62164 Federal Register / Vol. 69, No. 204 / Friday, October 22, 2004 / Rules and Regulations 

DEPARTMENT OF HOUSING AND 

URBAN DEVELOPMENT 

24 CFR Parts 954 and 1003 

[Docket No. FR–4915–F–02] 

RIN 2577–AC56 

Participation in HUD’s Native American 

Programs by Religious Organizations; 

Providing for Equal Treatment of All 

Program Participants

AGENCY: Office of the Assistant 

Secretary for Public and Indian 

Housing, HUD.

ACTION: Final rule.

SUMMARY: This final rule removes 

barriers to the participation of religious 

(also referred to as ‘‘faith-based’’) 

organizations in HUD regulations 

implementing the Indian HOME 

Program, the Indian Community 

Development Block Grant Program, the 

Indian Housing Block Grant Program, 

the Title VI Loan Guarantee Assistance 

Program, and the Section 184 Loan 

Guarantees for Indian Housing Program. 

These changes are consistent with 

revisions of program regulations 

undertaken on a department-wide basis. 

In general, no group of applicants 

competing for HUD funds or seeking to 

participate in HUD programs should be 

subject to greater or fewer requirements 

than other organizations solely because 

of their religious character or affiliation 

or absence of religious character or 

affiliation. This final rule follows 

publication of a June 21, 2004, proposed 

rule and takes into consideration the 

one public comment received on the 

proposed rule. After careful 

consideration of the issues raised by the 

commenter, HUD has decided to adopt 

the June 21, 2004, proposed rule 

without change.

DATES: Effective Date: November 22, 

2004.

FOR FURTHER INFORMATION CONTACT:

Ryan Streeter, Director, Center for FaithBased and Community Initiatives, 

Department of Housing and Urban 

Development, Room 10184, 451 Seventh 

Street, SW., Washington, DC 20410–

0001, telephone: (202) 708–2404 (this is 

not a toll-free number). For program 

specific information, contact Deborah 

Lalancette, Director, Office of Grants 

Management, Office of Native American 

Programs, Office of Public and Indian 

Housing, Department of Housing and 

Urban Development, Suite 3390, 1919 

Broadway, Denver, CO 80202, 

telephone: (303) 675–1600, extension 

3325 (this is not a toll-free number). 

Individuals with speech or hearing 

impairments may access these 

telephone numbers through TTY by 

calling the toll-free Federal Information 

Relay Service at 800–877–8339.

SUPPLEMENTARY INFORMATION: 

I. Background 

On June 21, 2004 (69 FR 34544), HUD 

published a proposed rule for public 

comment that removes barriers to the 

participation of religious (also referred 

to as ‘‘faith-based’’) organizations in 

HUD regulations for its Native American 

programs. The proposed rule was 

published as part of HUD’s 

implementation of the Administration’s 

Faith-Based and Community Initiative. 

President Bush has directed executive 

branch agencies, including HUD, to 

ensure that federal policy and programs 

are fully open to faith-based and 

community organizations in a manner 

consistent with the Constitution. The 

Administration believes that all eligible 

organizations, including faith-based 

organizations, should be able to 

participate in federal programs and 

activities and compete, where required, 

for federal financial assistance on an 

equal footing. 

Consistent with President’s Executive 

Order 13198, ‘‘Agency Responsibilities 

With Respect to Faith-Based and 

Community Initiatives,’’ issued January 

31, 2001 (66 FR 8497), HUD undertook 

a comprehensive review of its program 

requirements and regulations, 

particularly those that would be 

expected to attract interest and 

participation by nonprofit organizations. 

As a result of that comprehensive 

review, HUD identified regulations that 

imposed or appeared to impose barriers 

to the participation of faith-based 

organizations in eight programs 

administered by the Office of 

Community Planning and Development. 

On January 6, 2003 (68 FR 648), HUD 

published a proposed rule to eliminate 

these barriers and to ensure that these 

HUD programs were open to all 

qualified organizations, regardless of 

their religious character. After a period 

of public comment, HUD finalized this 

rule on September 30, 2003 (68 FR 

56396). 

On March 3, 2004 (69 FR 10126), 

HUD published a second proposed rule 

to amend its general program 

requirements at 24 CFR part 5 and 

extend the equal participation 

protections to HUD programs and 

activities not covered by the September 

30, 2003, final rule. The March 3, 2004, 

proposed rule was followed by a final 

rule published on July 9, 2004 (69 FR 

41712), which adopted the proposed 

rule without change. Neither the 

September 30, 2003, nor the July 9, 

2004, final rules, however, applied to 

HUD’s Native American programs. 

HUD’s Native American programs were 

excluded from these earlier rules so that 

HUD could first consult with Indian 

tribal governments in accordance with 

Executive Order 13175, ‘‘Consultation 

and Coordination With Indian Tribal 

Governments,’’ issued on November 6, 

2000. 

Executive Order 13175 requires 

federal departments and agencies, to the 

greatest extent practicable and 

permitted by law, to consult with tribal 

governments prior to taking actions that 

have substantial direct effects on 

federally recognized tribal governments. 

