows:


Sec.  92.13  Participation by faith-based organizations.

    The funds provided under this part shall be administered in 
compliance with the standards set forth in part 87 (Equal Treatment for 
Faith-based Organizations) of this chapter.


Sec.  92.14  Compliance with Part 87.

    The funds provided under this part shall be administered in 
compliance with the standards set forth in part 87 (Equal Treatment for 
Faith-based Organizations) of this chapter.

PART 96--BLOCK GRANTS

0
6. The authority citation for part 96 is revised to read as follows:

    Authority: 31 U.S.C. 1243 note, 7501-7507; 42 U.S.C. 300w et 
seq., Sec.  300x et seq., Sec.  300y et seq., Sec.  701 et seq., 
Sec.  8621 et seq., Sec.  9901 et seq., Sec.  1397 et seq., 5 U.S.C. 
Sec.  301.


0
7. In subpart B add Sec.  96.18 to read as follows:

[[Page 42593]]

Sec.  96.18  Participation by faith-based organizations.

    The funds provided under this part shall be administered in 
compliance with the standards set forth in part 87 (Equal Treatment for 
Faith-based Organizations) of this chapter.

0
8. Add Part 87 to read as follows:

PART 87--EQUAL TREATMENT FOR FAITH-BASED ORGANIZATIONS

Sec.
87.1 Discretionary grants
87.2 Formula and block grants

    Authority: 5 U.S.C. 301.


Sec.  87.1  Discretionary grants.

    (a) This section is not applicable to the programs governed by the 
Charitable Choice regulations found at 42 CFR Part 54a.
    (b) Religious organizations are eligible, on the same basis as any 
other organization, to participate in any Department program for which 
they are otherwise eligible. Neither the Department nor any State or 
local government and other intermediate organizations receiving funds 
under any Department program shall, in the selection of service 
providers, discriminate for or against an organization on the basis of 
the organization's religious character or affiliation. As used in this 
section, ``program'' refers to activities supported by discretionary 
grants under which recipients are selected through a competitive 
process. As used in this section, the term ``recipient'' means an 
organization receiving financial assistance from an HHS awarding agency 
to carry out a project or program and includes the term ``grantee'' as 
used in 45 CFR Parts 74, 92, and 96.
    (c) Organizations that receive direct financial assistance from the 
Department under any Department program may not engage in inherently 
religious activities, such as worship, religious instruction, or 
proselytization, as part of the programs or services funded with direct 
financial assistance from the Department. If an organization conducts 
such activities, the activities must be offered separately, in time or 
location, from the programs or services funded with direct financial 
assistance from the Department, and participation must be voluntary for 
beneficiaries of the programs or services funded with such assistance.
    (d) A religious organization that participates in the Department-
funded programs or services 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 financial 
assistance from the Department to support any inherently religious 
activities, such as worship, religious instruction, or proselytization. 
Among other things, a faith-based organization may use space in its 
facilities to provide programs or services funded with financial 
assistance from the Department without removing religious art, icons, 
scriptures, or other religious symbols. In addition, a religious 
organization that receives financial assistance from the Department 
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 in 
accordance with all program requirements, statutes, and other 
applicable requirements governing the conduct of Department-funded 
activities.
    (e) An organization that participates in programs funded by direct 
financial assistance from the Department shall not, in providing 
services, discriminate against a program beneficiary or prospective 
program beneficiary on the basis of religion or religious belief.
    (f) No grant document, agreement, covenant, memorandum of 
understanding, policy, or regulation that is used by the Department or 
a State or local government in administering financial assistance from 
the Department shall require only religious organizations to provide 
assurances that they will not use monies or property for inherently 
religious activities. Any restrictions on the use of grant funds shall 
apply equally to religious and non-religious organizations. All 
organizations that participate in Department programs, including 
organizations with religious character or affiliations, must carry out 
eligible activities in accordance with all program requirements and 
other applicable requirements governing the conduct of Department-
funded activities, including those prohibiting the use of direct 
financial assistance from the Department to engage in inherently 
religious activities. No grant document, agreement, covenant, 
memorandum of understanding, policy, or regulation that is used by the 
Department or a State or local government in administering financial 
assistance from the Department shall disqualify religious organizations 
from participating in the Department's programs because such 
organizations are motivated or influenced by religious faith to provide 
social services, or because of their religious character or 
affiliation.
    (g) 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 receives direct or 
indirect financial assistance from the Department. Some Department 
programs, however, contain independent statutory provisions requiring 
that all recipients agree not to discriminate in employment on the 
basis of religion. Accordingly, recipients should consult with the 
appropriate Department program office if they have questions about the 
scope of any applicable requirement.
    (h) In general, the Department does not require that a recipient, 
including a religious organization, obtain tax-exempt status under 
section 501(c)(3) of the Internal Revenue Code to be eligible for 
funding under Department programs. Many grant programs, however, do 
require an organization to be a ``nonprofit organization'' in order to 
be eligible for funding. Funding announcements and other grant 
application solicitations that require organizations to have nonprofit 
status will specifically so indicate in the eligibility section of the 
solicitation. In addition, any solicitation that requires an 
organization to maintain tax-exempt status will expressly state the 
statutory authority for requiring such status. Recipients should 
consult with the appropriate Department program office to determine the 
scope of any applicable requirements. In Department programs in which 
an applicant must show that it is a nonprofit organization, the 
applicant may do so by any of the following means:
    (1) Proof that the Internal Revenue Service currently recognizes 
the applicant as an organization to which contributions are tax 
deductible under section 501(c)(3) of the Internal Revenue Code;
    (2) A statement from a State or other governmental taxing body or 
the State secretary of State certifying that:
    (i) The organization is a nonprofit organization operating within 
the State; and
    (ii) No part of its net earnings may benefit any private 
shareholder or individual;
    (3) A certified copy of the applicant's certificate of 
incorporation or similar document that clearly establishes the 
nonprofit status of the applicant; or
    (4) Any item described in paragraphs (h)(1) through (3) of this 
section if that

