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New Biden Administration Regulations on Funding FBOs: A Positive Change with Troubling Aspects

On March 4, 2024, the Biden administration published a Final Rule that changes the “equal treatment” regulations governing the use of federal funds to pay for social services. The Trump administration had modified the regulations to make it easier for faith-based organizations to win funding; the Biden administration has now modified the regulations to better protect service beneficiaries from unwanted religious involvement while retaining some of the Trump improvements. The new Biden regulations continue to require a level playing field for FBOs in funding decisions but do have some concerning features. The changes come into effect on April 3, 2024.

Here is what FBOs need to know if they receive federal funding, either from the federal government— for example by winning a discretionary grant—or through one of the many state or local government programs that use federal funding. (Slightly different rules apply if the money is from the Child Care and Development Fund [CCDF] or from a program that has Charitable Choice rules.) 

These revised regulations apply to funding that originates in these nine federal agencies:  Education (ED), Homeland Security (DHS), Agriculture (USDA), Agency for International Development (USAID), Housing and Urban Development (HUD), Justice (DOJ), Labor (DOL), Veterans Affairs (VA), Health and Human Services (HHS). The USAID rules are slightly different because so many of its programs are operated outside the United States.

Rules for FBOs

  1. Government officials must neither favor nor disfavor FBOs, including houses of worship, no matter how visible and saturated their religious character.
  2. The regulations specifically protect from government interference an FBO’s religious identity and practices—for example, a church that runs a youth group that has conservative moral standards cannot be required to change that youth group if it wins a government grant to operate a separate after-school program that provides a safe space and tutoring to the neighborhood’s public-school students.
  3. FBOs (and their secular counterparts) must serve everyone eligible for a service, without discriminating against any beneficiary because of their religion or refusal to participate in religious activities.
  4. Most government funding is “direct” funding—a grant or contract is awarded to the FBO. This money cannot pay for religious teaching or religious activities. Such teaching and those activities can be offered to beneficiaries, but only separately from the services the government is funding. 
  5. FBOs that receive federal funds can continue to hire and retain employees according to religious criteria. A few federal programs prohibit religious job discrimination, but an FBO can appeal to the protections of the Religious Freedom Restoration Act to be able to accept the funds without giving up their religious staffing practices.
  6. The Biden administration (via other regulations) and some state and local governments are reluctant to let FBOs hire according to religion if this means excluding job applicants who do not abide by morally conservative standards of sexuality. The best policy for an FBO is to have religiously grounded and written conduct standards that are made clear to job applicants early in the process and that are consistently applied to employees.
  7. It is “indirect” funding when an FBO receives government money because a beneficiary has been awarded a voucher by the government and brings it to the FBO. With voucher funding, the FBO can offer services that incorporate religious activities and religious teaching. Many beneficiaries prefer services that align with their values.
  8. Even in the case of “indirect” funding, beneficiaries have to be allowed not to participate in religious activities and teaching if they choose not to. However, the FBO does not have to modify its service program because of such resistance. (Federal child care voucher funding—CCDF funding—does not allow children to decline to participate in religious activities or teaching.)
  9. FBOs (and also their secular counterparts) must inform beneficiaries of their right not to be discriminated against because of religion or because they refuse to participate in religious activities, and that they can report violations to the government. In some “direct” funding programs, beneficiaries will be informed that they can ask the government whether the same service is offered by another organization so that they can transfer to it if they wish. These written notices have to be made starting no later than July 2, 2024. The government program will provide model language.
  10. When an FBO accepts federal funding, whether “direct” or “indirect,” it is accepting “federal financial assistance” and is therefore subject to a set of federal civil rights laws:  Title VI—no discrimination against beneficiaries on the basis of race, color, or national origin; Title IX—no sex discrimination in any educational program it offers (but there is a strong religious exemption); Sec. 504 of the Rehabilitation Act—no discrimination on the basis of disability in services or employment; the Age Discrimination Act—no age discrimination in services. However, child care (CCDF) voucher funding does not count as “federal financial assistance.”
  11. The Biden regulations affirm the Trump regulations’ assurance that having a tax exemption does not count as receiving “federal financial assistance” and thus becoming subject to the various civil rights requirements described above. This is a welcome Biden administration counter to the rogue court decisions that have asserted that religious schools, simply because they have 501(c)3 tax-exempt status, are subject to the requirements of Title IX. They are not.
  12. These regulations specifically affirm that faith-based schools and other organizations that participate in USDA free meals programs are free to have religion-based admissions, attendance, and curricular requirements.

What is New

(See item 8) The Trump version said that, with voucher (“indirect’) funding, a beneficiary is not allowed to avoid any essential part of the service, even if religion is incorporated in that part. The Biden change is not good. See the discussion of problem A, below.

(See item 9)  The Trump version of the regulations had eliminated the requirement to notify beneficiaries of their nondiscrimination right and of the right to ask for a referral, because previously only FBOs, not secular organizations, had to comply with it.

The Trump version said that, with voucher funding, an FBO could participate and offer services incorporating religion (which beneficiaries would have to participate in)—even if there was no secular organization that would accept the voucher to provide an equivalent service without religion. The Biden regulations make a slight—and not adequate—change. See the discussion of problem B, below.

The Trump version listed several laws protecting conscience and religious exercise and said that FBOs enjoy these protections even though they accept federal funding. The list has now been removed. Note that despite no longer being listed, all of the protections still are enjoyed by FBOs.

Three Problem Areas

A. A very troubling redefinition of “indirect” funding such that an FBO can offer a service that incorporates religious teachings and practices. 

The regulations before Trump said that in “indirect” funding, a beneficiary must have the option of choosing a secular service. If a beneficiary had that option, then it was constitutional for FBOs that accepted the “indirect” funding, such as a voucher, to include religion in the service they offered. The Trump administration changed this requirement of a secular choice, saying that, because sometimes no secular organization will want to offer a service, then FBOs whose services include religion will not be able to accept the vouchers. They’ll be kept from partnering with government. The Trump rule was that FBOs could participate, anyway, offering services that incorporate religion. Beneficiaries would have to accept services including religion or forgo getting the help.

The Biden administration said this cannot be right. But instead of restoring the requirement that beneficiaries must have a secular option, the new regulations only say that the presence of a secular choice is “a significant factor” in determining whether the funding is “indirect.” What can that mean? In the explanatory text of the Final Rule, the administration says that when a funding program uses vouchers, FBOs with services that include religion can participate—and if it turns out that there is no adequate secular choice, then either the government will search for a secular option for a beneficiary who wants it . . . or the government will force the FBOs to strip the religion out of their programs, as if the funding is “direct”! But it can’t be right that an FBO will agree to partner with government to deliver services the way it thinks best and then later is forced by the government to radically change the service, removing every religious element. It may be that government officials will always be able to find a secular alternative for a beneficiary who needs it—but surely the government cannot be allowed to dramatically change the requirements of a grant after already awarding it.

B. Beneficiaries sitting out parts of an “indirectly” funded service. See item 8 and the note on item 8. 

This provision of the Biden regulations (which has actually long been in the “equal treatment” regulations) does not make any sense. If a beneficiary objects to religious activities that are part of a service, then he or she ought to choose a different service provider. Refusing to participate in those parts of the service that include religion means not receiving the full value of the service that is offered. That is not good for the beneficiary nor for the FBO.

C. New requirements not to discriminate based on sexual orientation or gender identity are likely. 

The Biden administration seeks to require organizations, including FBOs that partner with federal funding programs, not to discriminate based on sexual orientation or gender identity in providing services or in their employment choices. It has proposed regulations to make that requirement in Department of Health and Human Services programs, State Department programs, and grant programs in general. 

However, FBOs have the right to hire based on religion, and refusing to hire someone who violates the FBO’s religiously based sexual conduct standards is a religion-based decision. So, if there is a challenge to its employment decisions, an FBO should appeal to the Title VII exemption, court precedents, the Religious Freedom Restoration Act, the court-created “ministerial exception,” and the First Amendment, even if government regulations do not specifically name these protections. But it would be better if regulations inform prospective grantees, and federal officials, about the strong religious staffing freedom.

The proposed regulations would also require no discrimination against beneficiaries based on sexual orientation or gender identity. Of course, no person who is entitled to a service ought to be turned away, and every person deserves respect and dignified treatment. A requirement of no discrimination in a service funded by the government, however, should not spill over into privately funded services, in which an FBO should be free to maintain its religion-based standards with regard to human sexuality and gender identity.

Ask for a Briefing

The Final Rule says that the nine agencies involved will use various educational tools to make sure that grantees and government officials understand these revised regulations. So: find the website of the federal agency that operates the funding program you are interested in and then find the webpage for that agency’s Center for Faith-Based and Neighborhood Partnerships. Then, use the contact information to request a briefing! Feel free to use the information in this article to shape your comments and questions. 

A Note about Changing U.S. Supreme Court Church-State Principles

Some of the back and forth on these rules between the Trump and Biden administrations is due to their differing responses to the Supreme Court’s own shifting interpretation of the two religion clauses in the First Amendment: government must not establish religion nor hamper the free exercise of religion. Until the 1980s, the Court stressed that government must not establish religion when it funded private organizations to provide social services—which it said meant “no aid to religion.” That was understood to mean no government funding to overtly religious organizations with religious organizational practices and services that include religion. Gradually the Court loosened the strictness of this interpretation. That change made legal space for Charitable Choice, the equal treatment regulations, and the faith-based initiative. With this new interpretation, the government was supposed to create a level playing field in funding. Officials were required not to be biased against religious organizations that applied for funds. And yet government money could only pay for services that include religion if the funding was via vouchers given to beneficiaries (“indirect funding”) rather than grants given to the faith-based provider (“direct funding”). 

More recently, in a series of decisions, from Trinity Lutheran Church v. Comer (2017) and Espinoza v. Montana Department of Revenue (2020) to Carson v. Makin (2022), the Court has stressed as the key rule not the establishment clause but the free exercise clause. According to this interpretation, the government must not make it more difficult for faith-based organizations than for secular organizations to win government funding. So, then, consider this: if a faith-based organization offers services that include religious teaching and activities but the government is funding services only via grants and not vouchers, then the faith-based organization is not eligible for funding. Isn’t that an unconstitutional barrier on equal access to funding?

However, at the same time, the Constitution protects not only the right of faith-based organizations to exercise their religion and still be eligible for funding but also the rights of people seeking help—the beneficiaries. It is not constitutional for the government to tell beneficiaries that they are eligible to receive some service, but they will have to accept a service that incorporates religious activities and teaching that they may deeply object to.

Somehow, the federal government, in funding private organizations to provide social services, must provide equal opportunity to receive funding to faith-based organizations that have services that include religion and also equal opportunity to access government-funded services to beneficiaries who object to services that include religion (or some specific religion). This is a difficult challenge. The “direct funding” versus “indirect funding” rules in Charitable Choice and the equal treatment regulations are an attempt to fulfill both goals. There might be a better way than this in principle or practice to protect both sets of rights. But that better way cannot focus just on faith-based organizations or just on beneficiaries.

Stanley Carlson-Thies is the Founder and Senior Director of the Institutional Religious Freedom Alliance (IRFA), a program of the Center for Public Justice.

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