Charitable Choice: Federal Guidance on Statutory Provisions Could
Improve Consistency of Implementation (10-SEP-02, GAO-02-887).	 
                                                                 
The federal government spends billions of dollars annually to	 
provide services to the needy directly, or through contracts with
a large network of social service providers. Faith-based	 
organizations (FBO), such as churches and religiously affiliated 
entities, are a part of this network and have a long history of  
providing social services to needy families and individuals. In  
the past, religious organizations were required to secularize	 
their services and premises, so that their social service	 
activities were distinctly separate from their religious	 
activities, as a condition of receiving public funds. Beginning  
with the passage of the Personal Responsibility and Work	 
Opportunity Reconciliation Act of 1996, Congress enacted	 
"charitable choice" provisions, which authorized religious	 
organizations to compete on the same basis as other organizations
for federal funding under certain programs without having to	 
alter their religious character or governance. The statutory	 
provisions cover several programs, including Temporary Assistance
for Needy Families (TANF) and Welfare to Work. Similar provisions
also apply to the Community Services Block Grant and the	 
substance abuse prevention and treatment programs. GAO found that
faith-based organizations receive a small proportion of the	 
government funding provided to nongovernmental contractors.	 
Contracts with faith-based organizations accounted for 8 percent 
of the $1 billion in federal and state TANF funds spent by state 
governments on contracts with nongovernmental entities in 2001.  
Although charitable choice was intended to allow FBOs to contract
with government in these programs, several factors continue to	 
constrain the ability of small FBOs to contract with the	 
government. These factors include FBO's lack of awareness of	 
funding opportunities, limited administrative and financial	 
capacity, inexperience with government contracting, and beliefs  
about the separation of church and state. State and local	 
officials differed in their understanding and implementation of  
certain charitable choice safeguards, such as the prohibition on 
the use of federal funds for religious worship or instruction;	 
however, the incidence of problems involving safeguards is	 
unknown. Faith-based organizations are held accountable for	 
performance in the same way as other organizations contracting	 
with the government. However, little information is available to 
compare the performance of FBOs to that of other organizations.  
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-02-887 					        
    ACCNO:   A04503						        
  TITLE:     Charitable Choice: Federal Guidance on Statutory	      
Provisions Could Improve Consistency of Implementation		 
     DATE:   09/10/2002 
  SUBJECT:   Accountability					 
	     Block grants					 
	     Charitable organizations				 
	     Disadvantaged persons				 
	     Federal aid programs				 
	     Community Services Block Grant			 
	     HUD Welfare to Work Initiative			 
	     SAMHSA Substance Abuse Prevention and		 
	     Treatment Block Grant Program			 
                                                                 
	     Temporary Assistance for Needy Families		 
	     Block Grant					 
                                                                 
	     Temporary Assistance for Needy Families		 
	     Program						 
                                                                 

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GAO-02-887

Report to Congressional Requesters

United States General Accounting Office

GAO

September 2002 CHARITABLE CHOICE

Federal Guidance on Statutory Provisions Could Improve Consistency of
Implementation

GAO- 02- 887

Page i GAO- 02- 887 Charitable Choice Letter 1

Results in Brief 3 Background 5 FBOs Received a Small Proportion of
Contracted Funds and Most

Had Previously Contracted with the Government 7 Limited Awareness, Limited
Capacity, and Inexperience Constrain

Some FBOs from Government Contracting 14 Understanding and Implementation
of Charitable Choice

Safeguards Vary and Incidence of Violations Is Unknown 18 FBOs Are Held
Accountable for Performance in the Same Way As

Non- FBOs, but Comparative Performance Information Is Unavailable 22
Conclusions 23 Recommendation for Executive Action 24 Agency Comments 24

Appendix I Scope and Methodology 26

Appendix II Comments from the Department of Health and Human Services 28

Appendix III GAO Contacts and Staff Acknowledgments 31 GAO Contacts 31
Staff Acknowledgments 31

Related GAO Products 32

Tables

Table 1: Funding and Objectives of Programs with Charitable Choice
Provisions, Fiscal Year 2001 6 Table 2: Charitable Choice Safeguards and
the Key Parties They

Are Designed to Protect 7 Table 3: State- level TANF Contracting with
FBOs, 2001 10 Table 4: Contracting with FBOs Using SAPT Funds, Federal
Fiscal

Year 2001 12 Contents

Page ii GAO- 02- 887 Charitable Choice

Table 5: Contracting with FBOs Using CSBG Funds, Federal Fiscal Year 2001
13

Figure

Figure 1: Percentage of Federal and State TANF Funds and TANF Contracts,
by Type of Contractors for State- Level Contracting, 2001 9

Abbreviations

CAA community action agency CSBG Community Services Block Grant FBO faith-
based organization HHS Department of Health and Human Services PRWORA
Personal Responsibility and Work Opportunity

Reconciliation Act of 1996 RFP request for proposal SAPT Substance Abuse
Prevention and Treatment TANF Temporary Assistance for Needy Families WTW
Welfare- to- Work

Page 1 GAO- 02- 887 Charitable Choice

September 10, 2002 The Honorable Joseph I. Lieberman Chairman Committee on
Governmental Affairs United States Senate

The Honorable Elijah E. Cummings Ranking Minority Member Subcommittee on
Criminal Justice,

Drug Policy, and Human Resources Committee on Government Reform House of
Representatives

The federal government spends billions of dollars annually to provide
services to the needy directly, or through contracts with a large network
of social service providers. Faith- based organizations (FBO), such as
churches and religiously affiliated entities, are a part of this network
and have a long history of providing social services to needy families and
individuals. In the past, religious organizations were required to
secularize their services and premises, so that their social service
activities were distinctly separate from their religious activities, as a
condition of receiving public funds. 1 For example, the organizations
often were required to incorporate separately from their sponsoring
religious institution, refrain from religious activities in the publicly
funded services, and remove religious symbols from the premises where the
services were provided. Beginning with the passage of the Personal
Responsibility and Work Opportunity Reconciliation Act (PRWORA) of 1996, 2
the Congress enacted *charitable choice* provisions, which authorized
religious organizations 3 to compete on the same basis as other
organizations for federal funding under certain programs without having to
alter their religious character or governance. These charitable choice
provisions also

1 This was based on a number of Supreme Court opinions, which interpreted
the First Amendment and addressed the eligibility of religious
organizations to receive federal funds. See Committee for Public Education
v. Nyquist, 413 U. S. 756 (1973).

2 P. L. 104- 193, sec. 104, Aug. 22, 1996. 3 The federal legislation
applies to charitable, religious, or private organizations, but does not
specifically define the term religious organization.

United States General Accounting Office Washington, DC 20548

Page 2 GAO- 02- 887 Charitable Choice

require that the programs be implemented in a manner consistent with the
First Amendment to the Constitution. These statutory provisions cover
several programs, among them Temporary Assistance for Needy Families
(TANF) and Welfare- to- Work (WTW). Similar provisions also apply to the
Community Services Block Grant (CSBG) and the substance abuse prevention
and treatment (SAPT) programs. These charitable choice provisions contain
certain safeguards that were intended to protect the interests of the
various parties* governments, FBOs, and beneficiaries* involved in
federally funded financial agreements under these programs. 4 For example,
if a beneficiary objects to the religious nature of a service provider,
the state or locality must make available an alternative provider that is
without religious affiliation.