[[Page 42594]]

item applies to a State or national parent organization, together with 
a statement by the State or parent organization that the applicant is a 
local nonprofit affiliate.
    (i) If a grantee contributes its own funds in excess of those funds 
required by a matching or grant agreement to supplement Department-
supported activities, the grantee has the option to segregate those 
additional funds or commingle them with the Federal award funds. If the 
funds are commingled, the provisions of this section shall apply to all 
of the commingled funds in the same manner, and to the same extent, as 
the provisions apply to the Federal funds. With respect to the matching 
funds, the provisions of this section apply irrespective of whether 
such funds are commingled with Federal funds or segregated.
    (j) To the extent otherwise permitted by Federal law, the 
restrictions on inherently religious activities set forth in this 
section do not apply where Department funds 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. A religious organization may receive such funds as the result 
of a beneficiary's genuine and independent choice if, for example, a 
beneficiary redeems a voucher, coupon, or certificate, allowing the 
beneficiary to direct where funds are to be paid, or through a similar 
funding mechanism provided to that beneficiary and designed to give 
that beneficiary a genuine and independent choice among providers.


Sec.  87.2  Formula and block grants.

    (a) This section is not applicable to the programs governed by the 
Charitable Choice regulations found at 42 CFR Part 54 and 45 CFR Parts 
96, 260, and 1050.
    (b) Religious organizations are eligible, on the same basis as any 
other organization, to participate in any Department program for which 
they are otherwise eligible. Neither the Department nor any State or 
local government receiving funds under any Department program nor any 
intermediate organization with the same duties as a governmental entity 
under this part shall, in the selection of service providers, 
discriminate for or against an organization on the basis of the 
organization's religious character or affiliation. As used in this 
section, ``program'' refers to activities supported by formula or block 
grants. As used in this section, the term ``recipient'' means an 
organization receiving financial assistance from an HHS awarding agency 
to carry out a project or program and includes the term ``grantee'' as 
used in 45 CFR Parts 74, 92, and 96.
    (c) Organizations that receive direct financial assistance from the 
Department may not engage in inherently religious activities, such as 
worship, religious instruction, or proselytization, as part of the 
programs or services funded with direct financial assistance from the 
Department. If an organization conducts such activities, the activities 
must be offered separately, in time or location, from the programs or 
services funded with direct financial assistance from the Department, 
and participation must be voluntary for beneficiaries of the programs 
or services funded with such assistance.
    (d) A religious organization that participates in the Department-
funded programs or services 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 financial 
assistance from the Department to support any inherently religious 
activities, such as worship, religious instruction, or proselytization. 
Among other things, a faith-based organization that receives financial 
assistance from the Department may use space in its facilities, without 
removing religious art, icons, scriptures, or other religious symbols. 
In addition, a religious organization that receives financial 
assistance from the Department 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 in accordance with all program requirements, 
statutes, and other applicable requirements governing the conduct of 
Department-funded activities.
    (e) An organization that participates in programs funded by direct 
financial assistance from the Department shall not, in providing 
services, discriminate against a program beneficiary or prospective 
program beneficiary on the basis of religion or religious belief.
    (f) No grant document, agreement, covenant, memorandum of 
understanding, policy, or regulation that is used by the Department or 
a State or local government in administering financial assistance from 
the Department shall require only religious organizations to provide 
assurances that they will not use monies or property for inherently 
religious activities. Any restrictions on the use of grant funds shall 
apply equally to religious and non-religious organizations. All 