Accordingly, prior to publication of the 

June 21, 2004, proposed rule, HUD 

provided Indian tribes and Alaska 

Native Villages with the opportunity to 

comment on the substance of the 

proposed regulatory changes that would 

extend the equal participation 

protections to the Indian HOME 

Program at 24 CFR part 954; the Indian 

Housing Block Grant Program (IHBG) at 

24 CFR part 1000; the Title VI Loan 

Guarantee Assistance (Title VI Loan 

Guarantee) program at subpart E of 24 

CFR part 1000; the Indian Community 

Development Block Grant Program 

(ICDBG) at 24 CFR part 1003; and the 

Section 184 Loan Guarantees for Indian 

Housing Program (Section 184) at 24 

CFR part 1005. 

II. This Final Rule 

This final rule follows publication of 

the June 21, 2004, proposed rule and 

takes into consideration the one public 

comment received on the proposed rule. 

After careful consideration of the public 

comment, HUD has decided to adopt the 

proposed rule without change. Section 

IV of this preamble contains a 

discussion of the one public comment 

and HUD’s responses to the significant 

issues raised by the commenter. 

Of the programs listed above, only the 

Indian HOME and ICDBG program 

regulations have sections that 

specifically address the participation of 

faith-based organizations. Although the 

Indian HOME Program was terminated 

by section 505 of the Native American 

Housing Assistance and SelfDetermination Act of 1996 (25 U.S.C. 

4101 et seq.) (NAHASDA), the 

regulation at 24 CFR part 954 continues 

to govern outstanding funds remaining 

from that program and part 954 would, 

accordingly, be amended by this final 

rule. Specifically, the requirements 

concerning faith-based organizations at 

§ 954.301 are revised to be parallel to 

the revision made to § 92.257 of the 

HOME program regulation by the 

September 30, 2003, final rule. 

Similarly, § 1003.600 of the ICDBG 

Federal Register / Vol. 69, No. 204 / Friday, October 22, 2004 / Rules and Regulations 62165

regulation is amended to be parallel to 

the changes made to § 570.200(j) of the 

Community Development Block Grant 

(CDBG) program by the September 30, 

2003, final rule.

The regulations for the IHBG, Title VI 

Loan Guarantee, and Section 184 

programs do not have sections that 

specifically address the participation of 

faith-based organizations. Such 

organizations could participate in those 

programs as subrecipients or 

contractors, as appropriate. This final 

rule makes the equal participation 

protections at 24 CFR part 5 established 

by the July 9, 2004, final rule apply to 

these Native American programs, as 

well as to the other HUD programs and 

activities not covered by the September 

30, 2003, final rule. These provisions 

were originally not made applicable to 

the IHBG, Title VI Loan Guarantee, and 

Section 184 programs so that HUD 

could consult with the affected tribes. 

Now that consultation has been 

completed, these provisions of part 5 

apply. 

III. Policies and Requirements 

The specific policies and 

requirements that are codified by this 

final rule, consistent with the 

September 30, 2003, and July 9, 2004, 

final rules are as follows: 

1. Equal participation of faith-based 

organizations in HUD programs and 

activities. This final rule clarifies that 

faith-based organizations are eligible, on 

the same basis as any other eligible 

organization, to participate in HUD’s 

programs and activities. The phrase 

‘‘participate in HUD’s programs and 

activities’’ and its variants are used in 

this rule to refer to participation in the 

full range of HUD programs and 

activities, including (1) programs that 

make funds available through contracts, 

grants, cooperative agreements, or other 

instruments for eligible goods, services, 

and activities, and (2) programs that do 

not make funds available but involve 

other forms of benefit or resources. For 

example, the Title VI Loan Guarantee 

program does not provide funds, but 

guarantees notes or other obligations 

issued by Indian tribes to finance 

affordable housing activities. Neither 

the federal government, nor a state, 

local, or tribal government, nor any 

other entity that administers any HUD 

program or activity, shall discriminate 

against an organization on the basis of 

the organization’s religious character or 

affiliation. Nothing in the rule would 

preclude those administering HUDfunded programs from accommodating 

faith-based organizations in a manner 

consistent with the Establishment 

Clause of the First Amendment. 

2. Inherently religious activities.

Organizations that receive direct HUD 

funds under a HUD program or activity 

may not engage in inherently religious 

activities, such as worship, religious 

instruction, or proselytization, as part of 

the programs or services directly funded 

under the HUD program or activity. If an 

organization conducts such activities, 

the activities must be offered separately, 

in time or location, from the programs, 

activities, or services supported by 

direct HUD funds, and participation 

must be voluntary for the beneficiaries 

of these programs, activities, or services. 

As used in this final rule, the term 

‘‘direct HUD funds’’ refers to direct 

funding within the meaning of the 

Establishment Clause of the First 

Amendment. For example, direct HUD 

funding may mean that the government 

or an intermediate organization with 

similar duties as a governmental entity 

under a particular HUD program selects 

an organization and purchases the 

needed services straight from the 

organization (e.g., via a contract or 

cooperative agreement). In contrast, 

indirect funding scenarios may place 

the choice of service provider in the 

hands of a beneficiary, and then pay for 

the cost of that service through a 

voucher, certificate, or other similar 

means of payment. 