Because the Congress has recently considered enacting charitable choice
provisions in other programs, you asked us to report on how current
provisions have been implemented. Specifically, you asked:

 What is known about the extent and nature of financial agreements
between FBOs and government entities nationally and in selected states?

 What factors have constrained or complicated financial agreements with
FBOs?

 How have the federal charitable choice provisions intended to provide
safeguards for various parties been implemented and what, if any, problems
have arisen?

 How are FBOs being held accountable for performance and what information
is available regarding their performance?

To obtain a national perspective on charitable choice, we analyzed the
results of our 50- state survey of TANF contracting, 5 interviewed federal
officials who oversee programs with charitable choice provisions, and
reviewed federal agency reports on barriers to contracting with FBOs and
the implementation of charitable choice provisions. To obtain more
specific information about how charitable choice has been implemented, we
visited 5 states* Georgia, Indiana, Texas, Virginia, and Washington* and
conducted telephone interviews with faith- based liaisons established in
15 states. We selected these 5 states to obtain a range in the levels of

4 Financial agreements include contracts, grants, and memorandums of
understanding. 5 U. S. General Accounting Office, Welfare Reform: Federal
Oversight of State and Local Contracting Can Be Strengthened, GAO- 02- 661
(Washington, D. C.: June 11, 2002).

Page 3 GAO- 02- 887 Charitable Choice

both state government activities with regard to faith- based initiatives
and contracting with FBOs, as well as geographic dispersion. In each
state, we interviewed state and local government officials who
administered programs with charitable choice provisions, representatives
of FBOs, and representatives of agencies involved in contracting for
social services. We performed our work between September 2001 and July
2002 in accordance with generally accepted government auditing standards.
For more details on our scope and methodology, see appendix I.

Overall, faith- based organizations receive a small proportion of the
government funding provided to nongovernmental contractors, according to
results from our national TANF survey and the interviews we conducted in
five states. Our national survey found that contracts with faith- based
organizations accounted for 8 percent (or $80 million) of the $1 billion
in federal and state TANF funds spent by state governments on contracts
with nongovernmental entities in 2001. The proportion of these funds
contracted with FBOs ranges from 0 to 32 percent across states. FBOs also
received a small proportion of the competitive grant portion of Welfare-
toWork funds in recent years; however, national data are not available for
the remaining portion of these funds. National data are also not available
on the magnitude of contracting with FBOs for Community Service Block
Grant and Substance Abuse Prevention and Treatment Block Grant programs.
However, we were able to obtain data on contracts with FBOs using these
funds in the five states we visited and found that these FBOs receive
small amounts of these funds as well. Almost all FBOs we visited had
nonprofit tax- exempt status and most were organizations that had
contracted with the government before charitable choice. While the size
and structure of these FBOs varied, most were affiliated with Christian
denominations and most contracted to provide TANF- funded services. Under
these contracts, FBOs provided numerous services in line with the key uses
of each program*s funds and sometimes provided additional services. For
example, while more FBOs provided services such as job preparation,
several of the FBOs provided additional services, such as mentoring or
fatherhood training.

Although charitable choice was intended to allow FBOs to contract with
government in these programs, several factors continue to constrain the
ability of small FBOs to contract with the government. These factors
include FBOs* lack of awareness of funding opportunities, limited
administrative and financial capacity, inexperience with government
contracting, and beliefs about the separation of church and state.
However, many of these limitations are not unique to FBOs but are common
to small organizations with little or no experience in seeking Results in
Brief

Page 4 GAO- 02- 887 Charitable Choice

government contracts. Small FBOs are unaware of funding opportunities
unless they have past experience with the government, according to some
FBO and government officials we interviewed. In addition, FBOs* limited
capacity for dealing with the complex administrative and financial
requirements of government contracting places them at a disadvantage when
competing against larger, more experienced providers. Although officials
in the states we visited reported no legal barriers to prevent religious
organizations from partnering with the government, some officials noted
that their history of a strong separation of church and state might lead
all parties to be cautious about collaboration. In the states we visited,
government agencies differed in their approaches to identification and
removal of constraints that can limit financial contracting between FBOs
and government. Indiana, Texas, and Virginia have actively addressed such
constraints by providing FBOs with broader access to information and
educational assistance in pre- contracting procedures, while other states
have been less active in addressing constraints. Federal agencies have
also taken steps to address constraints by establishing funding for small
faith- based and community organizations to develop or expand model social
service programs.

State and local officials in the five states we visited differed in their
understanding and implementation of certain charitable choice safeguards,
such as the prohibition on the use of federal funds for religious worship
or instruction; however, the incidence of problems involving safeguards is
unknown. Certain charitable choice safeguards are subject to
interpretation, and federal agencies have issued little guidance to states
and localities explaining how to interpret these provisions. Because of
this lack of guidance, some officials expressed confusion about a few of
the safeguards, namely, those concerning what constitutes prohibited
religious activities and whether FBOs can hire on the basis of faith. For
example, several state and local officials told us that prayer is not
allowed during publicly funded services, while many FBOs told us that
voluntary prayer during such activities is permissible. Another
consequence of this lack of guidance is that state implementation of
charitable choice rules differed. Some states and localities did outreach
activities or included safeguard language in requests for proposals, while
others did not explicitly communicate safeguards to FBOs and clients.
Although officials in the states we visited reported receiving very few
complaints from clients receiving services from FBOs, the incidence of
safeguard violations is unknown. Most state and local agencies rely on
complaints and grievance procedures to identify discrimination or
proselytizing, and in some cases clients and FBOs may not be aware of
their protections under charitable choice.

Page 5 GAO- 02- 887 Charitable Choice

Faith- based organizations are held accountable for performance in the
same way as other organizations contracting with the government, according
to state and local officials in the five states we visited. However,
little information is available to compare the performance of FBOs to that
of other organizations. Government officials in these states said that
they held all contractors accountable on the basis of the provisions of
their contracts and monitored all contractors in a consistent manner.
However, comparative information on the contractors* performance was
unavailable for several reasons. Some types of contracts did not specify
performance outcomes, and even when they did, some state and local
officials said that comparative performance information was unavailable.
In those few cases where contractors shared the same specified performance
outcomes, state and local officials had not compared the performance of
FBOs to that of other contractors. Most state and local officials believed
FBOs performed at least as well as other organizations overall, even
though they did not provide data to support that belief. Two university-
based research studies are currently underway to provide information on
the performance of FBOs in delivering social services.

We are making a recommendation in this report to the Secretary of the
Department of Health and Human Services (HHS) to issue guidance to state
and local agencies on charitable choice safeguards that have been found to
be unclear or confusing. HHS agreed with our recommendation and said that
it is in the process of developing and issuing guidance.

To increase the involvement of religious organizations in the delivery of
social services, the Congress included charitable choice provisions in the
legislation for several federal programs. These provisions were designed
to remove legal or perceived barriers that religious organizations might
face in contracting with the federal government. First enacted in 1996,
charitable choice provisions apply to administrators, service providers,
and recipients of TANF and WTW funds, as established through PRWORA.
Subsequently, the Congress included charitable choice provisions in the
1998 reauthorization of the CSBG program and the amendments to the Public
Health Services Act in 2000 affecting the SAPT block grant program.