organizations that participate in Department programs, including 
organizations with religious character or affiliations, must carry out 
eligible activities in accordance with all program requirements and 
other applicable requirements governing the conduct of Department-
funded activities, including those prohibiting the use of direct 
financial assistance to engage in inherently religious activities. No 
grant document, agreement, covenant, memorandum of understanding, 
policy, or regulation that is used by the Department or a State or 
local government in administering financial assistance from the 
Department shall disqualify religious organizations from participating 
in the Department's programs because such organizations are motivated 
or influenced by religious faith to provide social services, or because 
of their religious character or affiliation.
    (g) 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 religious organization receives 
direct or indirect financial assistance from the Department. Some 
Department programs, however, contain independent statutory provisions 
requiring that all recipients agree not to discriminate in employment 
on the basis of religion. Accordingly, grantees should consult with the 
appropriate Department program office if they have questions about the 
scope of any applicable requirement.
    (h) In general, the Department does not require that a recipient, 
including a religious organization, obtain tax-exempt status under 
section 501(c)(3) of the Internal Revenue Code to be eligible for 
funding under Department programs. Many grant programs, however, do 
require an organization to be a ``nonprofit organization'' in order to 
be eligible for funding. Individual solicitations that require 
organizations to have nonprofit status will specifically so indicate in 
the eligibility section of a solicitation. In addition, any 
solicitation that requires an organization to maintain tax-exempt 
status will expressly state the statutory authority for requiring such 
status. Grantees should consult with the appropriate Department program 
office to determine the scope of any applicable requirements. In 
Department programs

[[Page 42595]]

in which an applicant must show that it is a nonprofit organization, 
the applicant may do so by any of the following means:
    (1) Proof that the Internal Revenue Service currently recognizes 
the applicant as an organization to which contributions are tax 
deductible under section 501(c)(3) of the Internal Revenue Code;
    (2) A statement from a State or other governmental taxing body or 
the State secretary of State certifying that:
    (i) The organization is a nonprofit organization operating within 
the State; and
    (ii) No part of its net earnings may benefit any private 
shareholder or individual;
    (3) A certified copy of the applicant's certificate of 
incorporation or similar document that clearly establishes the 
nonprofit status of the applicant; or
    (4) Any item described in paragraphs (h)(1) through (3) of this 
section if that item applies to a State or national parent 
organization, together with a statement by the State or parent 
organization that the applicant is a local nonprofit affiliate.
    (i) If a State or local government contributes its own funds in 
excess of those funds required by a matching or grant agreement to 
supplement Department-supported activities, the State or local 
government has the option to segregate those additional funds or 
commingle them with the Federal award funds. If the funds are 
commingled, the provisions of this section shall apply to all of the 
commingled funds in the same manner, and to the same extent, as the 
provisions apply to the Federal funds. With respect to matching funds, 
the provisions of this section apply irrespective of whether such funds 
are commingled with Federal funds or segregated.
    (j) To the extent otherwise permitted by Federal law, the 
restrictions on inherently religious activities set forth in this 
section do not apply where Department funds 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. A religious organization may receive such funds as the result 
of a beneficiary's genuine and independent choice if, for example, a 
beneficiary redeems a voucher, coupon, or certificate, allowing the 
beneficiary to direct where funds are to be paid, or through a similar 
funding mechanism provided to that beneficiary and designed to give 
that beneficiary a choice among providers.

    Dated: July 9, 2004.
Tommy G. Thompson,
Secretary.
[FR Doc. 04-16130 Filed 7-15-04; 8:45 am]
BILLING CODE 4154-07-P