3. Independence of faith-based 

organizations. A faith-based 

organization that participates in a HUD 

program or activity will retain its 

independence from federal, state, local, 

and tribal governments, and may 

continue to carry out its mission, 

including the definition, practice, and 

expression of its religious beliefs, 

provided that it does not engage in any 

inherently religious activities, such as 

worship, religious instruction, or 

proselytization, as part of the programs 

or services supported by direct HUD 

funds. Among other things, faith-based 

organizations may use space in their 

facilities to provide services under a 

HUD program, without removing 

religious art, icons, scriptures, or other 

religious symbols. In addition, a faithbased organization participating in a 

HUD program retains authority over its 

internal governance, and it may retain 

religious terms in its organization’s 

name, select its board members and 

otherwise govern itself on a religious 

basis, and include religious references 

in its organization’s mission statements 

and other governing documents. 

4. Exemption from Title VII 

employment discrimination 

requirements. A faith-based 

organization’s exemption from the 

federal prohibition on employment 

discrimination on the basis of religion, 

set forth in section 702(a) of the Civil 

Rights Act of 1964 (42 U.S.C. 2000e-1), 

is not forfeited when the organization 

participates in a HUD program. Some 

HUD programs, however, contain 

independent statutory provisions that 

impose certain nondiscrimination 

requirements on all grantees. 

Accordingly, grantees should consult 

with the appropriate Department 

program office to determine the scope of 

applicable requirements.

5. Nondiscrimination requirements.

This final rule clarifies that an 

organization that receives direct HUD 

funds shall not, in providing program 

assistance, discriminate against a 

program beneficiary or prospective 

program beneficiary on the basis of 

religion or religious belief. 

Organizations participating in HUD 

programs and activities must also 

comply with any other applicable fair 

housing and nondiscrimination 

requirements. 

6. Acquisition, construction, and 

rehabilitation of structures. HUD funds 

may not be used for the acquisition, 

construction, or rehabilitation of 

structures to the extent that those 

structures are used for inherently 

religious activities. HUD funds may be 

used for the acquisition, construction, or 

rehabilitation of structures only to the 

extent that those structures are used for 

conducting eligible activities under a 

HUD program or activity. Where a 

structure is used for both eligible and 

inherently religious activities, HUD 

funds may not exceed the cost of those 

portions of the acquisition, 

construction, or rehabilitation that are 

attributable to eligible activities in 

accordance with the cost accounting 

requirements applicable to the HUD 

program or activity. Sanctuaries, 

chapels, and other rooms that a HUDfunded religious congregation uses as its 

principal place of worship, however, are 

ineligible for HUD-funded 

improvements. Disposition of real 

property after use for the authorized 

purpose, or any change in use of the 

property from the authorized purpose, is 

subject to governmentwide regulations 

governing real property disposition (e.g., 

24 CFR parts 84 and 85). 

7. Commingling of federal and state, 

local, or tribal funds. If a state, local, or 

tribal government voluntarily 

contributes its own funds to supplement 

federally funded activities, the state, 

local, or tribal government may 

segregate the federal funds or 

commingle them. However, if the funds 

are commingled, the policies and 

requirements of this rule would apply to 

all of the commingled funds. If a state, 

local, or tribal government is required to 

62166 Federal Register / Vol. 69, No. 204 / Friday, October 22, 2004 / Rules and Regulations 

contribute matching funds to 

supplement a federally funded activity, 

the matching funds are considered 

commingled with the federal assistance 

and subject to the requirements of this 

proposed rule. Some HUD program 

requirements govern any project or 

activity assisted under that program. 

Accordingly, grantees should consult 

with the appropriate HUD program 

office to determine the scope of 

applicable requirements. 

IV. Discussion of the Public Comment 

on the June 21, 2004, Proposed Rule 

The public comment period on the 

June 21, 2004, proposed rule closed on 

August 20, 2004. HUD received one 

public comment, which came from a 

civil rights organization. This section of 

the preamble presents a summary of the 

significant issues raised by the public 

commenter and HUD’s responses to 

these issues. 

A. General Comments 

Comment: Opposition to rule on 

constitutional grounds. The commenter 

expressed concern that the proposed 

regulatory changes would conflict with 

the Establishment Clause and related 

Supreme Court decisions. The 

commenter wrote that the rule 

impermissibly would authorize federal 

funding for churches and other 

‘‘pervasively sectarian organizations.’’

The commenter was concerned that the 

regulatory changes ‘‘fail to recognize the 

unique place that religion has in our 

society and our constitutional scheme.’’

HUD Response. HUD does not agree 

with the commenter. While religious 

organizations have a unique position in 

our society and constitutional scheme, 

HUD does not agree that the unique 

nature of religious organizations should 

prevent them from receiving an equal 

opportunity to participate in federally 

funded programs, and this rule does not 

present any violation of the 

Establishment Clause or Free Exercise 

Clause. 

In addition, the Supreme Court’s 

‘‘pervasively sectarian’’ doctrine—

which held that there are certain 

religious institutions in which religion 

is so pervasive that no government aid 

may be provided to them, because their 

performance of even ‘‘secular’’ tasks 

will be infused with religious purpose—

no longer enjoys the support of a 

majority of the Court. Four Justices 

expressly abandoned it in Mitchell v. 

Helms, 530 U.S. 793, 825–829 (2000) 

(plurality opinion), and Justice 

O’Connor’s opinion in that case, joined 

by Justice Breyer, set forth reasoning 

that is inconsistent with its underlying 

premises. (See id. at 857–858 

(O’Connor, J., concurring in judgment) 

(requiring proof of ‘‘actual diversion of 

public support to religious uses’’).) 

