[Federal Register Volume 69, Number 204 (Friday, October 22, 2004)]
[Rules and Regulations]
[Pages 62164-62170]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-23666]



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Part III





Department of Housing and Urban Development





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24 CFR Parts 954 and 1003



Participation in HUD's Native American Programs by Religious 
Organizations; Providing for Equal Treatment of All Program 
Participants; Final Rule

  Federal Register / Vol. 69, No. 204 / Friday, October 22, 2004 / 
Rules and Regulations  

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 954 and 1003

[Docket No. FR-4915-F-02]
RIN 2577-AC56


Participation in HUD's Native American Programs by Religious 
Organizations; Providing for Equal Treatment of All Program 
Participants

AGENCY: Office of the Assistant Secretary for Public and Indian 
Housing, HUD.

ACTION: Final rule.

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SUMMARY: This final rule removes barriers to the participation of 
religious (also referred to as ``faith-based'') organizations in HUD 
regulations implementing the Indian HOME Program, the Indian Community 
Development Block Grant Program, the Indian Housing Block Grant 
Program, the Title VI Loan Guarantee Assistance Program, and the 
Section 184 Loan Guarantees for Indian Housing Program. These changes 
are consistent with revisions of program regulations undertaken on a 
department-wide basis. In general, no group of applicants competing for 
HUD funds or seeking to participate in HUD programs should be subject 
to greater or fewer requirements than other organizations solely 
because of their religious character or affiliation or absence of 
religious character or affiliation. This final rule follows publication 
of a June 21, 2004, proposed rule and takes into consideration the one 
public comment received on the proposed rule. After careful 
consideration of the issues raised by the commenter, HUD has decided to 
adopt the June 21, 2004, proposed rule without change.

DATES: Effective Date: November 22, 2004.

FOR FURTHER INFORMATION CONTACT: Ryan Streeter, Director, Center for 
Faith-Based and Community Initiatives, Department of Housing and Urban 
Development, Room 10184, 451 Seventh Street, SW., Washington, DC 20410-
0001, telephone: (202) 708-2404 (this is not a toll-free number). For 
program specific information, contact Deborah Lalancette, Director, 
Office of Grants Management, Office of Native American Programs, Office 
of Public and Indian Housing, Department of Housing and Urban 
Development, Suite 3390, 1919 Broadway, Denver, CO 80202, telephone: 
(303) 675-1600, extension 3325 (this is not a toll-free number). 
Individuals with speech or hearing impairments may access these 
telephone numbers through TTY by calling the toll-free Federal 
Information Relay Service at 800-877-8339.

SUPPLEMENTARY INFORMATION:

I. Background

    On June 21, 2004 (69 FR 34544), HUD published a proposed rule for 
public comment that removes barriers to the participation of religious 
(also referred to as ``faith-based'') organizations in HUD regulations 
for its Native American programs. The proposed rule was published as 
part of HUD's implementation of the Administration's Faith-Based and 
Community Initiative. President Bush has directed executive branch 
agencies, including HUD, to ensure that federal policy and programs are 
fully open to faith-based and community organizations in a manner 
consistent with the Constitution. The Administration believes that all 
eligible organizations, including faith-based organizations, should be 
able to participate in federal programs and activities and compete, 
where required, for federal financial assistance on an equal footing.
    Consistent with President's Executive Order 13198, ``Agency 
Responsibilities With Respect to Faith-Based and Community 
Initiatives,'' issued January 31, 2001 (66 FR 8497), HUD undertook a 
comprehensive review of its program requirements and regulations, 
particularly those that would be expected to attract interest and 
participation by nonprofit organizations. As a result of that 
comprehensive review, HUD identified regulations that imposed or 
appeared to impose barriers to the participation of faith-based 
organizations in eight programs administered by the Office of Community 
Planning and Development. On January 6, 2003 (68 FR 648), HUD published 
a proposed rule to eliminate these barriers and to ensure that these 
HUD programs were open to all qualified organizations, regardless of 
their religious character. After a period of public comment, HUD 
finalized this rule on September 30, 2003 (68 FR 56396).
    On March 3, 2004 (69 FR 10126), HUD published a second proposed 
rule to amend its general program requirements at 24 CFR part 5 and 
extend the equal participation protections to HUD programs and 
activities not covered by the September 30, 2003, final rule. The March 
3, 2004, proposed rule was followed by a final rule published on July 
9, 2004 (69 FR 41712), which adopted the proposed rule without change. 
Neither the September 30, 2003, nor the July 9, 2004, final rules, 
however, applied to HUD's Native American programs. HUD's Native 
American programs were excluded from these earlier rules so that HUD 
could first consult with Indian tribal governments in accordance with 
Executive Order 13175, ``Consultation and Coordination With Indian 
Tribal Governments,'' issued on November 6, 2000.
    Executive Order 13175 requires federal departments and agencies, to 
the greatest extent practicable and permitted by law, to consult with 
tribal governments prior to taking actions that have substantial direct 
effects on federally recognized tribal governments. Accordingly, prior 
to publication of the June 21, 2004, proposed rule, HUD provided Indian 
tribes and Alaska Native Villages with the opportunity to comment on 
the substance of the proposed regulatory changes that would extend the 
equal participation protections to the Indian HOME Program at 24 CFR 
part 954; the Indian Housing Block Grant Program (IHBG) at 24 CFR part 
1000; the Title VI Loan Guarantee Assistance (Title VI Loan Guarantee) 
program at subpart E of 24 CFR part 1000; the Indian Community 
Development Block Grant Program (ICDBG) at 24 CFR part 1003; and the 
Section 184 Loan Guarantees for Indian Housing Program (Section 184) at 
24 CFR part 1005.