Funding levels for programs with charitable choice provisions vary
considerably, with TANF having the highest level of funding (see table 1).
These programs allocate funds in a variety of ways. TANF, CSBG, and SAPT
are block grants, which are distributed in lump sums to states. WTW has
two funding streams, one of which is comprised of state formula grants
that are mostly passed on to localities and the other representing a
Background

Program Funding

Page 6 GAO- 02- 887 Charitable Choice

smaller portion of funds called national competitive grants, which the
Department of Labor awarded directly to local applicants. Most federal
funding for these programs is administered by state or local government
entities, which have the ability to contract with social service
providers, including religious organizations.

Table 1: Funding and Objectives of Programs with Charitable Choice
Provisions, Fiscal Year 2001 Programs Federal

funding Key uses of program funds Administration of funds

TANF $16.5 billion a Providing assistance to needy families, including
promoting job preparation, work, and marriage; preventing and reducing
out- of- wedlock pregnancies; and encouraging the formation and
maintenance of two- parent families.

TANF is a block grant to states, which can choose to administer TANF funds
at the state level, local level, or both.

WTW $3 billion for FY 1998- 99 b Grants were designed to focus on helping
longterm welfare recipients find unsubsidized

employment. Seventy- five percent of WTW funds were

distributed to states through formula grants to pass on to local workforce
boards through sub- grants. Twenty- five percent of WTW funds were
designated for competitive grants, which were administered at the federal
level. SAPT $1.7 billion Substance abuse prevention and treatment

services for persons at risk of using or abusing alcohol, tobacco, and
illicit drugs.

SAPT is a block grant to states, which have broad discretion on how they
distribute funds* so long as these funds are passed on to a public or
nonprofit entity. CSBG $600 million CSBG funds are used for activities
designed to

have a measurable and potentially major impact on causes of poverty. The
law envisions a wide variety of activities undertaken on behalf of
lowincome families and individuals. Examples of CSBG- funded services
include emergency assistance, transportation, and domestic violence crisis
assistance.

States are required to pass through at least 90 percent of their federal
block grant allotments to eligible entities* primarily community action
agencies* to provide or subcontract out services.

a PRWORA authorized $16.5 billion in federal TANF funding to states each
year through fiscal year 2002. In addition, PRWORA includes a maintenance-
of- effort provision, which requires states to provide 75 to 80 percent of
their historic level of funding. b While additional funds were not
authorized beyond this time period, WTW grantees (both competitive

and formula) have a maximum of 5 years from their award date to expend
their funds.

In addition to establishing that FBOs can compete for public funds while
retaining their religious nature, charitable choice provisions are
intended to safeguard the interests of the various parties involved in
financial agreements to provide services (see table 2). While charitable
choice provisions vary somewhat by program, they all share common themes
of protecting religious autonomy among service providers, safeguarding the
interests of beneficiaries of federally funded services, and ensuring that
all contracting agencies, including religious organizations, are held
financially accountable. Charitable Choice

Safeguards

Page 7 GAO- 02- 887 Charitable Choice

Table 2: Charitable Choice Safeguards and the Key Parties They Are
Designed to Protect Safeguards Government

entities FBOs Beneficiaries

Government must allow religious organizations to compete for, or receive,
federal funding for the provision of social services on the same basis as
any other nongovernmental provider.

X If a beneficiary objects to the religious nature of a provider, the
state or locality must make available an alternative (nonreligious)
accessible provider.

X Government is prohibited from requiring an FBO to change its form of
internal governance or to remove religious art, icons, and symbols.

X FBOs are not required to separate their religious nature from their
social service activities to receive government funding.

X FBOs retain the ability to make employment decisions on religious
grounds, even after receiving federal funds.

X FBOs are subject to the same financial audit regulations for federal
funds as are other nongovernmental organizations.

X FBOs must not use public funds received directly for the purpose of
worship, religious instruction, or proselytizing.

X X FBOs cannot discriminate on the basis of religion in providing
services to clients. X

Overall, FBOs contracted for a small proportion of the government funding
available to nongovernmental contractors under the four programs we
examined. Contracts with FBOs accounted for 8 percent (or about $80
million) of the $1 billion in federal and state TANF funds spent by state
governments on contracts with nongovernmental entities in 2001, and 2
percent (or about $16 million) of the $712 million Welfare- to- Work
competitive grant funds in fiscal years 1998 and 1999. National data are
not available on the proportion of contracted funds FBOs received for
CSBG, SAPT, and Welfare- to- Work formula grants. However, state data
indicate that FBOs received a small proportion of CSBG and SAPT funds in
the five states we visited. All FBOs that we visited had tax- exempt
status and most were incorporated separately from religious institutions.
In addition, a majority had established contracts with the government
before the passage of charitable choice provisions in legislation; most
were affiliated with Christian denominations; and most contracted for TANF
funds. Under the contracts we examined, FBOs provided an array of services
in FBOs Received a

Small Proportion of Contracted Funds and Most Had Previously Contracted
with the Government

Page 8 GAO- 02- 887 Charitable Choice

line with the key uses of each program*s funds and sometimes provided
additional services such as mentoring or fatherhood training.

Contracting with FBOs constituted a relatively small proportion of all
contracting with nongovernmental entities using federal and state TANF
funds in 2001, according to our national survey. TANF contracting occurs
only at the state level in 24 states, only at the local level in 5 states,
at both levels in 20 other states, and in the District of Columbia. TANF
contracting does not occur in South Dakota. The majority of the
approximately $1 billion in federal and state TANF funds spent by state
governments on contracts with nongovernmental entities nationwide went to
secular nonprofit organizations, as shown in figure 1. In contrast,
contracts with FBOs accounted for 8 percent of the contracted funds.
Contracts with FBOs

Constitute a Small Proportion of Government Contracting

Page 9 GAO- 02- 887 Charitable Choice

Figure 1: Percentage of Federal and State TANF Funds and TANF Contracts,
by Type of Contractors for State- Level Contracting, 2001

Note: Figure 1 provides information on state- level contracting only and
does not include local contracts. Our national TANF contracting survey
also identified 1,517 TANF contracts at the local level, which accounted
for over $500 million in federal and state funds.

Source: GAO*s national survey of TANF contracting.

27% 66%

 

7%

13% 

79%

 

8%

Faith- based organizations

Faith- based organizations

For- profit organizations

Secular nonprofit organizations For- profit

organizations Secular nonprofit organizations

All for- profit organizations All nonprofit organizations

Federal and state TANF funds

(total = $1.0 billion) Number of TANF contracts

(total = 5,277 contracts)



Page 10 GAO- 02- 887 Charitable Choice

While FBOs received a small proportion of federal and state TANF funds
contracted out in 2001 at the state level, this proportion varied
considerably across states, as shown in table 3. New Jersey spent over 32
percent of these funds on contracts with FBOs. Nine states and the
District of Columbia spent more than 15 percent of these federal and state
TANF funds on contracts with FBOs. In contrast, 23 states awarded to FBOs
less than 5 percent of the federal and state TANF funds they contracted
out to nongovernmental organizations. While table 3 depicts contracting by
state governments, it does not include information on contracting by local
entities. In states such as California, New York, and Texas, TANF
contracting occurs predominately at the local level. Our national survey
of TANF contracting identified more than $500 million in local government
contracts with nongovernmental entities. About 8 percent of these funds
were with FBOs. 6

