[Federal Register Volume 69, Number 202 (Wednesday, October 20, 2004)]
[Rules and Regulations]
[Pages 61716-61724]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-23566]



[[Page 61715]]

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Part III





Agency for International Development





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22 CFR Parts 202, 205, 211, and 226



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Participation by Religious Organizations in USAID Programs; Final Rule

Federal Register / Vol. 69 , No. 202 / Wednesday, October 20, 2004 / 
Rules and Regulations

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AGENCY FOR INTERNATIONAL DEVELOPMENT

22 CFR Parts 202, 205, 211, and 226

RIN 0412-AA52


Participation by Religious Organizations in USAID Programs

AGENCY: Agency for International Development (USAID).

ACTION: Final rule.

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SUMMARY: This final rule implements Executive Branch policy that, 
within the framework of constitutional guidelines, religious (or 
``faith-based'') organizations should be able to compete on an equal 
footing with other organizations for USAID funding. This final rule 
revises USAID regulations pertaining to grants, cooperative agreements 
and contracts awarded for the purpose of administering grant programs 
to ensure their compliance with this policy and to clarify that faith-
based organizations are eligible to participate in programs on the same 
basis as any other organization, with respect to programs for which 
such other organizations are eligible.

EFFECTIVE DATE: October 19, 2004.

FOR FURTHER INFORMATION CONTACT: Linda Shovlain, Acting Director, 
Center for Faith-Based and Community Initiatives, USAID, Rm. 3.9.031, 
1300 Pennsylvania Ave., NW., Washington, DC 20523; telephone: (202) 
712-4080 (this is not a toll-free number).

SUPPLEMENTARY INFORMATION: On June 7, 2004, the Agency for 
International Development published in the Federal Register (69 FR 
31773) notice of a proposed rule to implement, in part, Executive Order 
13280, published in the Federal Register on December 16, 2002 (67 FR 
77145), and Executive Order 13279, published in the Federal Register on 
December 16, 2002 (67 FR 77141). As more fully explained below, these 
orders, among other things, directed the Agency for International 
Development to end discriminatory treatment of religious or ``faith-
based'' organizations in the administration of Agency grants and 
programs. The Agency provided a 60-day comment period on the proposed 
rule, which ended on August 6, 2004. The Agency also offered the public 
the opportunity to submit comments by surface mail, e-mail or fax.

I. Background

    Religious (or ``faith-based'') organizations make an important 
contribution to the delivery of humanitarian and economic assistance in 
much of the world. Faith-based organizations acting alone or in 
partnership with local and national governments, community-based 
organizations, institutions of higher education, and other private 
organizations do much good work to meet the pressing needs of countries 
and their citizens, consistent with the objectives of the U.S. foreign 
assistance program.
    Faith-based non-profit organizations have been implementing 
humanitarian and development activities for USAID for decades. 
Nevertheless, this final rule seeks to further facilitate the 
contribution of faith-based and community organizations to increase the 
reach and effectiveness of its programs. We believe this rule will 
strengthen USAID's overall efforts, given priority in the national 
security strategy of the United States, to respond to the humanitarian 
and economic development needs of countries world-wide.
    President Bush has directed Federal agencies, including USAID, to 
take steps to ensure that Federal policy and programs are fully open to 
faith-based and community groups in a manner that is consistent with 
the Constitution. The Administration believes that such groups possess 
an under-appreciated ability to meet the needs of disadvantaged people 
overseas struggling to make a better life, recover from a disaster or 
live in a free and democratic country. The Administration believes that 
there should be an equal opportunity for all organizations--both 
religious and nonreligious--to participate as partners in Federal 
programs.
    As part of these efforts, President Bush issued Executive Order 
13198 on January 29, 2001. The Order, which was published in the 
Federal Register on January 31, 2001 (66 FR 8499), created Centers for 
Faith-Based and Community Initiatives in five Cabinet departments--
Housing and Urban Development, Health and Human Services, Education, 
Labor, and Justice. The Executive Order charged the Centers to identify 
and eliminate regulatory, contracting, and other programmatic obstacles 
to the participation of faith-based and community organizations in the 
provision of social services by their Departments. On December 12, 
2002, President Bush issued Executive Order 13280. That Order, 
published in the Federal Register on December 16, 2002 (67 FR 77145), 
created Centers in two additional agencies--the United States Agency 
for International Development and the Department of Agriculture--and 
charged those Centers with duties similar to those set forth in 
Executive Order 13198. On December 12, 2002, President Bush also issued 
Executive Order 13279, published in the Federal Register on December 
16, 2002 (67 FR 77141). That Executive Order charges Executive Branch 
agencies to ensure equal protection of laws for faith-based and 
community groups that apply for funds to meet and administer social 
service programs domestically and abroad. President Bush called for an 
end to discrimination against faith-based organizations. He further 
directed that faith-based organizations be allowed to retain their 
religious autonomy over, among other things, their internal governance 
and composition of boards and over their display of religious art, 
icons, scriptures, or other religious symbols when participating in 
government-funded programs. President Bush directed each Executive 
Branch agency, including USAID, to implement these policies, in a 
manner consistent with the First Amendment to the United States 
Constitution. This rule fulfills in part USAID's responsibilities under 
these Executive Orders. The rule is similar to rules adopted by other 
Executive Branch agencies charged with implementing the Faith-Based and 
Community Initiative Executive Orders described above.

II. This Rule

A. Purpose of Rule

    Consistent with the President's Initiative, this rule revises 
USAID's regulations to ensure that there are no unwarranted barriers to 
the equal participation of faith-based organizations in USAID's 
programs. The objective of the rule is to ensure that USAID's programs 
are open to all qualified organizations, regardless of their religious 
character, and to establish clearly the proper uses to which funds may 
be put and the conditions for receipt of funding. In addition, this 
rule is designed to ensure that the implementation of USAID's programs 
is conducted in a manner consistent with the requirements of the 
Constitution.

B. USAID Regulations Amended by Rule

    This rule revises in its entirety 22 CFR part 205, Payments to and 
on Behalf of Participants in Nonmilitary Economic Development Training 
Programs. The new title is ``Participation by Religious Organizations 
in USAID Programs.'' This rule also amends the following USAID 
regulations:
    1. 22 CFR part 202, Overseas Shipment of Supplies by Voluntary Non-
Profit Relief Agencies.

[[Page 61717]]

    2. 22 CFR part 211, Transfer of Commodities for Food Use in 
Disaster Relief, Economic Development, and Other Assistance.
    3. 22 CFR part 226, Administration of Assistance Awards to U.S. 
Non-Government Organizations.

C. Regulatory Amendments to Title 22

    The revised part 205 applies to all Federal financial assistance 
(including grants, cooperative agreements and contracts that administer 
grant programs) awarded by USAID. Award documentation for such Federal 
financial assistance will include standard clauses that incorporate the 
requirements of part 205, and USAID internal directives will highlight, 
explain, and incorporate part 205 by reference. The rule also makes 
corresponding changes to existing parts 202, 211 and 226 of 22 CFR that 
relate to aspects of Federal financial assistance programs administered 
by USAID.
    1. Participation by religious organizations in USAID programs. The 
rule makes clear that organizations are eligible to participate in 
USAID programs without regard to their religious character or 
affiliation, and that organizations may not be excluded from the 
competition for USAID assistance awards or sub-awards simply because 
they are religious. Specifically, religious organizations are eligible 
to compete for funding on the same basis, and under the same 
eligibility requirements, as all other nonprofit organizations. The 
Federal government and intermediary organizations administering USAID 
funds are prohibited from discriminating for or against organizations 
on the basis of religious character or affiliation. Nothing in this 
rule, however, precludes those administering USAID funded programs from 
accommodating religious organizations in a manner consistent with the 
Religion Clauses of the First Amendment to the Constitution, as they 
have been interpreted to apply in the domestic context.
    2. Inherently religious activities. The rule describes the 
requirements applicable to all recipient and sub-recipient 
organizations regarding the use of USAID funds for inherently religious 
activities. Specifically, a participating organization may not use 
direct financial assistance \1\ from USAID to support inherently 
religious activities, such as worship, religious instruction, or 
proselytization. If the organization engages in such activities, the 
activities must be offered separately, in time or location, from the 
programs or services funded with direct USAID assistance, and 
participation must be voluntary for the beneficiaries of the USAID-
funded programs or services. This requirement ensures that direct 
financial assistance from USAID to religious organizations is not used 
to support inherently religious activities. Such assistance may not be 
used, for example, to conduct worship services, prayer meetings or any 
other activity that is inherently religious.
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    \1\ As used in this rule, the terms ``direct USAID assistance'' 
or ``direct financial assistance from USAID'' refers to direct 
funding within the meaning of the Establishment Clause of the First 
Amendment as it has been interpreted to apply in the domestic 
context. For example, direct USAID assistance may mean that the 
government or an intermediate organization with similar duties as a 
governmental entity under a particular USAID program selects an 
organization and enters a grant relationship with the organization 
for provision of needed services. In contrast, many indirect funding 
scenarios 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.
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    This restriction does not mean that an organization that receives 
USAID funds cannot engage in inherently religious activities. It simply 
means that such an organization cannot fund these activities with 
direct financial assistance from USAID. Thus, faith-based organizations 
that receive direct financial assistance from USAID must take steps to 
separate, in time or location, their inherently religious activities 
from the direct USAID-funded services that they offer.
    In addition, the rule clarifies that the legal restrictions 
applicable to religious programs within correctional facilities will 
sometimes be different from the legal restrictions that apply to other 
USAID programs, on account of the fact that the degree of government 
control over correctional environments sometimes warrants affirmative 
steps by prison officials, in the form of chaplaincies and similar 
programs, to ensure that prisoners have access to opportunities to 
exercise their religion in the prison.
    3. Independence of religious organizations. The rule clarifies that 
a religious organization that participates in USAID programs will 
retain its independence and may continue to carry out its mission, 
including the definition, practice, and expression of its religious 
beliefs, provided that it does not use direct financial assistance from 
USAID to support any inherently religious activities, such as worship, 
religious instruction, or proselytization. Among other things, a faith-
based organization may use space in its facilities to provide USAID-
funded services without removing religious art, icons, scriptures, or 
other religious symbols. In addition, a USAID-funded religious 
organization 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. Use of USAID funds for acquisition, construction, or 
rehabilitation of structures. The rule clarifies that USAID 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 the specific USAID program. Where 
a structure is used for both eligible and inherently religious 
activities, the rule clarifies that USAID funds may not exceed the cost 
of those portions of the acquisition, construction, or rehabilitation 
that are attributable to eligible activities. Additionally, USAID funds 
may not be used for acquisition, construction, or rehabilitation of 
sanctuaries, chapels, or any other room that a religious congregation 
that is a recipient or sub-recipient of USAID assistance uses as its 
principal place of worship.
    5. Nondiscrimination in providing assistance. The rule clarifies 
that USAID and any organization that receives direct financial 
assistance from USAID shall not, in providing program assistance, 
discriminate for or against a program beneficiary or potential program 
beneficiary on the basis of religion or religious belief. Accordingly, 
religious organizations, in providing services directly funded in whole 
or in part by USAID, may not discriminate for or against current or 
prospective program beneficiaries on the basis of religion or religious 
belief.
    6. Assurance requirements. This rule directs the removal of those 
provisions of USAID's agreements, covenants, memoranda of 
understanding, policies, or regulations that require only USAID-funded 
religious organizations to provide assurances that they will not use 
monies or property for inherently religious activities. All 
organizations that participate in USAID programs, including religious 
ones, must carry out eligible activities in accordance with all program 
requirements and other applicable requirements governing the conduct of 
USAID-funded activities, including those prohibiting the use of direct 
financial assistance from USAID to engage in inherently religious 
activities. In addition, to the extent that provisions of USAID's 
agreements, covenants, policies, or regulations disqualify religious 
organizations from participating in USAID's programs because they are 
motivated or

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influenced by religious faith to provide social services, or because of 
their religious character or affiliation, the rule removes that 
restriction, which is not required by governing law.
    7. National Security/Foreign Policy Waiver. The rule also permits 
the Secretary of State to waive all or any part of the rule, on a case-
by-case basis, where the Secretary determines that such waiver is 
necessary to further the national security or foreign policy interests 
of the United States.

III. Response to Comments Received on the Proposed Rule

    The Agency received comments from a small number of individuals and 
non-governmental organizations, including national religious 
organizations, some of whom indicated a special interest in church/
state issues. Most of the comments opposed allowing faith-based 
organizations to compete for government funds and/or believed greater 
restrictions should be placed on their receipt of funds. In contrast, 
one comment recommended that the restrictions on inherently religious 
activities be removed, in order to permit more effective assistance to 
religious organizations that provide social welfare services.
    The following is a summary of comments by issue, and the Agency's 
responses to those comments.

Participation of Religious Organizations in Government-Funded Programs

    Comment: Several commenters questioned whether the rule violates 
the Establishment Clause of the First Amendment to the U.S. 
Constitution. One commenter declared that the rule ``anticipates the 
implementation of a patently unconstitutional grant of government money 
to pervasively sectarian institutions.'' Commenters were concerned with 
the potential promotion by government of particular religious groups or 
of religion in general; the likelihood that religious organizations 
would conform their religious practices and activities to the rule's 
requirements; and the general prospect of government entanglement with 
religion.
    USAID Response: We disagree with the commenters. The regulations 
ensure that there is no direct USAID funding for inherently religious 
activities, consistent with current precedent involving domestic 
programs.\2\ Specifically, organizations receiving direct USAID funds 
must ensure that inherently religious activities are separate in time 
or location from USAID-funded services, and they must also ensure that 
participation in such religious activities is voluntary. Furthermore, 
in programs supported by direct USAID funds, organizations are 
prohibited from discriminating for or against a program beneficiary on 
the basis of religion or religious belief.
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    \2\ It is possible that a less stringent standard would apply to 
foreign assistance. Cf. DK Memorial Fund v. AID, 887 F.2d 275 (D.C. 
Cir. 1989). Given that this regulation satisfies the standards that 
apply in the domestic context, it follows a fortiori that it would 
also satisfy any less stringent standard.
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    In addition, the Supreme Court's ``pervasively sectarian'' 
doctrine--which held in the domestic context 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 
set forth reasoning that is inconsistent with its underlying premises, 
see id. at 857-858 (O'Connor, J., concurring in judgment, joined by 
Breyer, J.) (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. We therefore 
believe that USAID may fund all service providers, without regard to 
religion and free of criteria that require the provider to abandon its 
religious expression or character, in accordance with this rule.
    The rule does not endorse religion in general or any particular 
religious view. In fact, the rule specifically prohibits discrimination 
``for or against an organization on the basis of the organization's 
religious character or affiliation.'' (emphasis added). Under the rule, 
all organizations, whether religious or non-religious, are eligible to 
apply and compete for USAID funding according to the same criteria. And 
it again merits emphasis that the rule forbids the use of direct 
government assistance for inherently religious activities and states 
that any such activity must be voluntary and separated, in time or 
location, from activities directly funded by USAID.
    The limitation on the use of the direct funds is not meant to put 
an organization in the position of having to deny or alter its core 
religious perspectives on social issues or reject government funds for 
its activities that are otherwise consistent with the purposes of USAID 
programs. We recognize that, while the government regards services like 
feeding the hungry and housing the poor as social services or secular 
work, some organizations may regard these same activities as acts of 
mercy, spiritual service, fulfillment of religious duty, good works, or 
the like. Nevertheless, as a general matter, an activity such as 
providing food for the hungry or shelter for the homeless would 
constitute an appropriate use of funds, as long as any inherently 
religious activities offered by the provider are separate in time or 
location, privately funded, and voluntary.
    As to whether religious organizations will conform to the 
requirements of the regulations, as mentioned above, the Supreme Court 
has rejected the presumption that religious organizations will 
inevitably divert government funds and use them for their own religious 
purposes. USAID rejects the view that organizations with religious 
commitments cannot be trusted to fulfill their written promises to 
adhere to grant requirements.
    Similarly, we do not agree that the rule poses a danger of 
excessive government entanglement with religion. The rule expressly 
provides that religious organization grantees will retain their 
independence, including with respect to religious symbols, selection of 
board members, and internal governance. Religious organizations 
receiving USAID funding will be subject to the same program eligibility 
and ex-post funding restrictions that apply to non-religious 
organization grantees. USAID will apply the same cost-accounting 
principles to all organizations. Because inherently religious 
activities are non-USAID activities, USAID need not distinguish between 
program participants' religious and nonreligious non-USAID activities; 
the same mechanism by which USAID polices the line between eligible and 
ineligible activities will serve to exclude inherently religious 
activities from funding. 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.
    Some organizations may be unable or unwilling to separate their 
inherently religious activities in time or location, as required. Those 
organizations would not qualify for direct funding by the Agency, but 
might be eligible for indirect funding.
    Comment: One commenter advocated less stringent eligibility 
requirements for religious organizations' participation in

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USAID programs. This commenter argued that, because many religious 
organizations ``integrated'' social and health-related services with 
spiritual activities, the prohibition on direct funding of ``inherently 
religious activities'' should be removed, waived or at least narrowed. 
The commenter advanced numerous arguments for this view, including the 
overall magnitude and urgency of the global HIV/AIDS crisis; the 
reported effectiveness of combining humanitarian and spiritual 
services; the lack of formal church-state separation requirements in 
many host countries; the adequacy of ``coercion safeguards'' in place 
of a flat prohibition on inherently religious activities; and the 
impracticalities of separating humanitarian and spiritual activities 
and funds of religious organizations.
    USAID Response: The Agency agrees that religious organizations may 
contribute significantly to efforts to address global challenges such 
as HIV/AIDS. In addition, we recognize that some religious 
organizations have unique strengths and skills in providing 
comprehensive social and welfare services. For those and other reasons, 
this rule makes clear that religious organizations are eligible for 
Agency funding according the same criteria as non-religious 
organizations. The rule prohibits direct funding of ``inherently 
religious activities.'' At the same time, the rule makes clear that a 
religious organization receiving USAID funds retains its independence, 
including the definition, practice, and expression of its religious 
beliefs. The Agency believes that the rule sets up appropriate 
parameters for the affected programs in light of current precedent's 
interpretation of the constitutional provisions that govern 
expenditures of U.S. funds, particularly in light of the judicial 
precedents applicable in the domestic context.

USAID-Funded Structures

    Comment: One commenter believed that nothing in the rule would 
prevent a faith-based organization from converting a USAID-funded 
portion of a structure for a prohibited religious use at some future 
date. Other commenters suggested that the rule require that the USAID-
funded portions of a structure be used for secular purposes for the 
life of the building. It was also suggested that USAID establish 
procedures for recapturing the Federal assistance if the USAID-funded 
portion of the structure is ever used for a religious purpose. Finally, 
one commenter objected to phrasing in the proposed rule that would 
allow USAID and religious organizations to split the cost of acquiring, 
constructing, or rehabilitating a facility, asserting that the line 
between religious and nonreligious activities is not clear and that 
this would result in unseemly negotiations about what constituted 
religious activity and intrusive USAID monitoring of religious 
organizations' activities within dual use facilities.
    USAID Response: In a neutral program in which the government 
directly funds the capital improvements of institutions that administer 
Federal social welfare programs, even in the domestic context the 
government need only put in place safeguards to ensure that public 
money is not used to finance inherently religious activities. The rule 
satisfies this standard by prohibiting the use of USAID funds for the 
acquisition, construction, or rehabilitation of structures to the 
extent that those structures are used for inherently religious 
activities. There is no need for any requirement prohibiting use of 
non-USAID-funded portions of buildings for inherently religious 
activities.
    With respect to concerns about the funding of capital improvements 
for religious structures that are later converted to non-USAID uses, 
the rule states that the disposition of USAID-improved property after 
the term of grants to religious organizations, and changes in the use 
of property improved for use by religious organizations, are subject to 
government-wide regulations governing real property disposition. The 
Agency has promulgated regulations (see 22 CFR Part 226) that address 
the terms under which such grantees must use the property for eligible 
activities, and the terms under which Federally funded improvements 
must be ``bought back'' if such grantees decide to discontinue their 
involvement in the program.
    We do not agree with comments that preventing the use of direct 
USAID capital-improvement funds for inherently religious activities 
would necessarily fail or, in the process, excessively entangle the 
government in the affairs of recipients or sub-recipients that are 
religious organizations. In addition, some monitoring is necessary to 
ensure that direct USAID funding is not used to support inherently 
religious activities. However, we do agree that the phrasing of the 
proposed rule would benefit from further clarification. Therefore, the 
final rule clarifies this requirement by stating that USAID funds may 
not be used for acquisition, construction, or rehabilitation of 
sanctuaries, chapels, or any other rooms that a religious congregation 
that is a recipient or subrecipient of USAID assistance uses as its 
principal place of worship.

Time or Location Restrictions

    Comment: A commenter suggested that the rule's ``time or location'' 
provision be tightened to require that religious organizations separate 
religious and any secular, government funded activities by both time 
and location. In a similar vein, other comments suggested that the time 
or location requirement be made specific to provide better guidance for 
compliance.
    USAID Response: We decline to adopt either suggestion. As an 
initial matter, USAID does not believe that the requirement is 
ambiguous or necessitates additional regulation for proper adherence. 
Moreover, USAID believes that separation in both time and location is 
legally unnecessary and would impose an unnecessarily harsh burden on 
small religious organizations, which may have access to only one 
location that is suitable for the provision of the USAID-funded 
service(s). The rule is clear that, when an organization receives 
direct government assistance, any inherently religious activities that 
the organization offers must simply be offered separately--in time or 
place--from the activities supported by direct USAID funds. For 
example, an organization may receive direct USAID funding to distribute 
food in a needy community. This same organization may also host a 
privately-funded prayer meeting that it invites participants to attend. 
This privately-funded prayer meeting would need to be held either in a 
separate location or at a separate time from the food distribution. And 
it should be made clear that beneficiaries of the food distribution 
program should understand that whether they join the prayer meeting is 
up to them, and that their decision will have no bearing on whether 
they receive services.

Display of Religious Art, Icons and Images

    Comment: One commenter stated that the rule fails to consider that 
the display of religious art, icons and images alone may create a 
``pervasively sectarian atmosphere'' which could deter intended program 
beneficiaries of a different religion. Similarly, another commenter was 
concerned with possible tension, stigmatization, or abuse if religious 
organization grantees were permitted to use their own or dual-use 
facilities to provide social services.
    USAID Response: USAID disagrees with these comments. As discussed 
above, even in the domestic context the Supreme Court has abandoned the

[[Page 61720]]

``pervasively sectarian'' doctrine. Additionally, with respect to the 
display of religious art, icons and images, 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 USAID 
regulations prescribe the types of artwork, statues, or icons that may 
be placed within or without the structures or rooms in which USAID-
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 other organizations by forcing them 
to procure additional space. It would thus be an inappropriate and 
excessive restriction, typical of the types of regulatory barriers that 
this final rule seeks to eliminate. Consistent with constitutional 
guidelines, a faith-based organization that participates in USAID 
programs will retain its independence and may continue to carry out its 
mission, provided that it does not use direct USAID funds to support 
any inherently religious activities. Accordingly, this final rule 
continues to provide that faith-based organizations may use space in 
their facilities to provide USAID-funded services, without removing 
religious art, icons, scriptures, or other religious symbols.
    As to the concern about religious stigma, the rule contains a 
number of safeguards for the rights of beneficiaries. It prohibits use 
of direct government funding for inherently religious activities and 
provides that any participation by beneficiaries of such programs in 
privately funded religious activities must be voluntary. In addition, 
the rule makes clear that a provider receiving direct USAID funds 
cannot discriminate against beneficiaries on the basis of religion or 
religious belief. In light of these straightforward provisions, we do 
not believe that any additional regulatory changes are required.

Nondiscrimination in Providing Assistance

    Comment: One comment concerned the rule's requirement that program 
beneficiaries not be denied services based on religion or religious 
belief. The commenter noted that this restriction could still permit 
passive compulsion, such as being required to hear proselytizing 
messages, or observe religious instruction or worship. The commenter 
recommended that Section 205.1(e) provide specifically that services 
may not be denied to a beneficiary based on a ``refusal to participate 
in religious practice[s],'' and another commenter requested 
clarification that a provider could not discriminate on the basis of a 
lack of religious belief. Additionally, a commenter proposed that the 
rule require participating religious organizations to provide notice to 
program beneficiaries that their receipt of social services is not 
conditioned upon participation in the provider's inherently religious 
activities.
    USAID Response: We believe that the provision prohibiting faith-
based organizations from requiring program beneficiaries to participate 
in religious activities suffices as written. In addition, the 
prohibition on discrimination against beneficiaries ``on the basis of 
religion or religious belief'' is explicit enough to include 
beneficiaries who hold no religious belief. These provisions are 
straightforward and require no further elaboration.
    We also decline to require that religious organizations provide a 
notice to a beneficiary or potential beneficiary that participation in 
religious activities would be entirely on a voluntary basis. Grantees 
are encouraged to take steps to ensure that clients and prospective 
clients have a clear understanding of the services offered by their 
organization and the strictly voluntary nature of any inherently 
religious activities, and thus 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: The rule does not prevent government funds flowing to 
``anti-Semitic, racist or bigoted organizations.''
    USAID Response: USAID disagrees. While it is not the topic of this 
rule, Federal law prohibits persons from being excluded from 
participation in USAID services or subjected to discrimination based on 
race, color, national origin, sex, age, or disability, and this final 
rule does not in any way alter those existing prohibitions.

Employment Discrimination

    Comment: Another comment argued that the rule's preservation of the 
religious organizations exemption contained in Title VII would permit 
government-funded employment discrimination based on religion.
    USAID Response: We do not agree with these objections to the rule's 
recognition that a religious organization does not forfeit its Title 
VII exemption when administering USAID-funded services. The rule is 
intended to eliminate administrative barriers to religious 
organizations that would otherwise be eligible for USAID program 
funding. Applicable Federal statutory nondiscrimination requirements 
are not altered by this rule.
    The Equal Employment Opportunity Act of 1972 expanded the exemption 
for religious organizations found in Title VII of the Civil Rights Act 
of 1964 to cover all positions offered by a faith-based employer (as 
opposed simply to positions directly related to their ministries). 
Congress establishes the conditions under which religious organizations 
are exempt from Title VII; this rule simply recognizes that these 
requirements, including their limitations, are fully applicable to 
Federally funded organizations unless Congress says otherwise. In 1987, 
the Supreme Court addressed and unanimously upheld the 
constitutionality of Title VII's protection for religious 
organizations. See Corp. of the Presiding Bishop of the Church of Jesus 
Christ of Latter Day Saints v. Amos, 483 U.S. 327 (1987).
    As to the suggestion that the Constitution restricts the government 
from providing funding for social services to religious organizations 
that consider faith in hiring, that view does not accurately represent 
the law. The employment decisions of organizations that receive 
extensive public funding are not attributable to the state, see 
Rendell-Baker v. Kohn, 457 U.S. 830 (1982), and it has been settled for 
more than 100 years that the Establishment Clause does not bar the 
provision of direct Federal grants to organizations that are controlled 
and operated exclusively by members of a single faith. See Bradfield v. 
Roberts, 175 U.S. 291 (1899); see also Bowen v. Kendrick, 487 U.S. 589, 
609 (1988).
    Also, we would note that section 702(a) of the Civil Rights Act of 
1964 is permissive. It allows religious staffing, but does not require 
it. And, religious organizations are subject to Federal civil rights 
laws that prohibit employment discrimination on the basis of race, 
color, and national origin.
    Finally, 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. We note that 
allowing religious organizations to consider faith in hiring when they 
receive Federal government funds is no different than allowing 
Federally funded environmental organizations to hire those who share 
its views on protecting the environment--both groups are allowed to 
consider ideology and mission, which improves their

[[Page 61721]]

effectiveness and preserves their independence and integrity.
    For the foregoing reasons, the Agency declines to amend the final 
rule to require religious organizations to forfeit their Section 702 
exemption from liability under Title VII.

Vouchers

    Comment: One commenter stated that the rule contemplated the 
``voucherization'' of USAID-funded social services. In the view of this 
commenter, voucher programs under the rule would go beyond what is 
permitted under the Supreme Court's decision in Zelman v. Simmons-
Harris, 536 U.S. 639 (2002), since many USAID-funded beneficiaries may 
not have access to comparable secular alternatives. As a result, said 
this commenter, beneficiaries might feel compelled to accept services 
from pervasively sectarian institutions and to submit to worship, 
religious education or proselytizing.
    USAID Response: The Agency respectfully declines to adopt any 
changes to the regulation. USAID currently does not operate any 
voucher-style programs, so any further regulations in this regard would 
be purely hypothetical. In addition, any voucher-style program that 
might be offered by the Agency would have to comply with Federal law.

Segregation of Program Funds

    Comment: One comment voiced concern that the rule did not ensure 
the creation of proper ``firewalls'' between government-funded services 
and core religious activities of a grantee recipient. The commenter 
suggested that the rule explicitly require that religious organization 
grantees establish a separate corporate structure to receive and 
segregate government funds and the social services supported thereby.
    USAID Response: The Agency disagrees with this suggestion. An 
organization is, of course, free to create a separate account for its 
USAID funds. However, it would be unfair to require religious 
organizations alone to comply with these additional burdens. Further, 
USAID finds no basis for requiring greater oversight and monitoring of 
faith-based organizations than of 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 USAID 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 secular organizations participating in USAID programs also 
receive funding from several sources (private or governmental) to carry 
out activities that are ineligible for funding under USAID programs. In 
many cases, the non-eligible activities are secular activities but not 
activities that are eligible for funding under USAID 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. Applicable policies, 
guidelines, and regulations prescribe the cost accounting procedures 
that are to be followed by all recipients in using USAID funds. This 
system of monitoring is more than sufficient to address the commenters' 
concerns.

Monitoring

    Comment: The commenters questioned how USAID would enforce the 
separation of government funds from religious-use funds and what 
measures would be taken to prevent and remedy violations.
    USAID Response: USAID has not revised the regulation in response to 
these comments because existing Agency mechanisms and procedures are 
sufficient to address these concerns. USAID has a responsibility to 
monitor all program participants to ensure that USAID funds are used in 
accordance with its program and any other applicable U.S. government 
requirements. The risks of inappropriate use of Agency funds or non-
compliance with Agency program requirements exist with all program 
participants, not only religious organizations. All USAID program 
participants must carefully manage their various sources of funds, 
ensure that USAID funds are used only for eligible program activities, 
and abide by OMB or other cost accounting methods that may be specified 
in individual program regulations. Failure of any organization to 
ensure that the USAID portion of their funds is not used for prohibited 
purposes will result in the imposition of sanctions or penalties on the 
organization, including termination of participation in USAID programs. 
Moreover, any inherently religious activities would not be funded 
directly by USAID, so the normal monitoring procedures would not 
require the Agency to distinguish between religious and nonreligious 
ineligible activities. Those procedures also involve the same processes 
for the scrutiny and oversight for all grantees.
    Finally, as mentioned above, consistent with Supreme Court 
precedent in the domestic context, the Agency believes that religious 
organizations are no less trustworthy than non-religious grantees in 
fulfilling their obligations under USAID grants and programs. In 
issuing this rule, USAID's general approach is that faith-based 
organizations are not a category of applicants or program participants 
that require additional requirements or oversight in order to ensure 
compliance with program regulations. Rather, the Agency believes that 
faith-based organizations, like other recipients of USAID funds, fully 
understand the restrictions on the funding they receive, including the 
restriction that inherently religious activities cannot be undertaken 
with direct Federal funding and must remain separate from Federally 
funded activities. For the foregoing reasons, the Agency does not see 
the need for additional requirements or guidance in this area.

Definition of Religious Organization

    Comment: The rule does not distinguish or define ``religious 
organizations'' and ``faith-based organizations.''
    USAID Response: In the preamble, we used the terms ``religious 
organization'' and ``faith-based organization'' interchangeably. The 
rule itself refers only to ``religious organizations.'' Neither the 
U.S. