Order Code RS20712
Updated September 30, 2003
CRS Report for Congress
Received through the CRS Web
Charitable Choice, Faith-Based Initiatives,
and TANF
Vee Burke
Domestic Social Policy Division
Summary
By regulatory action, the Bush Administration has expanded the coverage of basic
charitable choice principles, which seek to promote use of religious groups as providers
of social services while protecting the religious freedom of beneficiaries. On September
30, 2003, the Department of Housing and Urban Development (HUD) issued final
regulations, in response to an executive order from President Bush, to extend charitable
choice principles to eight housing programs On September 23, the White House
announced that the Departments of Education, Labor, and Justice, and the Veterans
Administration were proposing new regulations or policy changes to facilitate
partnerships of faith-based groups with the federal government. The 108th Congress has
resumed efforts to pass tax incentives for private giving (S. 476, passed by the Senate
on April 9, and H.R. 7, passed on September 17, 2003). However, these bills do not
contain provisions intended to promote religious organizations as providers of federally
funded social services — charitable choice provisions.. The House voted in 2001 to
extend charitable choice rules, which now apply to a limited set of programs, to
numerous new programs (H.R. 7 in the 107th Congress), as the President urged, but the
Senate refused. The House-passed H.R. 7 in 2001 aroused major controversy,
especially over religious discrimination in employment and possible “voucherization”
of social services. Opposition to charitable choice has brought together a coalition of
religious and secular groups who, for different reasons, want to maintain separation of
church and state — the former to protect their independence and sense of mission, the
latter to guard against use of public funds for religious activities. In two cases
concerning a Wisconsin faith-based program for drug addicts (Faith Works), direct
government funding has been found unconstitutional, but indirect funding (by voucher)
has been found constitutional. For background and selected legal issues on public aid
and faith-based groups, see CRS Report RL31043. This report will be updated for
developments.
Charitable Choice Option in TANF Law. If a state chooses to administer and
provide TANF services or benefits through a contract with a nongovernmental entity or
to provide TANF recipients with certificates or vouchers redeemable with a private entity,
it must allow religious organizations to participate on the same basis as any other
nongovernmental provider without impairing the religious character of the organization
Congressional Research Service ˜ The Library of Congress

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CRS-2
and without diminishing the religious freedom of TANF beneficiaries. The law (Section
104 of P.L. 104-193) imposes the following rules:
! Direct government aid may not be used for sectarian worship, instruction,
or proselytization (Subsection j);
! Government is barred from discriminating against an organization that
applies to administer and provide services on the basis that it has a
religious character (c);
! The religious organization must implement the benefit/service program
in a manner “consistent with the Establishment Clause of the United
States Constitution” (c);1
! The religious grantee or contractor retains control over the definition,
development, practice, and expression of its religious beliefs (d)(1);
! Government is barred from requiring the organization to alter its form of
governance or to remove religious art and other symbols as a condition
of eligibility (d)(2);
! If a welfare recipient objects to the religious character of an organization
providing services, the state must provide an alternate and accessible
provider (e)(1);
! The religious organization retains freedom to hire on the basis of religion
(the organization’s exemption from Civil Rights Act rules about
employment practices is not affected by its administration of welfare
benefits) (f);
! Except as otherwise provided in law,2 a religious organization shall not
discriminate against a beneficiary on the basis of religion, a religious
belief, or refusal to actively participate in a religious practice (g); and
! Nothing in the charitable choice section of the law shall be construed to
preempt any provision of a state constitution or law that prohibits or
restricts expenditure of state funds in or by religious organizations (k).
Two other provisions are implicit: Religious contractors and grantees may use their
own funds for sectarian worship, instruction, and proselytization (an explicit rule against
using funds for sectarian purposes applies to public funds provided “directly” for welfare
benefits or services, but not to aid received in the form of vouchers). Government may
require religious grantees to be separately incorporated from their sponsoring institution.