Table 3: State- level TANF Contracting with FBOs, 2001

Dollars in millions

State Total value of TANF

contracts between state and nongovernmental

entities Percentage of

contracted funds with FBOs

Total number of contracts between state

and nongovernmental entities

Percentage of contracts

with FBOs

Alabama $2.9 3 24 21 Alaska $1.3 0 2 0 Arizona a $13.7 3 120 4 Arkansas a
$4.1 0 10 0 California a $0.7 0 5 0 Connecticut a $1.7 0 2 0 Delaware $5.5
19 8 25 District of Columbia $46.0 19 10 20 Georgia a $23.6 1 123 6 Hawaii
$0. 7 0 2 0 Idaho $17.3 1 22 5 Illinois $111.9 12 1, 989 7 Indiana $23.3
15 223 3 Iowa $1.8 24 2313 Kansas $2.1 19 83 11

6 While our national survey of TANF contracting provides comprehensive
information on contracting at the state level, it provides incomplete and
nonrepresentative information on local contracting. For additional
information on the scope and methodology of the survey, see appendixes I
and II of U. S. General Accounting Office, Welfare Reform: Federal
Oversight of State and Local Contracting Can Be Strengthened, GAO- 02- 661
(Washington, D. C.: June 11, 2002).

Page 11 GAO- 02- 887 Charitable Choice

Dollars in millions

State Total value of TANF

contracts between state and nongovernmental

entities Percentage of

contracted funds with FBOs

Total number of contracts between state

and nongovernmental entities

Percentage of contracts

with FBOs

Kentucky a $3.2 0 14 0 Louisiana $11.5 15 159 13 Maine $3.1 3 12 17
Massachusetts a $64.1 5 159 8 Michigan $52.8 17 384 16 Minnesota a $4.7 0
27 0 Mississippi a $49.0 b 475 b Missouri a $12.7 11 118 13 Montana $7.5 0
14 0 Nebraska $7.1 0 12 0 Nevada a $4.1 0 c 43 5 New Hampshire $3. 5 0 10
0 New Jersey a $32.8 32 22 5 New York a $45.3 13 159 13 North Carolina a
$2.8 21 2425 North Dakota $1.4 29 3 33 Oklahoma $2.6 21 37 8 Oregon $0.9 7
35 11 Pennsylvania a $157.8 2 164 6 Rhode Island $5.3 13 63 8 South
Carolina a $15.4 2 16 13 Tennessee $41.9 7 56 11 Texas a $0.4 0 1 0 Utah a
$3.9 0 197 0 Vermont $6.6 6 36 3 Virginia a $6.1 1 104 3 Washington a
$33.2 23 152 8 West Virginia $10.8 7 39 13 Wisconsin $152.9 1 95 4 Wyoming
$0.4 0 1 0

Note: Colorado, Florida, Maryland, New Mexico, Ohio, and South Dakota are
not included in table 3 because they do not contract for TANF services at
the state level. a TANF contracting in these states occurs at both the
state and local level. Table 3 provides data on TANF contracts by state
government entities only and does not include data on local- level TANF
contracts. b State officials did not know how much of their TANF contracts
and funds went to FBOs.

c 0.1 percent. Source: GAO*s national survey of TANF contracting.

Page 12 GAO- 02- 887 Charitable Choice

In addition, national data show that a small proportion of WTW competitive
grant funds went to FBOs. According to Labor, 6 of 191 contracts for these
funds went to FBOs in fiscal years 1998 and 1999; these contracts totaled
$16.2 million, or approximately 2 percent of WTW competitive grant funds
in those years. 7

National data are not available to indicate the magnitude of contracting
with FBOs in other charitable choice programs we examined. Labor did not
have information about the proportion of WTW formula grants that went to
FBOs. States administer these grant funds through local entities. In
addition, HHS has not compiled national data on the level of contracting
with FBOs using CSBG and SAPT funds.

Although national information is not available, in the five states we
visited we found that FBOs received 9 percent or less of SAPT funds
contracted out by states. In addition, FBOs represented between 2 and 20
percent of the organizations licensed or certified by these five states to
provide substance abuse treatment services, as shown in table 4.

Table 4: Contracting with FBOs Using SAPT Funds, Federal Fiscal Year 2001

Dollars in millions

State Total funds

contracted out to nongovernmental

entities Percentage

of funds contracted

with FBOs Number of

licensed treatment providers eligible to receive funds

Percentage of licensed treatment providers eligible

to receive funds that are FBOs

Georgia $29.4 7 244 a 5 Indiana b $23.6 9 25 c 20 Texas d $68.9 5 322 2
Virginia b $38.4 0 e 234 f Washington $33.8 3 519 8 a Includes multiple
service sites for some service contractors.

b Data provided by Indiana and Virginia are for state fiscal year 2002 (7/
1/ 2001 to 6/ 30/ 2002). c Indiana subcontracts to providers through 25
certified organizations. d Data provided by Texas are for 9/ 1/ 2000 to 8/
30/ 2001. e 0.2 percent.

7 Department of Labor Report to White House Office of Faith- Based and
Community Initiatives.

Page 13 GAO- 02- 887 Charitable Choice

f State officials could not provide the number of licensed treatment
providers that are FBOs. Source: Data provided by state- level program
officials in five states.

In addition, in the five states we visited, FBOs received a small
proportion of the overall CSBG funds passed through by states. States
allocate these funds to *eligible entities,* primarily community action
agencies (CAAs), which include mostly private, nonprofit organizations but
also some public agencies. None of the eligible entities in the five
states we visited were FBOs. However, some of them subcontracted with
other providers, including FBOs, for services. In Texas and Washington,
FBOs received more than half of these subcontracted funds, as shown in
table 5.

Table 5: Contracting with FBOs Using CSBG Funds, Federal Fiscal Year 2001
State

CSBG funds passed through by the state

to CAAs Funds

subcontracted by CAAs to nongovernmental

entities Percent of funds

subcontracted by CAAs to FBOs

Georgia $14,429,044 $211,687 2 Indiana a $8,801,452 $410,043 14 Texas
$25,847,538 $1,333,809 55 Virginia a $8,309,697 b b Washington a
$6,291,396 $582,086 69 a While we requested data for federal fiscal year
2001, Indiana and Washington officials provided calendar year 2001 figures
and Virginia provided state fiscal year 2001 (7/ 1/ 00- 6/ 30/ 01)
figures. b Virginia state officials could not provide the total amount of
CSBG funds subcontracted by CAAs.

Source: Data provided by state- level program officials in five states.

All of the FBOs we visited had tax- exempt status; most were incorporated
separately from religious institutions; and a majority of them had a
fairly long history of contracting with the government. While 31 of the 35
FBO contractors we visited had been established to be independent of
religious institutions, all of them had tax- exempt status under section
501( c)( 3) of the Internal Revenue Code. Several of these FBOs told us
that they needed this status to compete for nongovernmental sources of
funding, such as funding from private foundations. Some FBOs noted that
this status established them as a legal entity separate from a church so
that the church would be protected from liability for the services the FBO
offered. Moreover, some FBO officials told us that 501( c)( 3) status gave
their program added credibility and an established presence in the
community. Of the 35 FBO contractors we visited, 21 had contracted with
the government before the passage of charitable choice legislation in the
Most FBOs We Visited

Were Incorporated Separately from Religious Institutions and a Majority
Previously Had Government Contracts

Page 14 GAO- 02- 887 Charitable Choice

relevant programs. One FBO had provided services through government
contracts since 1913.