II. This Final Rule

    This final rule follows publication of the June 21, 2004, proposed 
rule and takes into consideration the one public comment received on 
the proposed rule. After careful consideration of the public comment, 
HUD has decided to adopt the proposed rule without change. Section IV 
of this preamble contains a discussion of the one public comment and 
HUD's responses to the significant issues raised by the commenter.
    Of the programs listed above, only the Indian HOME and ICDBG 
program regulations have sections that specifically address the 
participation of faith-based organizations. Although the Indian HOME 
Program was terminated by section 505 of the Native American Housing 
Assistance and Self-Determination Act of 1996 (25 U.S.C. 4101 et seq.) 
(NAHASDA), the regulation at 24 CFR part 954 continues to govern 
outstanding funds remaining from that program and part 954 would, 
accordingly, be amended by this final rule. Specifically, the 
requirements concerning faith-based organizations at Sec.  954.301 are 
revised to be parallel to the revision made to Sec.  92.257 of the HOME 
program regulation by the September 30, 2003, final rule. Similarly, 
Sec.  1003.600 of the ICDBG

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regulation is amended to be parallel to the changes made to Sec.  
570.200(j) of the Community Development Block Grant (CDBG) program by 
the September 30, 2003, final rule.
    The regulations for the IHBG, Title VI Loan Guarantee, and Section 
184 programs do not have sections that specifically address the 
participation of faith-based organizations. Such organizations could 
participate in those programs as subrecipients or contractors, as 
appropriate. This final rule makes the equal participation protections 
at 24 CFR part 5 established by the July 9, 2004, final rule apply to 
these Native American programs, as well as to the other HUD programs 
and activities not covered by the September 30, 2003, final rule. These 
provisions were originally not made applicable to the IHBG, Title VI 
Loan Guarantee, and Section 184 programs so that HUD could consult with 
the affected tribes. Now that consultation has been completed, these 
provisions of part 5 apply.