P.L. 104-193 also applies charitable choice rules to other programs modified by its
Title I or Title II that permit contracts with organizations to provide services or permit use
1 The First Amendment says that “Congress shall make no law respecting an establishment of
religion, or prohibiting the free exercise thereof ... “It has long been interpreted to allow religious
organizations to participate in publicly funded social service programs. But in the past it has
generally been interpreted to forbid religious activities or proselytizing in the publicly funded
programs and to require religious providers to set up a corporation separate from their religious
sponsor and to remove religious symbols from the premises where services are provided (see
CRS Report RL30388, Charitable Choice: Background and Selected Legal Issues, by David
Ackerman).
2 Legal researchers say they have found no instance of a law providing “otherwise,” but this
phrase is regarded as a loophole by some; an effort to delete it failed during debate on H.R. 4678.

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of certificates, vouchers or other forms of disbursement to provide aid.3 However, other
provisions of law preclude use of private organizations to perform some basic
administrative activities. For example, eligibility determinations for food stamps and
Medicaid must be made by government personnel or by persons employed under federally
comparable “merit systems.”
Faith-Based Initiative of President George W. Bush. President Bush on
January 29, 2001, launched his faith-based initiative with executive orders that established
an Office of Faith-Based and Community Initiatives (OFBCI) in the White House and
directed five Cabinet departments, Education, Justice, HHS, Labor, and Housing and
Urban Development to set up similar offices, called centers (in December 2002, he
directed the Department of Agriculture and the Agency for International Development
also to establish centers). In his original call for faith-based initiatives, the President
advocated expansion of charitable choice and tax incentives to promote charitable giving.
In addition, he called for several specific projects. Congress has acted on four of the latter
proposals: It established a new matching grant program to help children of prisoners ($10
million appropriation for FY2003), directed the Justice Department to use $5 million in
FY2002 funds to set up five multi-faith prison pre-release pilot programs, appropriated
$30 million for FY2002 to create a Compassion Capital fund to provide technical aid and
start-up costs for small groups, and voted to allow state educational agencies to award 21st
Century Community Learning Center grants to groups other than schools, including
community based organizations. However, Congress took no action on two other faith-
based initiatives: responsible fatherhood grants and second-chance maternity homes.
In July 2002, the Labor Department announced award of $17.5 million in grants
designed “to link faith-based and grassroots community organizations” to the nation’s
One-Stop Career system under the Workforce Investment Act (WIA), and later said it
would award another $3.75 million in such grants. On October 3, 2002, HHS announced
matching grants from the Compassion Capital fund totaling almost $25 million to 21
organizations (called intermediaries) that are to provide technical assistance to faith-based
and community-based organizations and issue awards or sub-awards for start-up and
operational costs to qualified faith- and community-based organizations to expand or
replicate promising or best practices. On September 23, 2003, HHS announced award of
60 new compassion capital grants totaling $8.1 million (including some to intermediary
organizations) and $24 million to continue the 21 original grants made in 2002. The
FY2003 budget requested $100 million for the Compassion Capital Fund. Both S 476
and the new H.R. 7 contain compassion capital fund provisions. For information about
the HHS Center for Faith-Based and Community Initiatives, see [http//www.gov/faith]
For guidance to FBOs on partnering with the federal government, see
[http://www.whitehouse.gov/government/fbci/].
Senate Action in the 107th Congress. After House passage of H.R. 7, a
bipartisan group introduced S. 1924, the Charity Aid, Recovery, and Empowerment Act
3 These programs are food stamps, Medicaid, Supplemental Security Income (SSI), and child
support enforcement. In 1996, food stamps and medicaid generally allowed states to use private
organizations, including charitable and religious organizations, in providing services like nursing
home care and group living arrangements (Medicaid),outreach and training (food stamps).

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(CARE), which was welcomed by the White House as representing an agreement “to
move a faith-based initiative” out of the Senate. It omitted the most disputed provisions
of H.R. 7. Instead, in a Title called Equal Treatment for Nongovernmental Providers, it
provided that a nongovernmental organization “involved” in the delivery of a federally
funded social service could not be required to remove art, icons, scripture, or other
symbols, or to alter its name, because the symbols or name were religious, or to alter or
remove provisions in its chartering documents that were religious, or to alter or remove
religious qualifications of membership on governing boards. These equal treatment
provisions applied to all social service programs administered by the federal government
(excepting educational assistance under major federal education acts) or by a state or
local government using federal financial assistance (not counting tax credits, deductions,
or exemptions). The bill also proposed to establish tax incentives for charitable giving
more generous than those of the House bill, establish a new Individual Development
Account (IDA) program financed by business tax credits to financial institutions, and
authorize $150 million for FY2003 for technical assistance to small nonprofit community
groups.