The FBOs we selected for interviews in the five states we visited varied
in size and structure but shared some commonalities. While some FBOs were
very small, operating on a budget of less than $200,000, others had large
annual budgets, as high as $60 million. Some of the FBOs we visited
operated independently; some were multidenominational coalitions of
churches; and others were affiliated with a national religious
organization, such as Catholic Charities, the Association of Jewish Family
& Children*s Services, or the Salvation Army. Twenty- nine of the 35 FBOs
were affiliated with the Christian faith and included various Christian
denominations, for example, Baptist, Methodist, and Lutheran. Finally,
about two- thirds of these FBOs contracted for TANF- funded services.

FBOs we visited contracted for services that matched the key uses of each
program*s funds and sometimes included additional features. While more
FBOs provided services closer to the key uses of TANF program funds, such
as job preparation, several of the FBOs contracting for TANF services
included fatherhood programs or forms of mentoring in their programs. FBOs
that contracted for WTW funds mostly provided job training and placement;
one also helped clients find daycare services. FBOs contracting for SAPT
funds provided prevention and treatment of substance abuse. The two FBOs
that contracted for CSBG funds offered services that included parent
education, case management for families with a variety of needs, and
medical services.

While charitable choice has created opportunities for FBOs, several
factors continue to constrain some FBOs from contracting with the
government. These factors include FBOs* limited awareness of funding
opportunities, limited administrative and financial capacity, inexperience
with government contracting, and beliefs about the separation of church
and state. However, most of these limitations are not unique to FBOs but
are common to small, inexperienced organizations seeking to enter into
contracts with government. Although most officials in the states we
visited reported no legal barriers to prevent religious organizations from
partnering with government, some officials noted that their history of a
strong separation of church and state might lead all parties to be
cautious about collaboration. Government agencies in the states we visited
differed in their approaches to identification and removal of constraints
that can limit financial contracting between FBOs and government. Most
states we visited have broadened access to information and provided
assistance for FBOs, while others have been less active in identifying and
addressing Limited Awareness,

Limited Capacity, and Inexperience Constrain Some FBOs from Government
Contracting

Page 15 GAO- 02- 887 Charitable Choice

constraints. Federal agencies have also taken steps to address constraints
by establishing funding for small faith- based and community organizations
to develop or expand model social service programs.

Small FBOs are generally unaware of funding opportunities unless they have
past experience with government, according to some FBO and government
officials we interviewed. Notices about funding opportunities are sent to
current provider mailing lists, to newspapers, and sometimes to agency Web
sites. Because state and local governments are not required to promote a
broader awareness of funding opportunities for new providers under current
charitable choice provisions, government agencies in less active states
have not taken steps to disseminate information about funding
opportunities to FBOs. As a result, potential service providers that are
not on current notification lists, including FBOs, may remain unaware of
upcoming funding opportunities while experienced providers have advance
notice.

Moreover, small, inexperienced FBOs are disadvantaged by their limited
administrative capacity, according to many government and FBO officials we
interviewed. Small FBO providers often lack the administrative resources
necessary to deal with the complex paperwork requirements of government
contracting. Local program officials said that some new FBO providers may
have never submitted a budget, or may overestimate their capacity to
provide services, or may have difficulty with reporting requirements. Some
small FBOs we interviewed rely on one person* who may have other duties*
or a small number of staff and volunteers, to perform administrative
tasks. Government officials told us that small faithbased contractors
inexperienced in government contracting often required administrative and
technical assistance.

Similarly, FBO officials have expressed concerns about the financial
constraints of government contracting. Some FBO officials we interviewed
reported experiencing cash flow problems resulting from start- up costs
and payment delays. In some cases, their churches helped with start- up
funds, or other expenses, including overhead and indirect assistance.
Furthermore, in a March 2001 survey conducted by the Georgia FaithBased
Liaison, 8 religious leaders reported that while they were interested

8 National Center for Strategic Nonprofit Planning and Community
Leadership, Planning for the Implementation of Charitable Choice: Faith-
Based Forums & Community Dialogue, A Forum for Georgia*s Faith Leaders,
March 2001. Factors That Constrain

FBOs in Government Contracting Include Their Limited Awareness, Limited
Capacity, and Inexperience with Government

Page 16 GAO- 02- 887 Charitable Choice

in government contracting, they had concerns regarding their limited
financial capacity to manage publicly funded programs. These same leaders
also expressed concerns about their financial capacity if they were to
offer child- care or social services for welfare clients because of the
risks associated with payment delays.

Most state and local officials in the states we visited reported that no
legal barriers exist to prevent FBOs from contracting with the government
in programs with charitable choice provisions. However, some officials
noted that perceptions about the separation of church and state might
cause both FBO and government officials to be cautious about entering into
contracts. One state lawmaker in Georgia identified the state*s
constitution as one source of this perception, noting that it contains
language forbidding the funding of religious organizations with state
funds. Because of confusion over whether the state constitution also
applied to federal funds, Georgia adopted a law that specified that
charitable choice allowed religious organizations to receive federal
funding.

Most government officials we interviewed told us that state licensure or
certification requirements for substance abuse treatment providers do not
restrict religious organizations from participating in publicly funded
treatment programs. However, in all of the states we visited, substance
abuse treatment providers are required to be licensed or certified in
order to be eligible for publicly funded contracts. Government officials
noted that because the health and safety requirements attached to
licensing can be costly, they might pose a barrier to small FBOs that want
to be licensed to offer this service. To address this, lawmakers in the
state of Washington proposed easing licensing requirements for FBO
substance abuse treatment providers. However, this proposal was not
approved because of concerns that this would lower standards for FBO
providers.

Government and FBO officials we interviewed in several states reported
that some FBOs prefer not to partner with government for various reasons.
For example, some faith- based providers do not want to separate their
religion from their delivery of services. In a recent survey conducted by
Oklahoma*s Office of Faith- Based and Community Initiative to identify
barriers to collaboration, religious leaders reported that they were
concerned about potential erosion of their religious mission, government
intrusion into affairs of the congregation, and excessive bureaucracy.

Page 17 GAO- 02- 887 Charitable Choice

While states we visited differed in their approaches, some states have
taken more active strategies toward addressing factors that constrain FBOs
from government contracting. Some states, such as Texas and Virginia,
established task forces to advise the governor or legislature about
actions for improving government collaboration with FBOs. To promote
awareness and facilitate collaborations with FBOs, 20 states 9 have
appointed faith- based liaisons since the enactment of charitable choice
provisions in the current law. Four of the five states we visited directed
outreach activities to engage religious leaders and government officials
in discussions of the perceived barriers to collaboration and to promote
awareness of funding opportunities.

Some states took steps to strengthen the administrative capacity of FBOs
by providing informational opportunities and developing educational
material for FBOs unfamiliar with government contracting. Indiana,
Virginia, and Texas conducted informational sessions and workshops for
FBOs. In addition, Virginia and Indiana created educational handbooks
dedicated to new faith- based social service providers with information on
topics such as applying for government funding, writing grants, and
forming a nonprofit, tax- exempt 501( c)( 3) organization. Some state and
local officials we interviewed told us that they offer assistance and
administrative information to any small, new provider during the
precontracting phase.