III. Policies and Requirements

    The specific policies and requirements that are codified by this 
final rule, consistent with the September 30, 2003, and July 9, 2004, 
final rules are as follows:
    1. Equal participation of faith-based organizations in HUD programs 
and activities. This final rule clarifies that faith-based 
organizations are eligible, on the same basis as any other eligible 
organization, to participate in HUD's programs and activities. The 
phrase ``participate in HUD's programs and activities'' and its 
variants are used in this rule to refer to participation in the full 
range of HUD programs and activities, including (1) programs that make 
funds available through contracts, grants, cooperative agreements, or 
other instruments for eligible goods, services, and activities, and (2) 
programs that do not make funds available but involve other forms of 
benefit or resources. For example, the Title VI Loan Guarantee program 
does not provide funds, but guarantees notes or other obligations 
issued by Indian tribes to finance affordable housing activities. 
Neither the federal government, nor a state, local, or tribal 
government, nor any other entity that administers any HUD program or 
activity, shall discriminate against an organization on the basis of 
the organization's religious character or affiliation. Nothing in the 
rule would preclude those administering HUD-funded programs from 
accommodating faith-based organizations in a manner consistent with the 
Establishment Clause of the First Amendment.
    2. Inherently religious activities. Organizations that receive 
direct HUD funds under a HUD program or activity may not engage in 
inherently religious activities, such as worship, religious 
instruction, or proselytization, as part of the programs or services 
directly funded under the HUD program or activity. If an organization 
conducts such activities, the activities must be offered separately, in 
time or location, from the programs, activities, or services supported 
by direct HUD funds, and participation must be voluntary for the 
beneficiaries of these programs, activities, or services.
    As used in this final rule, the term ``direct HUD funds'' refers to 
direct funding within the meaning of the Establishment Clause of the 
First Amendment. For example, direct HUD funding may mean that the 
government or an intermediate organization with similar duties as a 
governmental entity under a particular HUD program selects an 
organization and purchases the needed services straight from the 
organization (e.g., via a contract or cooperative agreement). In 
contrast, indirect funding scenarios may place the choice of service 
provider in the hands of a beneficiary, and then pay for the cost of 
that service through a voucher, certificate, or other similar means of 
payment.
    3. Independence of faith-based organizations. A faith-based 
organization that participates in a HUD program or activity will retain 
its independence from federal, state, local, and tribal governments, 
and may continue to carry out its mission, including the definition, 
practice, and expression of its religious beliefs, provided that it 
does not engage in any inherently religious activities, such as 
worship, religious instruction, or proselytization, as part of the 
programs or services supported by direct HUD funds. Among other things, 
faith-based organizations may use space in their facilities to provide 
services under a HUD program, without removing religious art, icons, 
scriptures, or other religious symbols. In addition, a faith-based 
organization participating in a HUD program retains authority over its 
internal governance, and it may retain religious terms in its 
organization's name, select its board members and otherwise govern 
itself on a religious basis, and include religious references in its 
organization's mission statements and other governing documents.
    4. Exemption from Title VII employment discrimination requirements. 
A faith-based organization's exemption from the federal prohibition on 
employment discrimination on the basis of religion, set forth in 
section 702(a) of the Civil Rights Act of 1964 (42 U.S.C. 2000e-1), is 
not forfeited when the organization participates in a HUD program. Some 
HUD programs, however, contain independent statutory provisions that 
impose certain nondiscrimination requirements on all grantees. 
Accordingly, grantees should consult with the appropriate Department 
program office to determine the scope of applicable requirements.
    5. Nondiscrimination requirements. This final rule clarifies that 
an organization that receives direct HUD funds shall not, in providing 
program assistance, discriminate against a program beneficiary or 
prospective program beneficiary on the basis of religion or religious 
belief. Organizations participating in HUD programs and activities must 
also comply with any other applicable fair housing and 
nondiscrimination requirements.
    6. Acquisition, construction, and rehabilitation of structures. HUD 
funds may not be used for the acquisition, construction, or 
rehabilitation of structures to the extent that those structures are 
used for inherently religious activities. HUD funds may be used for the 
acquisition, construction, or rehabilitation of structures only to the 
extent that those structures are used for conducting eligible 
activities under a HUD program or activity. Where a structure is used 
for both eligible and inherently religious activities, HUD funds may 
not exceed the cost of those portions of the acquisition, construction, 
or rehabilitation that are attributable to eligible activities in 
accordance with the cost accounting requirements applicable to the HUD 
program or activity. Sanctuaries, chapels, and other rooms that a HUD-
funded religious congregation uses as its principal place of worship, 
however, are ineligible for HUD-funded improvements. Disposition of 
real property after use for the authorized purpose, or any change in 
use of the property from the authorized purpose, is subject to 
governmentwide regulations governing real property disposition (e.g., 
24 CFR parts 84 and 85).
    7. Commingling of federal and state, local, or tribal funds. If a 
state, local, or tribal government voluntarily contributes its own 
funds to supplement federally funded activities, the state, local, or 
tribal government may segregate the federal funds or commingle them. 
However, if the funds are commingled, the policies and requirements of 
this rule would apply to all of the commingled funds. If a state, 
local, or tribal government is required to

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contribute matching funds to supplement a federally funded activity, 
the matching funds are considered commingled with the federal 
assistance and subject to the requirements of this proposed rule. Some 
HUD program requirements govern any project or activity assisted under 
that program. Accordingly, grantees should consult with the appropriate 
HUD program office to determine the scope of applicable requirements.

IV. Discussion of the Public Comment on the June 21, 2004, Proposed 
Rule

    The public comment period on the June 21, 2004, proposed rule 
closed on August 20, 2004. HUD received one public comment, which came 
from a civil rights organization. This section of the preamble presents 
a summary of the significant issues raised by the public commenter and 
HUD's responses to these issues.