Thus, six members of the Court have 

rejected the view that aid provided to 

religious institutions will invariably 

advance the institutions’ religious 

purposes, and that view is the 

foundation of the ‘‘pervasively 

sectarian’’ doctrine. The Department 

therefore believes that under current 

precedent, the Department may fund all 

organizations, without regard to religion 

and free of criteria that require the 

provider to abandon its religious 

expression or character. 

As more fully discussed in the 

responses to the issues below, HUD 

believes that the policies and 

procedures contained in this final rule 

are fully within the bounds of 

constitutional church-state guidelines 

and consistent with recent Supreme 

Court decisions concerning the 

Establishment Clause. 

Comment: Rule should provide for 

stricter monitoring and enforcement.

The commenter wrote that the rule fails 

to provide for any oversight 

mechanisms or ‘‘firewalls’’ to prevent 

the religious use of government funds. 

The commenter wrote that such a 

firewall could best be accomplished by 

requiring that faith-based organizations 

establish a separate corporate structure 

to distinguish a sectarian religious 

entity from its government-funded 

social welfare organization.

HUD Response. HUD has not revised 

the rule in response to this comment. 

HUD has a responsibility to monitor all 

program participants to ensure that 

HUD funds are used in accordance with 

HUD program and any governmentwide 

requirements. Inappropriate use of HUD 

funds or failure to comply with HUD 

requirements is not a possibility that 

arises only when program participants 

are faith-based organizations. Failure of 

any organization receiving federal funds 

to ensure that the federal portion of 

their funding is not used for prohibited 

purposes will subject the organization to 

the imposition of sanctions or penalties. 

All HUD program participants must 

carefully manage their various sources 

of federal funds and abide by Office of 

Management and Budget cost 

accounting circulars, where applicable, 

or other cost accounting methods that 

may be specified in individual program 

regulations. These existing procedures, 

therefore, more than suffice to address 

the concerns raised by the commenter. 

Comment: Rule fails to establish 

adequate safeguards for indirect federal 

funding of faith-based organizations.

The commenter wrote that the rule lacks 

regulatory safeguards to ensure that 

indirect HUD funding to faith-based 

organizations is not used 

inappropriately. The commenter wrote 

that the rule, in effect, establishes a 

mechanism for the provision of 

vouchers without meeting the 

requirements established by the 

Supreme Court for such programs (e.g.,

that the program be completely neutral 

with respect to religion, that use of the 

vouchers at a religious institution be a 

wholly genuine and independent 

private choice, and that the voucher 

programs not provide incentives to 

choose a religious institution over a 

non-religious one, etc.). 

HUD Response. HUD has not revised 

the rule in response to this comment. 

Any HUD-funded program that involves 

indirect funding must, of course, 

comply with federal law (including 

current legal precedent), and nothing in 

the final regulation provides otherwise. 

As explained in the preamble of the 

proposed rule as well as the preamble 

of this final rule, the term ‘‘direct HUD 

funds’’ refers to direct funding within 

the meaning of the Establishment Clause 

of the First Amendment. In other words, 

HUD’s use of the phrase ‘‘direct 

funding’’ in this rule incorporates 

current First Amendment jurisprudence 

into its definition. For example, direct 

HUD funding may mean that the 

government or an intermediate 

organization with similar duties as a 

governmental entity under a particular 

HUD program selects an organization 

and purchases the needed services 

straight from the organization (e.g., via 

a contract or cooperative agreement). In 

contrast, indirect funding scenarios may 

place the choice of service provider in 

the hands of a beneficiary, and then pay 

for the cost of that service through a 

voucher, certificate, or other similar 

means of payment. 

HUD believes that, under current 

precedent, faith-based organizations that 

receive HUD funds as the result of the 

genuine and independent choice of a 

beneficiary (for example, where the 

entity administering HUD funds 

established a voucher, coupon, 

certificate, or similar funding 

mechanism) are permitted to offer 

assistance that integrates religion and 

social services and requires 

participation in all aspects of their 

programs. The religious freedom of 

beneficiaries in an indirect funding 

program is protected by the guarantee of 

genuine and independent private 

choice. A beneficiary has the right to 

select any eligible provider, and no 

beneficiary may be required to receive 

services from a provider to which the 

beneficiary has a religious objection. In 

other words, vouchers for services 

Federal Register / Vol. 69, No. 204 / Friday, October 22, 2004 / Rules and Regulations 62167

funded by the government must be 

available to eligible beneficiaries 

regardless of their religious belief, and 

those who object to a religious provider 

may select an eligible alternative 

provider.

Comment: Ensure the availability of 

secular alternative service providers.

The commenter wrote that HUD should 

ensure that beneficiaries have the ability 

to receive services from a different or 

non-religious provider. The commenter 

wrote that without reasonable secular 

alternatives, beneficiaries might be 

forced to participate in programs 

provided by faith-based organizations 

where they may be required to 

participate in religious activity in order 

to receive essential government-funded 

benefits. 

HUD Response. HUD has not revised 

the rule in response to this comment. 

Under this final rule, directly funded 

faith-based organizations are prohibited 

from discriminating against program 

beneficiaries on the basis of ‘‘religion or 

religious belief.’’ In addition, the rule 

provides that faith-based organizations 

may not use direct funding from HUD 

for inherently religious activities, that 

such activities must be offered 

separately, in time or location, from 

services directly funded by HUD, and 

that no beneficiary served by a HUDfunded provider directly funded by 

HUD will be required to participate in 

inherently religious activities as a 

condition of receiving services. These 

requirements sufficiently protect the 

rights of program beneficiaries. 