Other states, which we did not visit, reported that they created separate
funding for their faith- based initiatives. New Jersey set up its own
Office of Faith- Based and Community Initiative and funded it using only
state funds, according to the New Jersey faith- based liaison. This office
began awarding grants for services such as day care, youth mentoring, and
substance abuse treatment to FBOs in 1998 and plans to award $2.5 million
in grants this year to faith- based providers. North Carolina developed a
*Communities of Faith Initiatives,* which set aside $2.45 million in TANF
funds for its Faith- Demonstration awards in 1999 and 2000 to contract
with various FBOs for job retention and followup demonstration pilots.

9 The states are Arizona, Arkansas, California, Colorado, Georgia,
Illinois, Indiana, Kansas, Maryland, Michigan, Montana, New Jersey, New
York, North Carolina, Ohio, Oklahoma, Pennsylvania, South Carolina, Texas,
and Virginia. This information was compiled by the Center for Public
Justice as of July 2002. See http:// www. cpjustice. org/
charitablechoice/ faithbystate. States Vary in Their

Approach to Addressing Constraints

Page 18 GAO- 02- 887 Charitable Choice

Federal agencies have also acted to identify and address constraints to
government collaborations with FBOs. President Bush issued two executive
orders in January 2001, establishing the White House Office of Faith-
Based and Community Initiatives and Centers for Faith- Based and Community
Initiatives in five federal agencies. 10 These agencies have reported on
barriers to collaboration with FBOs and outlined recommendations to
address some of the barriers. Moreover, a Compassion Capital Fund of $30
million was approved in the fiscal year 2002 budget as part of the Labor,
HHS, and Education appropriations. 11 The funds are to be used for grants
to charitable organizations to emulate model social service programs and
encourage research on the best practices of social services organizations.
In addition, Labor established another funding source to enhance
collaborations with faith- based and community providers. Labor*s
Employment and Training Administration announced on April 17, 2002, the
availability of grant funding geared toward helping faith- based and
community- based organizations participate in the workforce development
system.

In the five states we visited, understanding and implementation of
charitable choice safeguards differed, and the incidence of problems
involving safeguards is unknown. A few of the safeguard provisions
specified in federal law are subject to interpretation, and federal
agencies have issued limited guidance on how to interpret them. As a
result, some government and FBO officials expressed confusion concerning
two matters: (1) allowable activities under the prohibition on the use of
federal funds for religious instruction or proselytizing and (2) FBOs*
ability to hire on the basis of faith. State and local government entities
also differed in how they interpret the charitable choice safeguards and
their approaches to communicating them to FBOs. Officials in the states we
visited reported receiving few complaints from FBO clients. These
officials relied on complaints and grievance procedures to identify
discrimination or proselytizing, and in some cases FBOs and clients may
not be aware of the charitable choice safeguards. Therefore, violations of
the safeguard requirements may go unreported or undetected.

10 The five agencies are the Departments of Education, Housing and Urban
Development, Labor, Justice, and HHS. 11 P. L. 107- 116. Federal Agencies
Have

Also Taken Actions to Address Constraints

Understanding and Implementation of Charitable Choice Safeguards Vary and
Incidence of Violations Is Unknown

Page 19 GAO- 02- 887 Charitable Choice

In the 6 years since charitable choice provisions were passed as part of
PRWORA, federal agencies have issued limited guidance to state agencies
concerning charitable choice safeguards* such as the prohibition on the
use of federal funds for religious instruction or proselytizing* and how
they should be implemented. Even though HHS has recently created a
charitable choice Web site outlining most of the safeguards and has
sponsored workshops featuring charitable choice issues, it has not issued
guidance to states on the meaning of the provisions designed to safeguard
parties involved in government contracting. According to an HHS official,
although they have drafted guidance for charitable choice provisions as
they apply to substance abuse prevention and treatment programs, this
document has not been released. HHS officials told us that the agency did
not write regulatory language concerning charitable choice and TANF
because PRWORA specifically limits HHS from regulating the conduct of
states under TANF, except as expressly provided in the law. While PRWORA
includes charitable choice provisions, the law does not indicate that HHS
may prescribe how states must implement these provisions. With respect to
CSBG funds, HHS*s Office of Community Services has distributed an
information memorandum to states communicating the safeguards as they are
listed in the CSBG law, but this memorandum does not offer guidance on how
states should interpret the safeguard provisions. Finally, Labor*s
solicitation of grant applications for WTW competitive grants specifically
mentioned that FBOs were eligible to apply for the funds, but Labor did
not issue guidance concerning charitable choice safeguards. Labor reported
that in the case of WTW formula grants, the only information it gave to
states was to note charitable choice provisions in the planning guidance
it issued initially for the program.

Most state and local officials we interviewed knew that charitable choice
provisions were meant to allow FBOs to participate in the contracting
process on the same basis as other organizations and understood that the
law prohibits the use of public funds for religious worship, instruction,
or proselytizing; however, they often differed in their understanding of
allowable religious activities. Several state and local officials reported
that prayer was not allowed in the delivery of publicly funded social
services, while many FBO officials said that voluntary prayer was
permissible during such services. PRWORA and other laws with charitable
choice provisions do not define what constitutes proselytizing or
religious worship and federal guidance concerning this matter has not been
issued to state and local government entities. Without guidance from HHS,
consistency in interpretations is unlikely. Federal Agencies Have

Issued Limited Guidance on Safeguards

Officials Implementing Charitable Choice Provisions Differed in Their
Understanding of Certain Safeguards

Page 20 GAO- 02- 887 Charitable Choice

Some state, local, and FBO officials we interviewed were unaware of the
charitable choice safeguard allowing religious organizations to retain
limited exception to federal employment discrimination law. This safeguard
exempts religious organizations from the prohibition against
discrimination on the basis of religion in employment decisions, even when
they receive federal funds. For example, even though the law allows FBOs
to make hiring decisions on the basis of faith, one government official
said that the boilerplate language in the agency*s contracts with service
providers specifically indicates that providers are not allowed to
discriminate in employment decisions on the basis of religion. Other state
and local officials we interviewed were aware of this safeguard, but some
perceived it to be in conflict with local antidiscrimination laws. In
particular, one local agency official said that up to 17 percent of the
local population consisted of sexual minorities and expressed concern that
they would be discriminated against in both the hiring and the delivery of
services. In contrast, almost all FBO officials we interviewed said that
they do not consider faith when making hiring decisions for any of their
organizations* positions. In addition, all FBO officials we interviewed
said they do not consider the faith of the client in the delivery of their
services.

Some states were more active than others in communicating charitable
choice safeguards to the various parties involved in contracting. For
example, the state of Virginia enacted legislation to include all
charitable choice provisions in Virginia*s procurement law. These
provisions were included in its technical assistance handbook for faith-
and communitybased organizations and used as a curriculum for educating
over 1,000 representatives from faith- and community- based groups on
charitable choice safeguards, such as the FBOs* right to display religious
symbols. Virginia also distributed a statement that local agencies under
Virginia procurement law 12 must give to all clients informing them of
their right to an alternative (nonreligious) provider under charitable
choice. Indiana*s Family and Social Services Administration implemented a
similar practice.

States also communicated the safeguards by including various charitable
choice provisions in contracts or requests for proposals (RFP). State and
local government contracting entities in Indiana, Virginia, and Texas
included information in their TANF RFPs specifically stating that FBOs

12 Only localities with their own procurement law are not required to
distribute this statement. States and Localities

Varied in the Extent to Which They Communicated Information about the
Safeguards

Page 21 GAO- 02- 887 Charitable Choice

were eligible to apply for federal funds. 13 The Indiana Family and Social
Services Administration*s Indiana Manpower Placement and Comprehensive
Training Program and the Texas Department of Human Services included all
charitable choice safeguards in their contracts with TANF service
providers. Georgia has recently passed legislation to implement charitable
choice provisions; however, both Georgia and Washington do not currently
include any charitable choice language in their TANF contracts or RFPs.
Washington state officials said that after reviewing the charitable choice
statutory provisions, they decided that no action was required because
they already contracted with FBOs.

Government officials said that in practice, safeguards were most often
verbally communicated, many times through technical assistance workshops
or bidders* conferences. However, most of the FBOs we interviewed said
that the contracting agency had not explained the provisions to them. In
addition, few local and FBO officials we interviewed recalled receiving
any guidance on the safeguards, informal or otherwise, from state or local
officials, respectively.

In the five states we visited, government officials reported few problems
concerning FBO use of federal funds for proselytizing, discrimination
against clients, or client requests for alternative (nonreligious)
providers; however, the incidence of violations of these safeguard
requirements is unknown. FBOs we interviewed did not report any intrusive
government behavior that interfered with their ability to retain their
religious nature under charitable choice. These FBOs often displayed
religious symbols and none said that government officials restricted this
ability under charitable choice by asking them to remove religious icons.
In Texas, one lawsuit was filed against an FBO for allegedly using public
funds to purchase bibles for a charitable choice program, and the case was
dismissed in federal court. However, almost all of the government and FBO
officials we interviewed said that they had not received any complaints
from clients about the religious nature of an FBO.

13 We selected the TANF program for this analysis because charitable
choice provisions have applied to TANF longer than they have any other
program, allowing TANF officials more time to implement charitable choice
safeguards in contracting documents. Our analysis is based on the
contracts and RFPs we obtained from contracting officials we interviewed
and, therefore, may not be representative of all the TANF contracts and
RFPs in each state. Incidence of Violations of

Safeguard Requirements Is Unknown

Page 22 GAO- 02- 887 Charitable Choice

Officials in the five states we visited also said that few clients had
asked for an alternative (nonreligious) provider, one of the charitable
choice protections afforded to clients who object to receiving services
from a religious organization. However, only two of the five states we
visited, Indiana and Virginia, issued written guidance to inform clients
that they had this right to an alternative (nonreligious) provider, and
these two states only recently issued such guidance. Texas includes such
information in its TANF contracts, but requires that the provider
communicate this information to the client. Failure to communicate
information about this safeguard to clients raises the possibility that
some clients who may prefer to receive services from a nonreligious
provider may not be aware of their right to do so.

The majority of state and local agencies relied on complaint- based
systems to identify violations of the charitable choice safeguard
requirements. Agency officials typically monitored financial and
programmatic aspects of the services. A few officials said that any *red
flags* would show up during regular programmatic monitoring, and that such
indications would be the basis for further investigation. Nonetheless, it
is not clear whether there are violations of the safeguard requirements
that go unreported or undetected because clients and FBOs may not be aware
of the safeguard provisions.

FBOs are held accountable for performance in the same way as other
organizations that contract with the government, according to state and
local officials in the five states we visited. Most officials said that
all contractors are held accountable on the basis of the same standards,
such as those contained in the contract language. None of the officials
said that FBOs are held to a different standard, either higher or lower,
compared to other contractors. Most agencies responsible for monitoring
contractors said that they monitored all contracting organizations in the
same way, whether faith- based or not. None of the state and local
officials we interviewed said that they monitored FBOs differently from
other organizations. Monitoring activities included program audits,
financial audits, and regular performance reports from FBOs.

Although FBOs are held accountable for performance in the same way as non-
FBOs, comparative information on contractor performance is unavailable for
several reasons. One reason is that cost- reimbursement contracts, used by
many of the agencies in the five states visited, pay contractors on the
basis of the allowable costs they incur in providing services, rather than
performance outcomes* the results expected to follow from a service. In
contrast, performance- based contracts, which FBOs Are Held

Accountable for Performance in the Same Way As NonFBOs, but Comparative
Performance Information Is Unavailable

Page 23 GAO- 02- 887 Charitable Choice

were used by some of the agencies visited, pay contractors on the basis of
the degree to which the services performed meet the outcomes set forth in
the contract. Examples of such performance outcomes include the
percentages of clients that obtain or retain employment for a specified
period of time.

However, even when contracts specified expected outcomes, some state and
local officials said that comparative information on contractor
performance was unavailable. In the five states, specified performance
outcomes sometimes varied with each contractor individually, often because
contractors either provided different services or the same services to
different populations. In Indiana, for example, TANF contractors proposed
their performance outcomes as part of the bidding process on the basis of
the local agency*s needs. While specified performance outcomes sometimes
differed on the basis of the services provided and the populations served,
none of the state and local officials told us that these performance
outcomes varied according to whether the contractor was faith based.

While contractors shared the same specified performance outcomes in a few
cases, state and local officials had not compared the performance of FBOs
to that of other contractors. Many officials told us that they did not
track the performance of FBOs as a group at all. For example, one
statelevel agency tracked substance abuse treatment outcomes by providers
but had not identified which contractors were FBOs.

Most state and local officials that provided their opinion believed that
their FBO service providers performed as well as or better than other
organizations overall, even though they did not provide data regarding FBO
performance. Research efforts are currently under way to provide
information on the performance of FBOs in delivering social services.
Researchers at Indiana University- Purdue University Indianapolis are
conducting a 3- year evaluation comparing the performance of FBOs and non-
FBOs in Indiana, Massachusetts, and North Carolina. Researchers expect to
complete the study in 2003. In addition, in February 2002, The Pew
Charitable Trusts awarded a $6.3 million grant to the Rockefeller
Institute of Government, based at the State University of New York in
Albany, to study the capacity and effectiveness of FBOs in providing
social services and other issues.

While HHS and Labor have taken steps to increase awareness of funding
opportunities for religious and community organizations, state and local
government officials and FBO officials continue to differ in their
Conclusions

Page 24 GAO- 02- 887 Charitable Choice

understanding of charitable choice rules, particularly regarding specific
safeguards designed to protect the various parties involved in financial
arrangements, including FBOs and clients. In addition, clients are
sometimes not being informed about the safeguards that are specifically
designed to protect them. This is a problem because government entities
generally rely on complaints from clients to enforce such safeguards. When
all parties are not fully aware of their rights and responsibilities under
charitable choice provisions, violations of these rights may go undetected
and unreported.

While HHS officials said that they interpret PRWORA to mean that the
agency does not have the authority to issue regulations on charitable
choice for TANF programs, HHS does have the authority to issue other forms
of guidance to states for TANF programs. Additional guidance to clarify
the safeguards and suggest ways in which they can be implemented would
promote greater consistency in the way that government agencies meet their
responsibilities in implementing charitable choice provisions. Without
guidance from HHS, consistency in the interpretation of charitable choice
provisions is unlikely. Because the WTW funds were not reauthorized and
all funds have been distributed to grantees, the issuance of guidance by
Labor to states is no longer needed.

