Nine Agencies Propose Regulations for Partnerships with Faith-Based and Neighborhood Organizations

On January 13, 2023, nine agencies issued a notice of proposed rulemaking (NPRM) titled “Partnerships With Faith-Based and Neighborhood Organizations” to “clarify protections for beneficiaries and potential beneficiaries receiving federally funded social services and the rights and obligations of organizations providing such services.”

The nine agencies are:

  1. Department of Education,
  2. Department of Homeland Security,
  3. Department of Agriculture,
  4. Agency for International Development,
  5. Department of Housing and Urban Development,
  6. Department of Justice,
  7. Department of Labor,
  8. Department of Veterans Affairs, and
  9. Department of Health and Human Services.

Various government programs run by these agencies provide federal financial assistance to non-federal government partners—including state and local governments, school districts, nonprofit organizations, and institutions of higher education, among others—which then in turn use the federal funds to provide services to the programs’ beneficiaries. These partner service providers are required to follow federal law and the program’s terms and conditions.

According to the 33-page NPRM, the agencies’ goal is to “promote maximum participation by beneficiaries and providers in the Agencies’ covered programs and activities and ensure consistency in the implementation of those programs and activities.”

Public comments on the agencies’ proposal are due Tuesday, March 14. (To learn more about public comments on agency rulemaking, see the Ethics and Public Policy Center’s one-page explainer.

Background and Need for Rulemaking

Presidents Bush, Obama, and Trump all signed executive orders prompting regulations by the agencies to guide the participation of faith-based and community organizations in the delivery of social services. The 2020 Rule, issued in response to Trump’s executive order, is currently in effect.

In 2021, President Biden signed an executive order directing agencies to “organiz[e] more effective efforts to serve people in need across the country and around the world, in partnership with civil society, including faith-based and secular organizations.” The order further emphasized the importance of strengthening the ability of such organizations to deliver services in partnership with the federal government while adhering to all applicable law.

In accord with that executive order along with two other Biden executive orders—one on advancing racial equity and supporting underserved communities and the other on rebuilding trust in government by transforming federal customer experience and service delivery—the agencies propose to amend the 2020 Rule.

The agencies provide two reasons for the NPRM: (1) “it is central to the Agencies’ missions that federally funded services and programs . . . reach the widest possible eligible population, including historically marginalized communities”; and (2) “to address and correct inconsistencies and confusion raised by the 2020 Rule.”

Beneficiary Protections—Notice and Referrals

The NPRM states, “The Agencies are committed to ensuring that all beneficiaries and potential beneficiaries have access to federally funded services and programs without unnecessary barriers and free from discrimination.” Consistent with the 2016 Obama and 2020 Trump rules, the NPRM would prohibit providers from discriminating against a beneficiary “on the basis of religion, a religious belief, a refusal to hold a religious belief, or a refusal to attend or participate in a religious practice” in both direct and indirect aid programs.

The agencies would retain the requirement that language detailing this nondiscrimination prohibition be included in notices and announcements of award opportunities, awards, and contracts. But they propose adding a requirement that both faith-based and secular partners providing social services under direct federal assistance programs give beneficiaries written notice of those nondiscrimination prohibitions.

They propose modifying a requirement from the 2016 Rule (eliminated by the 2020 Rule) that required providers to inform beneficiaries that “if they were to object to the religious nature of a given provider, the provider would be required to make reasonable efforts to refer them to an alternative provider.” The NPRM explains that without such assistance, “it may be challenging” for beneficiaries to identify other service providers. Requiring referrals would “make it easier for beneficiaries who object to receiving services from one provider to learn about alternative providers,” increase “access to federally funded services,” and remove “barriers arising from discrimination.” The proposed modification would “encourage Agencies, when appropriate and feasible, or State agencies and other entities that might be administering a federally funded social service program” to provide notice to beneficiaries about how to obtain information about other service providers. This modification would likely provide only “insignificant” cost savings to beneficiaries who would be able to receive information about alternative providers without having to investigate themselves “because the number of beneficiaries who incur costs to identify alternative providers is likely very small.”

To alleviate “confusing tension” with the nondiscrimination requirement, the NPRM proposes removing 2020 Rule language stating that service providers at which beneficiaries choose to expend indirect federal financial assistance “may require attendance at all activities that are fundamental to the program.” For direct federal financial assistance, the proposed regulations state that an organization may not require a beneficiary “to attend or participate in any explicitly religious activities” and that the organization “must separate in time or location any privately funded explicitly religious activities from activities supported by direct Federal financial assistance.”

Indirect Federal Financial Assistance

The 2020 Rule defined “indirect Federal financial assistance” as when (1) a government “program through which the beneficiary receives the voucher, certificate, or other similar means of government-funded payment is neutral toward religion”; and (2) “[t]he service provider receive[ ] the assistance as a result of an independent choice of the beneficiary, not a choice of the Government” (alterations in NPRM).

Claiming the 2020 Rule “engendered confusion” and “to clarify the operation of the rule,” the agencies propose two changes to that definition. First, the addition of the words “wholly,” “genuinely,” and “private” to modify choice. Second, the addition of a sentence “stating that the availability of adequate secular alternatives is a significant factor in determining whether a program affords true private choice.” (The 2020 Rule removed the 2016 Rule requirement that there must be “at least one adequate secular option.”)

The NPRM cites to the Supreme Court decision in Zelman v. Simmons-Harris (2002) in support (as did the 2020 Rule). Zelman held that when program beneficiaries direct the use of government aid to religious schools “wholly as a result of [the beneficiaries’] own genuine and independent private choice, the program is not readily subject to challenge under the Establishment Clause,” even when the religious schools in question include religious instruction in the funded program.

Despite the NPRM’s contention otherwise, some posit that recent Supreme Court religious liberty cases—Trinity Lutheran Church of Columbia v. Comer (2017), Fulton v. City of Philadelphia (2021), Kennedy v. Bremerton School District (2022)and Carson v. Makin (2022)—call into question the continued validity of drawing distinctions between direct and indirect financial assistance.

The NPRM addresses the situation where “certain beneficiaries are as a practical matter unable to exercise genuinely independent and private choice and might as a result effectively have no alternative but to expend the aid at a service provider that includes explicitly religious activities in its program.” The remedy, according to the agencies, is not automatic disqualification of the faith-based organization, but for the agency on a “case-specific basis” to “take other appropriate steps to remedy the problem, such as expanding the universe of reasonably available providers to include secular options or requiring existing providers to observe the same conditions that the rule attaches to direct aid” (i.e., ensuring that “beneficiaries are not effectively required to participate in religious activities in order to receive the benefits of federally funded programs.”).

Eligibility of Faith-Based Organizations

The NPRM claims “the 2020 Rule introduced confusion regarding the protections the law affords to faith-based organizations and others” by creating “the misimpression” that the agencies would be required to make religious accommodations to program requirements for faith-based organizations. The proposed regulations would “decouple[e]” faith-based organizations’ religious nondiscrimination protections from the question of accommodations.

The proposed regulations would state “more directly” that when the agencies select service providers, they will not “discriminate on the basis of an organization’s religious character, motives, or affiliation, or lack thereof, or on the basis of conduct that would not be considered grounds to disfavor a similarly situated secular organization such as one that has the same capacity to effectively provide services.”

Regarding accommodations from program requirements for faith-based organizations, the agencies “will continue to consider requests for accommodations, on a case-by-case basis,” in accord with law. The agency would not automatically disqualify a faith-based organization for indicating it may request an accommodation. If, however, the agency determined that it would not grant an accommodation and the faith-based organization indicated that it could not comply with program requirement but for an accommodation, the agency would deny the application. In this way, the faith-based organization “would be treated the same as any other organization that decided for nonreligious reasons that it could not or would not comply with the terms and conditions of the program.”

Title VII’s Religious Organization Exemption

Generally, agencies have recognized that receipt of direct or indirect federal financial assistance does not lead religious organizations to lose protections under Title VII’s religious organization exemption. Title VII provides: “This subchapter shall not apply to . . . [a qualifying religious organization] with respect to the employment of individuals of a particular religion to perform work connected with the carrying on by such [religious organization] of its activities.” “This subchapter” includes Title VII’s prohibitions against discrimination on the basis of race, color, religion, sex, and national origin.

Claiming to follow the text of the statute and caselaw, the agencies view the Title VII exemption as “limited,” merely allowing religious organizations “to hire only people of a particular religion in the absence of any inconsistent statutes.” As they explain in the NPRM, the “Title VII religious exemption does not permit such organizations to discriminate against workers on the basis of another protected classification, even when an employer takes such action for sincere reasons related to its religious tenets (such as those that might amount to discrimination on the basis of employees’ sex).” As such, the agencies propose removing text from the 2020 Rule that “could mistakenly suggest that Title VII permits religious organizations that qualify for the Title VII religious exemption to insist upon tenets-based employment conditions that would otherwise violate Title VII or the particular underlying funding statute in question.”

This proposal is at odds with the 2021 religion guidance issued by the Equal Employment Opportunity Commission (the federal agency tasked with enforcing Title VII). Citing to relevant case law, the guidance explains that Title VII’s religious organization exemptions “allow a qualifying religious organization to assert as a defense to a Title VII claim of discrimination or retaliation that it made the challenged employment decision on the basis of religion.”

Definition of “Federal Financial Assistance”

Certain agencies provided definitions of “federal financial assistance” under the 2020 Rule. At issue is whether federal financial assistance includes indirect aid—i.e., when a vendor of goods or services receives federal financial assistance merely because a beneficiary acquires a good or service with financial assistance the beneficiary received from the government.

The agencies seek comment on:

  1. whether an agency that adopts a definition of ‘‘federal financial assistance’’ in its regulation should use their own definition or the definition found in the Bush executive order, which defines “federal financial assistance” as including assistance that an agency provides to an ‘‘ultimate beneficiary’’ and thus only ‘‘indirectly’’ subsidizes the expenses of a service provider;
  2. “any positive or negative effects resulting from the changes made by certain Agencies in the 2020 Rule, particularly with respect to recipients and beneficiaries”; and
  3. “whether those Agencies should retain, amend, or repeal those provisions.”

Demonstrating Nonprofit Status

“[T]o enhance clarity and reduce confusion,” the NPRM proposes removing an alleged “confusing and unnecessary” provision from 2020 Rule that allowed applicants that hold “a sincerely held religious belief that it cannot apply for a determination as an entity that is tax-exempt under section 501(c)(3) of the Internal Revenue Code’’ to demonstrate nonprofit status by providing “evidence sufficient to establish that the entity would otherwise qualify as a nonprofit organization.” The Department of Housing and Urban Development (DHS) proposes “a slightly different standard” where an entity may provide evidence that “the DHS awarding agency determines to be sufficient” to establish that it would otherwise qualify as a nonprofit.

Rachel Morrison


Ethics and Public Policy Center

Regulatory Process

Federalist Society’s Religious Liberties Practice Group

The Federalist Society and Regulatory Transparency Project take no position on particular legal or public policy matters. All expressions of opinion are those of the author(s). To join the debate, please email us at [email protected].

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