A. General Comments

    Comment: Opposition to rule on constitutional grounds. The 
commenter expressed concern that the proposed regulatory changes would 
conflict with the Establishment Clause and related Supreme Court 
decisions. The commenter wrote that the rule impermissibly would 
authorize federal funding for churches and other ``pervasively 
sectarian organizations.'' The commenter was concerned that the 
regulatory changes ``fail to recognize the unique place that religion 
has in our society and our constitutional scheme.''
    HUD Response. HUD does not agree with the commenter. While 
religious organizations have a unique position in our society and 
constitutional scheme, HUD 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.
    In addition, the Supreme Court's ``pervasively sectarian'' 
doctrine--which held that there are certain religious institutions in 
which religion is so pervasive that no government aid may be provided 
to them, because their performance of even ``secular'' tasks will be 
infused with religious purpose--no longer enjoys the support of a 
majority of the Court. Four Justices expressly abandoned it in Mitchell 
v. Helms, 530 U.S. 793, 825-829 (2000) (plurality opinion), and Justice 
O'Connor's opinion in that case, joined by Justice Breyer, set forth 
reasoning that is inconsistent with its underlying premises. (See id. 
at 857-858 (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, and that view is the foundation of the 
``pervasively sectarian'' doctrine. The Department therefore believes 
that under current precedent, the Department may fund all 
organizations, without regard to religion and free of criteria that 
require the provider to abandon its religious expression or character.
    As more fully discussed in the responses to the issues below, HUD 
believes that the policies and procedures contained in this final rule 
are fully within the bounds of constitutional church-state guidelines 
and consistent with recent Supreme Court decisions concerning the 
Establishment Clause.
    Comment: Rule should provide for stricter monitoring and 
enforcement. The commenter wrote that the rule fails to provide for any 
oversight mechanisms or ``firewalls'' to prevent the religious use of 
government funds. The commenter wrote that such a firewall could best 
be accomplished by requiring that faith-based organizations establish a 
separate corporate structure to distinguish a sectarian religious 
entity from its government-funded social welfare organization.
    HUD Response. HUD has not revised the rule in response to this 
comment. HUD has a responsibility to monitor all program participants 
to ensure that HUD funds are used in accordance with HUD program and 
any governmentwide requirements. Inappropriate use of HUD funds or 
failure to comply with HUD 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 the 
federal portion of their funding is not used for prohibited purposes 
will subject the organization to the imposition of sanctions or 
penalties. All HUD program participants must carefully manage their 
various sources of federal funds and abide by Office of Management and 
Budget cost accounting circulars, where applicable, or other cost 
accounting methods that may be specified in individual program 
regulations. These existing procedures, therefore, more than suffice to 
address the concerns raised by the commenter.
    Comment: Rule fails to establish adequate safeguards for indirect 
federal funding of faith-based organizations. The commenter wrote that 
the rule lacks regulatory safeguards to ensure that indirect HUD 
funding to faith-based organizations is not used inappropriately. The 
commenter wrote that the rule, in effect, establishes a mechanism for 
the provision of vouchers without meeting the requirements established 
by the Supreme Court for such programs (e.g., that the program be 
completely neutral with respect to religion, that use of the vouchers 
at a religious institution be a wholly genuine and independent private 
choice, and that the voucher programs not provide incentives to choose 
a religious institution over a non-religious one, etc.).
    HUD Response. HUD has not revised the rule in response to this 
comment. Any HUD-funded program that involves indirect funding must, of 
course, comply with federal law (including current legal precedent), 
and nothing in the final regulation provides otherwise. As explained in 
the preamble of the proposed rule as well as the preamble of this final 
rule, the term ``direct HUD funds'' refers to direct funding within the 
meaning of the Establishment Clause of the First Amendment. In other 
words, HUD's use of the phrase ``direct funding'' in this rule 
incorporates current First Amendment jurisprudence into its definition. 
For example, direct HUD funding may mean that the government or an 
intermediate organization with similar duties as a governmental entity 
under a particular HUD program selects an organization and purchases 
the needed services straight from the organization (e.g., via a 
contract or cooperative agreement). In contrast, indirect funding 
scenarios may place the choice of service provider in the hands of a 
beneficiary, and then pay for the cost of that service through a 
voucher, certificate, or other similar means of payment.
    HUD believes that, under current precedent, faith-based 
organizations that receive HUD funds as the result of the genuine and 
independent choice of a beneficiary (for example, where the entity 
administering HUD funds established a voucher, coupon, certificate, or 
similar funding mechanism) are permitted to offer assistance that 
integrates religion and social services and requires participation in 
all aspects of their programs. The religious freedom of beneficiaries 
in an indirect funding program is protected by the guarantee of genuine 
and independent private choice. A beneficiary has the right to select 
any eligible provider, and no beneficiary may be required to receive 
services from a provider to which the beneficiary has a religious 
objection. In other words, vouchers for services