Moreover, HUD’s general objective is to 

eliminate barriers to faith-based 

organizations, to welcome their 

participation in HUD programs and, 

most important, to ensure they are 

treated like other program participants. 

The commenter’s recommendations run 

counter to the objectives that HUD is 

trying to achieve through this rule. In 

light of the restrictions on direct 

funding outlined above, to prevent a 

faith-based organization from providing 

HUD-funded programs or services 

unless there is a secular organization 

also providing the same programs or 

services would defeat the ‘‘neutrality’’

objective sought by this rulemaking. 

B. Comments Regarding Inherently 

Religious Activities 

Comment: Revise the requirement 

regarding ‘‘separation in time or 

location.’’ The commenter wrote that 

the rule fails to mandate the sufficient 

distance between inherently religious 

activities and the delivery of programs, 

activities, or services supported by 

direct HUD funds. The commenter 

suggested that HUD revise the rule to 

provide that religious activities must be 

separated by both time and location. 

The commenter also suggested that 

faith-based organizations be required to 

explain that participation in religious 

activities is voluntary at the outset of a 

beneficiary’s receipt of services. 

HUD Response. HUD declines to 

adopt the suggestion made by the 

commenter. HUD believes that requiring 

that inherently religious activities be 

separated from HUD-funded activities 

by both time and location is legally 

unnecessary. Further, such a 

requirement would impose an 

unnecessarily harsh burden on small 

faith-based organizations that may have 

access to only one suitable location for 

the provision of HUD-funded services. 

HUD does not agree that the separation 

of time or location requirement is 

ambiguous or necessitates the need for 

additional regulation for proper 

adherence. HUD believes that existing 

regulations and this rule are clear that 

faith-based organizations using direct 

federal funds for certain activities must 

separate their inherently religious 

activities from the federally funded 

activities. 

Furthermore, HUD declines to require 

that religious organizations provide a 

notice to a beneficiary or potential 

beneficiary that participation in 

religious activities was entirely on a 

voluntary basis. However, grantees are 

encouraged to take steps to ensure that 

clients and prospective clients have a 

clear understanding of the services 

offered by their organization by 

explaining the services offered, 

including any inherently religious 

activities, as well as the individual’s 

right not to participate in any such 

activities, while still accepting or 

receiving services. The requirement that 

participation be voluntary, however, is 

sufficient to address concerns about the 

religious freedom of program 

beneficiaries. 

Comment: Include a more explicit 

statement prohibiting faith-based 

organizations from requiring program 

beneficiaries to participate in religious 

activities. The commenter wrote that 

HUD should strengthen the provisions 

of the rule specifying that participation 

by a beneficiary in religious activities 

offered by a faith-based service provider 

be voluntary, and that the faith-based 

organization may not discriminate 

against a prospective beneficiary for 

refusing to participate in such activities. 

Specifically, the commenter suggested 

that the regulatory text should be 

revised to state that a faith-based 

organization may not discriminate based 

on ‘‘refusal to participate in or attend a 

religious practice.’’

HUD Response. HUD believes that the 

language in the rule prohibiting faithbased organizations from requiring 

program beneficiaries to participate in 

religious activities is sufficiently 

explicit. A prohibition on 

discrimination against beneficiaries on 

the basis of religion or religious belief is 

straightforward and requires no further 

elaboration. 

C. Comments Regarding Other Rule 

Provisions 

Comment: Concern regarding the Title 

VII exemption. The commenter 

questioned whether a faith-based 

organization retains its Title VII 

exemption after receipt of federal funds. 

The commenters wrote that the 

exemption from Title VII was never 

intended to provide the basis for 

government-funded discrimination, and 

expressed concern that the rule will 

result in illegal employment 

discrimination.

HUD Response. As noted above in 

this preamble, this final rule clarifies 

that a faith-based organization’s 

exemption from the federal prohibition 

on employment discrimination on the 

basis of religion, set forth in section 

702(a) of Title VII of the Civil Rights Act 

of 1964, is not forfeited when the 

organization participates in a HUD 

program. HUD believes that faith-based 

organizations should retain their 

fundamental civil rights, including their 

ability to take faith into account when 

they make employment decisions 

without running afoul of Title VII, when 

they participate in HUD programs. Title 

VII recognizes that for a faith-based 

organization to define or carry out its 

mission, it is important that it be able 

to choose its employees based on its 

vision and beliefs without incurring 

liability under Title VII. Some HUD 

programs, however, contain 

independent statutory provisions that 

impose certain nondiscrimination 

requirements on all grantees. 

Accordingly, grantees should consult 

with the appropriate Department 

program office to determine the scope of 

any applicable requirements. 

Comment: The proposed rule allows 

the misuse of HUD funds to build 

structures used for religious purposes.

The commenter objected to the use of 

HUD funds in the acquisition, 

construction, or rehabilitation of 

religious structures. The commenter 

wrote that the proposed ‘‘attribution’’

requirements would be unenforceable 

by agencies administering the HUD 

grant. The commenter offered that, even 

if the proposed rule could be effectively 

enforced, it would require such 

excessive monitoring as to constitute 

62168 Federal Register / Vol. 69, No. 204 / Friday, October 22, 2004 / Rules and Regulations 

excessive government entanglement 

with religious institutions. The 

commenter wrote that HUD should 

establish effective safeguards to avoid 

the misuse of HUD funds and prevent 

the perceived constitutional pitfalls. 