In order to promote greater consistency of interpretation and
implementation of charitable choice provisions, we recommend that the
Secretary of HHS issue guidance to the appropriate state and local
agencies administering TANF, CSBG, and SAPT programs on charitable choice
safeguards, including the safeguard prohibiting the use of federal funds
for religious worship, instruction, or proselytizing and the safeguard
concerning a client*s right to an alternative (nonreligious) provider. In
particular, this guidance should offer clarification concerning allowable
activities that a religious organization may engage in while retaining its
religious nature.

We provided a draft of this report to HHS and Labor for their review. HHS
agreed with our recommendation and said that it is in the process of
developing and issuing guidance to the appropriate state and local
agencies administering these programs. HHS also provided detailed
information on how it plans to use the $30 million Compassion Capital
Fund, which is intended to assist FBOs and community- based organizations.
HHS*s comments are reprinted in appendix II. Labor had no formal comments.
HHS and Labor also provided technical comments that we incorporated as
appropriate. Recommendation for

Executive Action Agency Comments

Page 25 GAO- 02- 887 Charitable Choice

As arranged with your offices, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days from
its issue date. At that time, we will send copies of this report to the
Secretary of Health and Human Services, the Secretary of Labor,
appropriate congressional committees, and other interested parties. We
will also make copies available to others upon request. In addition, the
report will be available at no charge on the GAO Web site at http:// www.
gao. gov.

If you or your staffs have any questions about this report, please contact
me at (202) 512- 7215. Other contacts and staff acknowledgments are listed
in appendix III.

Sigurd R. Nilsen Director, Education, Workforce,

and Income Security Issues

Appendix I: Scope and Methodology Page 26 GAO- 02- 887 Charitable Choice

To obtain specific information about how charitable choice has been
implemented, we visited 5 states* Georgia, Indiana, Texas, Virginia, and
Washington. We selected these states to obtain a range in the levels of
both state government activities with regard to faith- based initiatives
and contracting with faith- based organizations, as well as geographic
dispersion. In addition, we did telephone interviews with faith- based
liaisons established in 15 states (these were all of the liaisons that had
been established as of September 2001).

To identify what is known about the extent and nature of faith- based
organization (FBO) contracting, we compiled information from several
sources. We analyzed results from our national survey of Temporary
Assistance for Needy Families (TANF) contracting of all 50 states, the
District of Columbia, and the 10 counties with the largest federal
TANFfunding allocations in each of the 13 states that locally administer
their TANF programs. In addition, we interviewed state and local program
officials that administer TANF, Welfare- to- Work (WTW), Community
Services Block Grant (CSBG), and Substance Abuse Prevention and Treatment
(SAPT) funded programs in the states we visited. Finally, we analyzed
documents and data provided to us by federal, state, and local officials.

To identify the extent of FBO contracting in the WTW program, we obtained
national information from the Department of Labor, which oversees this
program. 1 To identify the extent of FBO contracting in the SAPT block
grant programs in the 5 states visited, we contacted state officials
responsible for these programs to obtain data on certified substance abuse
treatment providers eligible to receive federal funds and contracting
under this program. To identify the extent of FBO contracting in the CSBG
programs in these states, we contacted state officials responsible for
CSBG funded programs to obtain data on FBO contracting and subcontracting.
To identify the nature of services provided in the four programs, we
contacted federal, state and local officials overseeing these programs. In
addition, we visited FBOs that contracted with the government and some
that did not have contracts. We also reviewed relevant documents related
to the contracting process.

1 Labor provided us with a draft copy of its Report to the White House
Office of Faith- Based and Community Initiatives on charitable choice
implementation, which described the amount of competitive grant funding
awarded to FBOs. In addition, we obtained information from state officials
about their formula grant disbursements to FBOs. Appendix I: Scope and
Methodology

Appendix I: Scope and Methodology Page 27 GAO- 02- 887 Charitable Choice

To obtain information on the implementation of charitable choice,
including factors that constrain FBOs in contracting with the government,
implementing safeguard provisions, and the performance of FBOs, we met
with officials at the Departments of Health and Human Services and Labor
in Washington, D. C., that oversee the TANF, WTW, CSBG, and SAPT programs.
We conducted telephone interviews with faith- based liaisons in 15 states
and on- site interviews with state and local officials in various
locations in Georgia, Indiana, Texas, Virginia, and Washington. To obtain
the perspective of FBOs, we also interviewed FBO officials that have had
contracts with the government under these programs, as well as some that
do not have contracts with the government. In addition, we interviewed
researchers that have conducted related studies on charitable choice
implementation and the relative performance of FBOs. We also reviewed
audit reports for the two federal agencies that oversee these programs.
Finally, we analyzed documents that we obtained from federal, state, and
local officials, including contracts, guidance, and communications
regarding charitable choice implementation.

Appendix II: Comments from the Department of Health and Human Services
Page 28 GAO- 02- 887 Charitable Choice

Appendix II: Comments from the Department of Health and Human Services

Appendix II: Comments from the Department of Health and Human Services
Page 29 GAO- 02- 887 Charitable Choice

Appendix II: Comments from the Department of Health and Human Services
Page 30 GAO- 02- 887 Charitable Choice

Appendix III: GAO Contacts and Staff Acknowledgments

Page 31 GAO- 02- 887 Charitable Choice

Andrew Sherrill (202) 512- 7252 Anna M. Kelley (617) 565- 7499

In addition to the above contacts, Mary E. Abdella, Richard P. Burkard,
Jennifer A. Eichberger, Randall C. Fasnacht, and Nico Sloss made important
contributions to this report. Appendix III: GAO Contacts and Staff

Acknowledgments GAO Contacts Staff Acknowledgments

Related GAO Products Page 32 GAO- 02- 887 Charitable Choice

Charitable Choice: Overview of Research Findings on Implementation.

GAO- 02- 337. Washington, D. C.: January 18, 2002.

Regulatory Programs: Balancing Federal and State Responsibilities for
Standard Setting and Implementation. GAO- 02- 495. Washington, D. C.:
March 20, 2002.

Welfare Reform: Federal Oversight of State and Local Contracting Can Be
Strengthened. GAO- 02- 661. Washington, D. C.: June 11, 2002.

Welfare Reform: States Provide TANF- Funded Services to Many LowIncome
Families Who Do Not Receive Cash Assistance. GAO- 02- 564. Washington, D.
C.: April 5, 2002.

Welfare Reform: More Coordinated Federal Effort Could Help States and
Localities Move TANF Recipients With Impairments Toward Employment. GAO-
02- 37. Washington, D. C.: October 31, 2001.

Welfare Reform: Progress in Meeting Work- Focused TANF Goals. GAO- 01522T.
Washington, D. C.: March 15, 2001.

Welfare Reform: Moving Hard- to- Employ Recipients into the Workforce.

GAO- 01- 368. Washington, D. C.: March 15, 2001.

Welfare Reform: Data Available to Assess TANF*s Progress. GAO- 01- 298.
Washington, D. C.: February 28, 2001.

Drug Abuse: Research Shows Treatment Is Effective, but Benefits May Be
Overstated. GAO/ HEHS- 98- 72. Washington, D. C.: March 27, 1998. Related
GAO Products

(130073)

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