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funded by the government must be available to eligible beneficiaries 
regardless of their religious belief, and those who object to a 
religious provider may select an eligible alternative provider.
    Comment: Ensure the availability of secular alternative service 
providers. The commenter wrote that HUD should ensure that 
beneficiaries have the ability to receive services from a different or 
non-religious provider. The commenter wrote that without reasonable 
secular alternatives, beneficiaries might be forced to participate in 
programs provided by faith-based organizations where they may be 
required to participate in religious activity in order to receive 
essential government-funded benefits.
    HUD Response. HUD has not revised the rule in response to this 
comment. Under this final rule, directly funded faith-based 
organizations are prohibited from discriminating against program 
beneficiaries on the basis of ``religion or religious belief.'' In 
addition, the rule provides that faith-based organizations may not use 
direct funding from HUD for inherently religious activities, that such 
activities must be offered separately, in time or location, from 
services directly funded by HUD, and that no beneficiary served by a 
HUD-funded provider directly funded by HUD will be required to 
participate in inherently religious activities as a condition of 
receiving services. These requirements sufficiently protect the rights 
of program beneficiaries. Moreover, HUD's general objective is to 
eliminate barriers to faith-based organizations, to welcome their 
participation in HUD programs and, most important, to ensure they are 
treated like other program participants. The commenter's 
recommendations run counter to the objectives that HUD is trying to 
achieve through this rule. In light of the restrictions on direct 
funding outlined above, to prevent a faith-based organization from 
providing HUD-funded programs or services unless there is a secular 
organization also providing the same programs or services would defeat 
the ``neutrality'' objective sought by this rulemaking.

B. Comments Regarding Inherently Religious Activities

    Comment: Revise the requirement regarding ``separation in time or 
location.'' The commenter wrote that the rule fails to mandate the 
sufficient distance between inherently religious activities and the 
delivery of programs, activities, or services supported by direct HUD 
funds. The commenter suggested that HUD revise the rule to provide that 
religious activities must be separated by both time and location. The 
commenter also suggested that faith-based organizations be required to 
explain that participation in religious activities is voluntary at the 
outset of a beneficiary's receipt of services.
    HUD Response. HUD declines to adopt the suggestion made by the 
commenter. HUD believes that requiring that inherently religious 
activities be separated from HUD-funded activities by both time and 
location is legally unnecessary. Further, such a requirement would 
impose an unnecessarily harsh burden on small faith-based organizations 
that may have access to only one suitable location for the provision of 
HUD-funded services. HUD does not agree that the separation of time or 
location requirement is ambiguous or necessitates the need for 
additional regulation for proper adherence. HUD believes that existing 
regulations and this rule are clear that faith-based organizations 
using direct federal funds for certain activities must separate their 
inherently religious activities from the federally funded activities.
    Furthermore, HUD declines to require that religious organizations 
provide a notice to a beneficiary or potential beneficiary that 
participation in religious activities was entirely on a voluntary 
basis. However, grantees are encouraged to take steps to ensure that 
clients and prospective clients have a clear understanding of the 
services offered by their organization by explaining the services 
offered, including any inherently religious activities, as well as the 
individual's right not to participate in any such activities, while 
still accepting or receiving services. The requirement that 
participation be voluntary, however, is sufficient to address concerns 
about the religious freedom of program beneficiaries.
    Comment: Include a more explicit statement prohibiting faith-based 
organizations from requiring program beneficiaries to participate in 
religious activities. The commenter wrote that HUD should strengthen 
the provisions of the rule specifying that participation by a 
beneficiary in religious activities offered by a faith-based service 
provider be voluntary, and that the faith-based organization may not 
discriminate against a prospective beneficiary for refusing to 
participate in such activities. Specifically, the commenter suggested 
that the regulatory text should be revised to state that a faith-based 
organization may not discriminate based on ``refusal to participate in 
or attend a religious practice.''
    HUD Response. HUD believes that the language in the rule 
prohibiting faith-based organizations from requiring program 
beneficiaries to participate in religious activities is sufficiently 
explicit. A prohibition on discrimination against beneficiaries on the 
basis of religion or religious belief is straightforward and requires 
no further elaboration.

C. Comments Regarding Other Rule Provisions

    Comment: Concern regarding the Title VII exemption. The commenter 
questioned whether a faith-based organization retains its Title VII 
exemption after receipt of federal funds. The commenters wrote that the 
exemption from Title VII was never intended to provide the basis for 
government-funded discrimination, and expressed concern that the rule 
will result in illegal employment discrimination.
    HUD Response. As noted above in this preamble, this final rule 
clarifies that a faith-based organization's exemption from the federal 
prohibition on employment discrimination on the basis of religion, set 
forth in section 702(a) of Title VII of the Civil Rights Act of 1964, 
is not forfeited when the organization participates in a HUD program. 
HUD believes that faith-based organizations should retain their 
fundamental civil rights, including their ability to take faith into 
account when they make employment decisions without running afoul of 
Title VII, when they participate in HUD programs. Title VII recognizes 
that for a faith-based organization to define or carry out its mission, 
it is important that it be able to choose its employees based on its 
vision and beliefs without incurring liability under Title VII. Some 
HUD programs, however, contain independent statutory provisions that 
impose certain nondiscrimination requirements on all grantees. 
Accordingly, grantees should consult with the appropriate Department 
program office to determine the scope of any applicable requirements.
    Comment: The proposed rule allows the misuse of HUD funds to build 
structures used for religious purposes. The commenter objected to the 
use of HUD funds in the acquisition, construction, or rehabilitation of 
religious structures. The commenter wrote that the proposed 
``attribution'' requirements would be unenforceable by agencies 
administering the HUD grant. The commenter offered that, even if the 
proposed rule could be effectively enforced, it would require such 
excessive monitoring as to constitute

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excessive government entanglement with religious institutions. The 
commenter wrote that HUD should establish effective safeguards to avoid 
the misuse of HUD funds and prevent the perceived constitutional 
pitfalls.
    HUD Response. HUD has not revised the rule in response to these 
comments. HUD finds no basis for requiring greater oversight and 
monitoring of faith-based organizations than other program participants 
simply because they are faith-based organizations. All program 
participants must be monitored for compliance with program 
requirements, and no program participant may use HUD funds for any 
ineligible activity, whether that activity is an inherently religious 
activity or a nonreligious activity that is outside the scope of the 
program at issue. Many nonreligious organizations participating in HUD 
programs also receive funding from several sources (private, state, or 
local) to carry out activities that are ineligible for funding under 
HUD programs. In many cases, the non-eligible activities are secular 
activities but not activities eligible for funding under HUD programs. 
All program participants receiving funding from various sources and 
carrying out a wide range of activities must ensure through proper 
accounting principles that each set of funds is applied only to the 
activities for which the funding was provided. The regulations for 
HUD's programs prescribe the cost accounting procedures that are to be 
followed in using HUD funds.
    HUD also does not agree that preventing the use of direct HUD 
capital-improvement funds for inherently religious activities would 
necessarily fail or, in the process, excessively entangle the 
government in the affairs of recipients or subrecipients that are 
religious organizations. Because inherently religious activities are 
non-HUD activities, HUD need not distinguish between program 
participants' religious and nonreligious non-HUD activities; the same 
mechanism by which HUD polices the line between ineligible and eligible 
activities will serve to exclude inherently religious activities from 
funding. This system of monitoring is more than sufficient to address 
the commenter's concerns, and the amount of oversight of religious 
organizations necessary to accomplish these purposes is no greater than 
that involved in other publicly funded programs that the Supreme Court 
has sustained.
    HUD believes that the prorated funding of improvements to a 
structure that has a mixed use--both religious and nonreligious-- is 
not itself a violation of the Constitution. In a neutral program in 
which the government directly funds the capital improvements of 
institutions that administer federal social welfare programs, the 
government need only put in place safeguards to ensure that public 
money is not used to finance inherently religious activities. 
Therefore, the final rule's prohibition on the funding of capital 
improvements for sanctuaries, chapels, or any other rooms that a HUD-
funded religious congregation uses as its principal place of worship 
simply provides extra assurance that HUD-funded capital improvements 
will not be used to support inherently religious activities, and HUD's 
rule is well within the bounds of the Constitution.
    Comment: The rule should prohibit the display of religious art or 
iconography. The commenter wrote that the rule fails to recognize that 
proselytization, religious instruction, and worship can occur through 
art, icons, and images. Further, the commenter was concerned that the 
symbols might create a ``pervasively sectarian'' atmosphere in which 
members of a different religion may not feel comfortable or welcome.
    HUD Response. HUD declines to impose this restriction on HUD 
program participants that are faith-based organizations. A number of 
federal statutes affirm the principle embodied in this rule (see e.g., 
42 U.S.C. 290kk-1(d)(2)(B)). For no other program participants do HUD 
regulations prescribe the type of artwork, statues, or icons that may 
be placed within the structures in which HUD-funded services are 
provided. A prohibition on the use of religious icons would make it 
more difficult for many faith-based organizations to participate in the 
program than for other organizations and would thus be an inappropriate 
and excessive restriction.