HUD Response. HUD has not revised 

the rule in response to these comments. 

HUD finds no basis for requiring greater 

oversight and monitoring of faith-based 

organizations than other program 

participants simply because they are 

faith-based organizations. All program 

participants must be monitored for 

compliance with program requirements, 

and no program participant may use 

HUD funds for any ineligible activity, 

whether that activity is an inherently 

religious activity or a nonreligious 

activity that is outside the scope of the 

program at issue. Many nonreligious 

organizations participating in HUD 

programs also receive funding from 

several sources (private, state, or local) 

to carry out activities that are ineligible 

for funding under HUD programs. In 

many cases, the non-eligible activities 

are secular activities but not activities 

eligible for funding under HUD 

programs. All program participants 

receiving funding from various sources 

and carrying out a wide range of 

activities must ensure through proper 

accounting principles that each set of 

funds is applied only to the activities for 

which the funding was provided. The 

regulations for HUD’s programs 

prescribe the cost accounting 

procedures that are to be followed in 

using HUD funds. 

HUD also does not agree that 

preventing the use of direct HUD 

capital-improvement funds for 

inherently religious activities would 

necessarily fail or, in the process, 

excessively entangle the government in 

the affairs of recipients or subrecipients 

that are religious organizations. Because 

inherently religious activities are nonHUD activities, HUD need not 

distinguish between program 

participants’ religious and nonreligious 

non-HUD activities; the same 

mechanism by which HUD polices the 

line between ineligible and eligible 

activities will serve to exclude 

inherently religious activities from 

funding. This system of monitoring is 

more than sufficient to address the 

commenter’s concerns, and the amount 

of oversight of religious organizations 

necessary to accomplish these purposes 

is no greater than that involved in other 

publicly funded programs that the 

Supreme Court has sustained. 

HUD believes that the prorated 

funding of improvements to a structure 

that has a mixed use—both religious 

and nonreligious— is not itself a 

violation of the Constitution. In a 

neutral program in which the 

government directly funds the capital 

improvements of institutions that 

administer federal social welfare 

programs, the government need only put 

in place safeguards to ensure that public 

money is not used to finance inherently 

religious activities. Therefore, the final 

rule’s prohibition on the funding of 

capital improvements for sanctuaries, 

chapels, or any other rooms that a HUDfunded religious congregation uses as its 

principal place of worship simply 

provides extra assurance that HUDfunded capital improvements will not 

be used to support inherently religious 

activities, and HUD’s rule is well within 

the bounds of the Constitution. 

Comment: The rule should prohibit 

the display of religious art or 

iconography. The commenter wrote that 

the rule fails to recognize that 

proselytization, religious instruction, 

and worship can occur through art, 

icons, and images. Further, the 

commenter was concerned that the 

symbols might create a ‘‘pervasively 

sectarian’’ atmosphere in which 

members of a different religion may not 

feel comfortable or welcome. 

HUD Response. HUD declines to 

impose this restriction on HUD program 

participants that are faith-based 

organizations. A number of federal 

statutes affirm the principle embodied 

in this rule (see e.g., 42 U.S.C. 290kk–

1(d)(2)(B)). For no other program 

participants do HUD regulations 

prescribe the type of artwork, statues, or 

icons that may be placed within the 

structures in which HUD-funded 

services are provided. A prohibition on 

the use of religious icons would make 

it more difficult for many faith-based 

organizations to participate in the 

program than for other organizations 

and would thus be an inappropriate and 

excessive restriction. 

V. Findings and Certifications 

Consultation With Indian Tribal 

Governments 

In accordance with Executive Order 

13175 (entitled ‘‘Consultation and 

Coordination With Indian Tribal 

Governments’’), issued on November 6, 

2000, HUD has consulted with 

representatives of tribal governments 

concerning the subject of this rule. 

HUD, through a letter dated February 

23, 2004, provided Indian tribes and 

Alaska Native Villages the opportunity 

to comment on the substance of the 

regulatory changes during the 

development of the June 21, 2004, 

proposed rule. HUD considered their 

comments on the proposed changes in 

the preparation of the June 21, 2004, 

proposed rule for publication. 

Additionally, the June 21, 2004, 

proposed rule provided Indian tribes 

with an additional opportunity to 

comment on the proposed regulatory 

changes. 

Regulatory Planning and Review 

The Office of Management and Budget 

(OMB) reviewed this rule under 

Executive Order 12866 (entitled 

‘‘Regulatory Planning and Review’’). 

OMB determined that this rule is a 

‘‘significant regulatory action’’ as 

defined in section 3(f) of the Order 

(although not an economically 

significant regulatory action under the 

Order). Any changes made to the rule as 

a result of that review are identified in 

the docket file, which is available for 

public inspection in the Regulations 

Division, Room 10276, 451 Seventh 

Street, SW., Washington, DC 20410–

0500.

Unfunded Mandates Reform Act 

Title II of the Unfunded Mandates 

Reform Act of 1995 (UMRA) (2 U.S.C. 

1531–1538) establishes requirements for 

federal agencies to assess the effects of 

their regulatory actions on state, local, 

and tribal governments, and the private 

sector. This rule does not impose any 

federal mandate on any state, local, or 

tribal governments or the private sector 

within the meaning of UMRA. 