Before scheduled Finance Committee markup in mid-June, the equal treatment title
of the original CARE bill was deleted. Thereafter, the Finance Committee incorporated
modified versions of some of the CARE provisions into its substitute for H.R. 7,
approving the bill on July 16 (S.Rept. 107-211) and entitling it Care Act of 2002. The
committee version of H.R. 7, which never reached the Senate floor, included tax
incentives for private giving, establishment of new tax credit-funded IDAS, increased
funding for the Social Services Block grant, revenue measures, and other tax provisions.
It did not contain provisions to expand charitable choice rules. After death of the original
H.R. 7 at the end of the 107th Congress, President Bush on December 12, 2002 issued an
Executive Order (EO 13279) directing six cabinet secretaries and the administrator of the
Agency for International Development, to adopt charitable choice rules “to the extent
permitted by law.”
Legislative Activity in 2003. On April 9, the Senate passed S. 476 (entitled
CARE) without provisions that Senator Santorum had sought to add to require equal
treatment of religious and other nongovernmental organizations as providers of federally
funded social services. To win passage of the CARE Act, which contains tax incentives
for charitable giving, increases funding for the Social Services Block Grant, and
establishes new tax credit-financed Individual Development Accounts, Senator Santorum
agreed to a compromise adding technical assistance (“compassion capital fund”) grants
for community-based organizations and funding for maternity group homes. His omitted
“equal treatment” title would have stated that religious groups could not be required to
alter religious symbols or art or to change their name or to make various other religious
deletions or changes to be providers of social services.
On May 9, a new version of H.R. 7, entitled Charitable Giving Act, was introduced.
in the House. It contains tax incentives for charitable donations, and it authorizes new
Compassion Capital Fund grants and funding for maternity group homes. It also extends
the expiring program of IDAs (under the Assets for Independence Act) for 5 years.
However, it does not contain charitable choice provisions; nor does it increase funding
for the Social Services Block Grant. On May 8, in passing a bill (H.R. 1261) to
reauthorize the Workforce Investment Act (WIA), the House voted to remove a provision
in current WIA law prohibiting employment discrimination on grounds of religion..

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Origin of Charitable Choice. In June, 1995, the Senate Finance Committee
reported an amended version of the House-passed Personal Responsibility Act, H.R. 4,
which proposed to replace the program of Aid to Families with Dependent Children
(AFDC) with a block grant. The Finance Committee bill added two sentences concerning
religious organizations. They provided that religious organizations who participated in
the new state block grant program were to retain their independence from government and
that the organizations could not deny aid to needy families with children “on the basis of
religion, a religious belief, or refusal to participate in a religious practice.” This language
was adapted from another AFDC block grant bill (S. 842, sponsored by Senator Ashcroft).
In August, 1995, Senator Dole introduced The Work Opportunity Act, the Republican
leadership alternative to the House-passed H.R. 4. Responding to growing interest in
“privatization” of welfare services,4 the section on provision of aid by religious
organizations was enlarged to deal with “services provided by charitable, religious, or
private organizations.” Also, it stated affirmatively that states had an option to administer
and provide block grant services through contracts with religious organizations and by
means of certificates, vouchers or other forms of disbursement redeemable with them.
Before passage the Senate adopted a two-part amendment proposed by Senator Cohen.
The first added the requirement that programs be implemented consistent with the
Establishment Clause of the Constitution; the second removed a provision that would
have barred government from requiring a religious organization to form a separate
nonprofit corporation in order to be eligible to provide assistance. Senate-House conferees
added a stipulation that religious organizations would not lose their right to consider
religion in their hiring practices because of participating in welfare programs or receiving
funds from them. H.R. 4 was vetoed, but the charitable choice rules of the final 1996
welfare reform law are virtually identical to those of the conference report on H.R. 4.
Use of Charitable Choice in TANF. TANF state plans are not required to
provide charitable choice information. However, in their 2000-2001 plans more than a
dozen jurisdictions mentioned plans to use religious or “faith-based” organizations,
usually along with other groups, in providing services (Arkansas, Delaware, District of
Columbia, Georgia, Indiana, Louisiana, Maryland, Mississippi, North Carolina, South
Carolina, South Dakota, Tennessee, and Washington). Some spoke of service
“partnerships” that included the “faith community” and community based/action agencies.
Congress in 1997 added special welfare — to-work (WtW) formula and competitive
grants to TANF for FY1998 and FY1999. As parts of TANF, the new grants were subject
to charitable choice rules. The Labor Department awarded six competitive WtW grants
(out of 188) to faith-based groups. Most projects were to provide employment services;
some focused on persons with limited English proficiency.
Dr. Amy Sherman, Hudson Institute, told a research conference of the Roundtable
on Religion and Social Welfare Policy in April, 2002, that a survey about implementation
of charitable choice in 15 states found 726 contracts totaling about $124 million. (For nine
states this was a followup survey.) She said more congregations are “getting involved”
in contracting to provide services, that roughly half of the faith-based organizations and
4 A major proposal to “privatize” welfare administration emerged in Texas; the state developed
a plan for administration by a private contractor of an integrated state eligibility system for
TANF, Medicaid and food stamps. However, in May, 1997, the Clinton Administration held that
law required eligibility for Medicaid and food stamps to be determined by a public official.

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congregations identified in the survey were “new players,” and that some states showed
a dramatic increase in contracting with faith-based groups. The survey found much more
contracting activity with faith-based groups under TANF than in the other programs
covered by charitable choice. She also said the new survey found a decline in the use of
indirect financial contracting by way of intermediary organizations. An Urban Institute
study of persons who left AFDC/TANF between 1995-1997 found that 72% did not seek
help from nongovernmental sources. However, of those who did, about one-third used
a faith-based provider, about one-tenth used a secular provider; and the rest relied on
families and friends for help.
Constitutional Challenges. In July and October 2000, two court suits were filed
challenging the constitutionality of TANF charitable choice programs. One suit charged
that a job training and placement program for TANF recipients funded by the Texas
Department of Human Services and operated by the Jobs Partnership of Washington
County was “permeated” by Protestant evangelical Christianity in violation of both the
state and federal constitution (American Jewish Congress and Texas Civil Rights Project
v. Bost, filed July 24, 2000, but dismissed in February 2001 as moot after Texas
discontinued the program). However, a remaining issue is yet to be decided — whether
the training program should be required to return the funds it received. The second suit,
(Freedom from Religion Foundation, Inc. vs. McCallum, filed October 12, 2000) charged
that a job placement and support services program for drug addicts in Milwaukee,
Wisconsin, violated the state and federal constitutions by giving welfare-to-work funds
directly to a “pervasively sectarian” organization [Faith Works] and using the funds to
indoctrinate clients in the Christian faith A federal judge on January 8, 2002 ordered
Wisconsin to cease this direct funding as unconstitutional, but she said her ruling did not
deal with constitutionality of the 1996 charitable choice law, which does not authorize
direct funding of religious activities. Later, on July 26, 2002, the judge ruled on a second
issue in the Faith Works case. She found a contract between Faith Works and the
Wisconsin Department of Corrections to be constitutional because the religious
organization received public funds only when offenders chose to receive treatment there.
Conclusion. Advocates of charitable choice maintain that faith-based
organizations have special ability to help persons toward self-respect, healthy family
dynamics and independence. They maintain that existing charitable choice rules give
protection against religious discrimination both to religious organizations providing
welfare services and to beneficiaries of the services. However, many religious spokesmen
have expressed concerns that government grants could diminish their vitality and religious
commitment. For a discussion of areas of agreement and disagreement about charitable
choice issues, see In Good Faith at [http://www.temple.edu/feinsteinctr].

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