V. Findings and Certifications

Consultation With Indian Tribal Governments

    In accordance with Executive Order 13175 (entitled ``Consultation 
and Coordination With Indian Tribal Governments''), issued on November 
6, 2000, HUD has consulted with representatives of tribal governments 
concerning the subject of this rule. HUD, through a letter dated 
February 23, 2004, provided Indian tribes and Alaska Native Villages 
the opportunity to comment on the substance of the regulatory changes 
during the development of the June 21, 2004, proposed rule. HUD 
considered their comments on the proposed changes in the preparation of 
the June 21, 2004, proposed rule for publication. Additionally, the 
June 21, 2004, proposed rule provided Indian tribes with an additional 
opportunity to comment on the proposed regulatory changes.

Regulatory Planning and Review

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

Unfunded Mandates Reform Act

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

Environmental Impact

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

Impact on Small Entities

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

Catalog of Federal Domestic Assistance Numbers

    The Catalog of Federal Domestic Assistance numbers for the programs 
affected by this rule are: Indian Home Program--14.239; ICDBG--14.862;

[[Page 62169]]

Section 184--14.865; IHBG--14.867; Title VI Loan Guarantee--14.869.

List of Subjects

24 CFR Part 954

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

24 CFR Part 1003

    Alaska, Community development block grants, Grant programs--housing 
and community development, Indians, Reporting and recordkeeping 
requirements.


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

PART 954--INDIAN HOME PROGRAM

0
1. The authority citation for 24 CFR part 954 continues to read as 
follows:

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


0
2. Revise Sec.  954.301 to read as follows:


Sec.  954.301  Faith-based activities.

    (a) Religious organizations are eligible, on the same basis as any 
other organization, to participate in the Indian HOME program. Neither 
the federal government nor a tribal government nor any other entity 
that administers any program or activity under this part shall 
discriminate against an organization on the basis of the organization's 
religious character or affiliation.
    (b) Organizations that receive direct HUD funds under the Indian 
HOME program may not engage in inherently religious activities, such as 
worship, religious instruction, or proselytization, as part of the 
program or services funded under this part. If an organization conducts 
such inherently religious activities, the inherently religious 
activities must be offered separately, in time or location, from the 
programs, activities, or services supported by direct HUD funds under 
this part, and participation must be voluntary for the beneficiaries of 
the programs, activities, or services provided.
    (c) A religious organization that participates in the Indian HOME 
program will retain its independence from federal, state, local, and 
tribal governments, and may continue to carry out its mission, 
including the definition, practice, and expression of its religious 
beliefs, provided that it does not engage in any inherently religious 
activities, such as worship, religious instruction, or proselytization, 
as part of the programs or services funded under a program or activity 
pursuant to this part. Among other things, religious organizations may 
use space in their facilities to provide services under the Indian HOME 
program without removing religious art, icons, scriptures, or other 
religious symbols. In addition, a religious organization participating 
in the Indian HOME program retains its authority over its internal 
governance, and it may retain religious terms in its organization's 
name, select its board members on a religious basis, and include 
religious references in its organization's mission statements and other 
governing documents.
    (d) A religious organization's exemption from the federal 
prohibition on employment discrimination on the basis of religion, set 
forth in section 702(a) of the Civil Rights Act of 1964 (42 U.S.C. 
2000e-1), is not forfeited when the organization participates in a HUD 
program. Some HUD programs, however, contain independent statutory 
provisions that impose certain nondiscrimination requirements on all 
grantees. Accordingly, grantees should consult with the appropriate HUD 
program office to determine the scope of applicable requirements.
    (e) An organization that receives direct funds under the Indian 
HOME program shall not, in providing program assistance, discriminate 
against a program beneficiary or prospective program beneficiary on the 
basis of religion or religious belief.
    (f) Indian HOME funds may not be used for the acquisition, 
construction, or rehabilitation of structures to the extent that those 
structures are used for inherently religious activities. Indian HOME 
funds may be used for the acquisition, construction, or rehabilitation 
of structures only to the extent that those structures are used for 
conducting eligible activities under this part. Where a structure is 
used for both eligible and inherently religious activities, Indian HOME 
funds may not exceed the cost of those portions of the acquisition, 
construction, or rehabilitation that are attributable to eligible 
activities in accordance with the cost accounting requirements 
applicable to Indian HOME funds in this part. Sanctuaries, chapels, or 
other rooms that an Indian HOME-funded religious congregation uses as 
its principal place of worship, however, are ineligible for Indian 
HOME-funded improvements. Disposition of real property after the term 
of the grant, or any change in use of the property during the term of 
the grant, is subject to governmentwide regulations governing real 
property disposition (see 24 CFR parts 84 and 85).
    (g) If a tribal government voluntarily contributes its own funds to 
supplement federally funded activities, the tribal government has the 
option to segregate the federal funds or commingle them. However, if 
the funds are commingled, this section applies to all of the commingled 
funds. Further, if a state or local government is required to 
contribute matching funds to supplement a federally funded activity, 
the matching funds are considered commingled with the federal 
assistance and therefore subject to the requirements of this section. 
Some HUD programs requirements govern any project or activity assisted 
under those programs. Accordingly, grantees should consult with the 
appropriate HUD program office to determine the scope of applicable 
requirements

PART 1003--COMMUNITY DEVELOPMENT BLOCK GRANTS FOR INDIAN TRIBES AND 
ALASKA NATIVE VILLAGES

0
3. The authority citation for 24 CFR part 1003 continues to read as 
follows:

    Authority: 42 U.S.C. 3535(d) and 5301 et seq.

0
4. Revise Sec.  1003.600 to read as follows:


Sec.  1003.600  Faith-based activities.

    (a) Religious organizations are eligible, on the same basis as any 
other eligible organization, to participate in the ICDBG program. 
Neither the federal government nor a tribal government nor any other 
entity that administers any program or activity under this part shall 
discriminate against an organization on the basis of the organization's 
religious character or affiliation.
    (b) Organizations that receive direct HUD funds under the ICDBG 
program may not engage in inherently religious activities, such as 
worship, religious instruction, or proselytization, as part of the 
programs or services funded under this part. If an organization 
conducts such inherently religious activities, the inherently religious 
activities must be offered separately, in time or location, from the 
programs, activities or services supported by direct HUD funds under 
this part, and participation must be voluntary for the beneficiaries of 
the programs, activities, or services provided.
    (c) A religious organization that participates in the ICDBG program 
will retain its independence from federal, state, local, and tribal 
governments, and may continue to carry out its mission,

[[Page 62170]]

including the definition, practice, and expression of its religious 
beliefs, provided that it does not engage in any inherently religious 
activities, such as worship, religious instruction, or proselytization, 
as part of the programs or services funded under a program or activity 
pursuant to this part. Among other things, religious organizations may 
use space in their facilities to provide ICDBG-funded services, without 
removing religious art, icons, scriptures, or other religious symbols. 
In addition, a religious organization participating in the ICDBG 
program retains its authority over its internal governance, and it may 
retain religious terms in its organization's name, select its board 
members on a religious basis, and include religious references in its 
organization's mission statements and other governing documents.
    (d) A religious organization's exemption from the federal 
prohibition on employment discrimination on the basis of religion, set 
forth in section 702(a) of the Civil Rights Act of 1964 (42 U.S.C. 
2000e-1), is not forfeited when the organization participates in a HUD 
program. Some HUD programs, however, contain independent statutory 
provisions that impose certain nondiscrimination requirements on all 
grantees. Accordingly, grantees should consult with the appropriate HUD 
program office to determine the scope of applicable requirements.
    (e) An organization that receives direct funds under the ICDBG 
program shall not, in providing program assistance, discriminate 
against a program beneficiary or prospective program beneficiary on the 
basis of religion or religious belief.
    (f) ICDBG funds may not be used for the acquisition, construction, 
or rehabilitation of structures to the extent that those structures are 
used for inherently religious activities. ICDBG funds may be used for 
the acquisition, construction, or rehabilitation of structures only to 
the extent that those structures are used for conducting eligible 
activities under this part. Where a structure is used for both eligible 
and inherently religious activities, ICDBG funds may not exceed the 
cost of those portions of the acquisition, construction, or 
rehabilitation that are attributable to eligible activities in 
accordance with the cost accounting requirements applicable to ICDBG 
funds in this part. Sanctuaries, chapels, or other rooms that an ICDBG-
funded religious congregation uses as its principal place of worship, 
however, are ineligible for ICDBG-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 governmentwide 
regulations governing real property disposition (see 24 CFR parts 84 
and 85).
    (g) If a tribal government voluntarily contributes its own funds to 
supplement federally funded activities, the tribal government has the 
option to segregate the federal funds or commingle them. However, if 
the funds are commingled, this section applies to all of the commingled 
funds. Further, if a state or local government is required to 
contribute matching funds to supplement a federally funded activity, 
the matching funds are considered commingled with the federal 
assistance and therefore subject to the requirements of this section. 
Some HUD programs requirements govern any project or activity assisted 
under those programs. Accordingly, grantees should consult with the 
appropriate HUD program office to determine the scope of applicable 
requirements.

    Dated: October 18, 2004.
Michael Liu,
Assistant Secretary for Public and Indian Housing.
[FR Doc. 04-23666 Filed 10-19-04; 12:06 pm]
BILLING CODE 4210-33-P