Environmental Impact 

This final rule sets forth 

nondiscrimination standards. 

Accordingly, under 24 CFR 50.19(c)(3), 

this final rule is categorically excluded 

from environmental review under the 

National Environmental Policy Act of 

1969 (42 U.S.C. 4332). 

Impact on Small Entities 

The Secretary, in accordance with the 

Regulatory Flexibility Act (5 U.S.C. 

605(b)) has reviewed and approved this 

rule and in so doing certifies that this 

rule will not have a significant 

economic impact on a substantial 

number of small entities. The final rule 

will not impose new costs, or modify 

existing costs, applicable to HUD 

grantees. Rather, the purpose of the final 

rule is to ensure the equal participation 

of faith-based organizations (irrespective 

of size) in HUD’s programs. 

Catalog of Federal Domestic Assistance 

Numbers 

The Catalog of Federal Domestic 

Assistance numbers for the programs 

affected by this rule are: Indian Home 

Program—14.239; ICDBG—14.862; 

Federal Register / Vol. 69, No. 204 / Friday, October 22, 2004 / Rules and Regulations 62169

Section 184—14.865; IHBG—14.867; 

Title VI Loan Guarantee—14.869.

List of Subjects 

24 CFR Part 954 

Administrative practice and 

procedure, Grant programs—housing 

and community development, Grant 

programs—Indians, Indians, Low and 

moderate income housing, 

Manufactured homes, Rent subsidies, 

Reporting and recordkeeping 

requirements. 

24 CFR Part 1003 

Alaska, Community development 

block grants, Grant programs—housing 

and community development, Indians, 

Reporting and recordkeeping 

requirements.

■ For the reasons stated in the preamble, 

HUD amends title 24 of the Code of 

Federal Regulations as follows:

PART 954—INDIAN HOME PROGRAM

■ 1. The authority citation for 24 CFR 

part 954 continues to read as follows:

Authority: 42 U.S.C. 3535(d) and 12701–

12839.

■ 2. Revise § 954.301 to read as follows:

§ 954.301 Faith-based activities. 

(a) Religious organizations are 

eligible, on the same basis as any other 

organization, to participate in the Indian 

HOME program. Neither the federal 

government nor a tribal government nor 

any other entity that administers any 

program or activity under this part shall 

discriminate against an organization on 

the basis of the organization’s religious 

character or affiliation.

(b) Organizations that receive direct 

HUD funds under the Indian HOME 

program may not engage in inherently 

religious activities, such as worship, 

religious instruction, or proselytization, 

as part of the program or services 

funded under this part. If an 

organization conducts such inherently 

religious activities, the inherently 

religious activities must be offered 

separately, in time or location, from the 

programs, activities, or services 

supported by direct HUD funds under 

this part, and participation must be 

voluntary for the beneficiaries of the 

programs, activities, or services 

provided. 

(c) A religious organization that 

participates in the Indian HOME 

program will retain its independence 

from federal, state, local, and tribal 

governments, and may continue to carry 

out its mission, including the definition, 

practice, and expression of its religious 

beliefs, provided that it does not engage 

in any inherently religious activities, 

such as worship, religious instruction, 

or proselytization, as part of the 

programs or services funded under a 

program or activity pursuant to this 

part. Among other things, religious 

organizations may use space in their 

facilities to provide services under the 

Indian HOME program without 

removing religious art, icons, scriptures, 

or other religious symbols. In addition, 

a religious organization participating in 

the Indian HOME program retains its 

authority over its internal governance, 

and it may retain religious terms in its 

organization’s name, select its board 

members on a religious basis, and 

include religious references in its 

organization’s mission statements and 

other governing documents. 

(d) A religious organization’s 

exemption from the federal prohibition 

on employment discrimination on the 

basis of religion, set forth in section 

702(a) of the Civil Rights Act of 1964 (42 

U.S.C. 2000e–1), is not forfeited when 

the organization participates in a HUD 

program. Some HUD programs, 

however, contain independent statutory 

provisions that impose certain 

nondiscrimination requirements on all 

grantees. Accordingly, grantees should 

consult with the appropriate HUD 

program office to determine the scope of 

applicable requirements. 

(e) An organization that receives 

direct funds under the Indian HOME 

program shall not, in providing program 

assistance, discriminate against a 

program beneficiary or prospective 

program beneficiary on the basis of 

religion or religious belief. 

(f) Indian HOME funds may not be 

used for the acquisition, construction, or 

rehabilitation of structures to the extent 

that those structures are used for 

inherently religious activities. Indian 

HOME funds may be used for the 

acquisition, construction, or 

rehabilitation of structures only to the 

extent that those structures are used for 

conducting eligible activities under this 

part. Where a structure is used for both 

eligible and inherently religious 

activities, Indian HOME funds may not 

exceed the cost of those portions of the 

acquisition, construction, or 

rehabilitation that are attributable to 

eligible activities in accordance with the 

cost accounting requirements applicable 

to Indian HOME funds in this part. 

Sanctuaries, chapels, or other rooms 

that an Indian HOME-funded religious 

congregation uses as its principal place 

of worship, however, are ineligible for 

Indian HOME-funded improvements. 

Disposition of real property after the 

term of the grant, or any change in use 

of the property during the term of the 

grant, is subject to governmentwide 

regulations governing real property 

disposition (see 24 CFR parts 84 and 

85). 

