Indirect Government Funding: Why and How
Benefits and Advantages
“Indirect” government funding of social-service providers—methods such as vouchers or certificates whereby beneficiaries, rather than government officials, determine which organizations will provide the services and receive the government funds—have several benefits over the usual “direct” funding using grants or contracts. The methods empower beneficiaries to exercise responsibility in seeking help; make available several varieties of a service, permitting closer matches with individual needs and preferences; and may reduce the administrative burden because the beneficiaries’ choices help to ensure quality.
There is also one vital constitutional or church-state benefit: faith-based providers that participate do not need to separate out inherently religious activities from the services indirectly supported by government. Because a beneficiary, and not the government, selects the provider, the U.S. Supreme Court holds that any religion that may be part of the service the government money supports cannot be attributed to the government. The culminating case is Zelman v. Simmons-Harris (2002). Of course, the services that are funded must still achieve the desired secular or “this-worldly” benefit.
Other constitutional or church-state advantages of “indirect” over “direct” funding are these:
• officials do not have to ensure, through instruction and monitoring, that inherently religious elements are separated out from the government-funded services (as in the case of “direct” funding);
• a wide range of faith-based providers can participate—not only those that separate religion out from social services but also those that provide effective help that incorporates religion;
• beneficiaries who so desire can select government-funded services that incorporate religious activities, which may be more effective for them.
“Indirect” funding is widely used in the federally funded child care system, in which most funds are distributed to providers through federally funded certificates that parents use to pay the providers they prefer. Congress designed the federal program in this way in 1990 so that parents would be able to select faith-based child care, if they desired. Other “indirect” funding programs include Food Stamps, Medicare and Medicaid, federal college scholarships, some workforce training under the Workforce Investment Act (WIA), and housing vouchers.
For “indirect” funding systems to have the church-state benefits noted, certain features are essential: every beneficiary can find at least one religiously acceptable choice (in effect, at least one of the choices must be secular); all of the providers must offer good services, although they need not be identical in quality; the various choices should be accessible to each beneficiary; beneficiaries should have adequate information about each provider to be able to make an informed choice; and the beneficiaries have to be capable of making an independent choice.
Voucherized Systems
To create a voucherized system or to convert a grant or contract system to vouchers requires taking action in a series of areas:
• devise standards and create a system to pre-qualify a roster of providers;
• design a system to collect a range of information on each provider and to provide the information in a consumer-friendly way to every beneficiary;
• create a system to qualify people to receive vouchers and to distribute the vouchers;
• institute a method to ensure that beneficiaries are aware of the religious or secular character of the services provided by each provider and to document a beneficiary’s knowledge and consent if he or she decides on a service that incorporates religious elements;
• devise a way to decide the value of vouchers when the services to be obtained are of varying intensity, length, and effectiveness; and
• create a system for paying providers after they document the provision of service (by turning in the vouchers they have collected).
If a service is “voucherized,” it is important to inform both providers and beneficiaries that the government-supported services may legitimately incorporate religious activities and expression. Regulations applying to providers should note that religion need not be separated out from the government-funded service and that beneficiaries who object to a faith-based provider or a social service that incorporates religion should select a different provider. Beneficiaries should be reminded of their freedom to choose a different provider and that they cannot selectively participate in the services offered by any provider (e.g., requesting to be excused from a service that includes religious elements).
Beneficiary-Choice Contracting
Recent court decisions have shown that the church-state or constitutional benefits of “indirect” funding can be achieved without the need to transform a contracting system into a voucherized system. In the Faith Works Milwaukee case (2002, 2003), the courts determined that a particular form of contracting fits the requirements of “indirect” funding. In beneficiary-choice contracting, the government funds flow to the provider only because of the genuine choice of the beneficiary, and thus the provider is free to incorporate religious activities and expression in to the government-supported service. In this form of contracting, the benefits of “indirect” funding are achieved with the need only to modify the usual contracting process.
To convert conventional (“direct funding”) contracting to beneficiary-choice (“indirect funding”) contracting, officials must attend to a number of details:
• the government must contract with several providers, each of whom will be paid only if chosen by a beneficiary and having delivered the service to the beneficiary;
• the several providers must include at least one that provides a secular or non-religious social service;
• the secular choice must be of adequate quality and be accessible;
• a beneficiary’s choice of a faith-infused social service should be documented;
• the contract language notes that the provider is taking part in a beneficiary-choice contracting system and, as a result, retains the freedom to incorporate religion into the social services it offers.
Assistance Available
The Center for Public Justice can provide guidance on configuring a voucher or beneficiary-choice contracting system to fit the constitutional and church-state standards that apply to “indirect” government funding for social services. Visit our Professional Services page.