(g) If a tribal government voluntarily 

contributes its own funds to supplement 

federally funded activities, the tribal 

government has the option to segregate 

the federal funds or commingle them. 

However, if the funds are commingled, 

this section applies to all of the 

commingled funds. Further, if a state or 

local government is required to 

contribute matching funds to 

supplement a federally funded activity, 

the matching funds are considered 

commingled with the federal assistance 

and therefore subject to the 

requirements of this section. Some HUD 

programs requirements govern any 

project or activity assisted under those 

programs. Accordingly, grantees should 

consult with the appropriate HUD 

program office to determine the scope of 

applicable requirements

PART 1003—COMMUNITY 

DEVELOPMENT BLOCK GRANTS FOR 

INDIAN TRIBES AND ALASKA NATIVE 

VILLAGES

■ 3. The authority citation for 24 CFR 

part 1003 continues to read as follows:

Authority: 42 U.S.C. 3535(d) and 5301 et 

seq.

■ 4. Revise § 1003.600 to read as follows:

§ 1003.600 Faith-based activities. 

(a) Religious organizations are 

eligible, on the same basis as any other 

eligible organization, to participate in 

the ICDBG program. Neither the federal 

government nor a tribal government nor 

any other entity that administers any 

program or activity under this part shall 

discriminate against an organization on 

the basis of the organization’s religious 

character or affiliation. 

(b) Organizations that receive direct 

HUD funds under the ICDBG program 

may not engage in inherently religious 

activities, such as worship, religious 

instruction, or proselytization, as part of 

the programs or services funded under 

this part. If an organization conducts 

such inherently religious activities, the 

inherently religious activities must be 

offered separately, in time or location, 

from the programs, activities or services 

supported by direct HUD funds under 

this part, and participation must be 

voluntary for the beneficiaries of the 

programs, activities, or services 

provided. 

(c) A religious organization that 

participates in the ICDBG program will 

retain its independence from federal, 

state, local, and tribal governments, and 

may continue to carry out its mission, 

62170 Federal Register / Vol. 69, No. 204 / Friday, October 22, 2004 / Rules and Regulations 

including the definition, practice, and 

expression of its religious beliefs, 

provided that it does not engage in any 

inherently religious activities, such as 

worship, religious instruction, or 

proselytization, as part of the programs 

or services funded under a program or 

activity pursuant to this part. Among 

other things, religious organizations 

may use space in their facilities to 

provide ICDBG-funded services, without 

removing religious art, icons, scriptures, 

or other religious symbols. In addition, 

a religious organization participating in 

the ICDBG program retains its authority 

over its internal governance, and it may 

retain religious terms in its 

organization’s name, select its board 

members on a religious basis, and 

include religious references in its 

organization’s mission statements and 

other governing documents. 

(d) A religious organization’s 

exemption from the federal prohibition 

on employment discrimination on the 

basis of religion, set forth in section 

702(a) of the Civil Rights Act of 1964 (42 

U.S.C. 2000e–1), is not forfeited when 

the organization participates in a HUD 

program. Some HUD programs, 

however, contain independent statutory 

provisions that impose certain 

nondiscrimination requirements on all 

grantees. Accordingly, grantees should 

consult with the appropriate HUD 

program office to determine the scope of 

applicable requirements.

(e) An organization that receives 

direct funds under the ICDBG program 

shall not, in providing program 

assistance, discriminate against a 

program beneficiary or prospective 

program beneficiary on the basis of 

religion or religious belief. 

(f) ICDBG funds may not be used for 

the acquisition, construction, or 

rehabilitation of structures to the extent 

that those structures are used for 

inherently religious activities. ICDBG 

funds may be used for the acquisition, 

construction, or rehabilitation of 

structures only to the extent that those 

structures are used for conducting 

eligible activities under this part. Where 

a structure is used for both eligible and 

inherently religious activities, ICDBG 

funds may not exceed the cost of those 

portions of the acquisition, 

construction, or rehabilitation that are 

attributable to eligible activities in 

accordance with the cost accounting 

requirements applicable to ICDBG funds 

in this part. Sanctuaries, chapels, or 

other rooms that an ICDBG-funded 

religious congregation uses as its 

principal place of worship, however, are 

ineligible for ICDBG-funded 

improvements. Disposition of real 

property after the term of the grant, or 

any change in use of the property during 

the term of the grant, is subject to 

governmentwide regulations governing 

real property disposition (see 24 CFR 

parts 84 and 85). 

(g) If a tribal government voluntarily 

contributes its own funds to supplement 

federally funded activities, the tribal 

government has the option to segregate 

the federal funds or commingle them. 

However, if the funds are commingled, 

this section applies to all of the 

commingled funds. Further, if a state or 

local government is required to 

contribute matching funds to 

supplement a federally funded activity, 

the matching funds are considered 

commingled with the federal assistance 

and therefore subject to the 

requirements of this section. Some HUD 

programs requirements govern any 

project or activity assisted under those 

programs. Accordingly, grantees should 

consult with the appropriate HUD 

program office to determine the scope of 

applicable requirements.

Dated: October 18, 2004. 

Michael Liu, 

Assistant Secretary for Public and Indian 

Housing.

[FR Doc. 04–23666 Filed 10–19–04; 12:06 

pm] 

BILLING CODE 4210–33–P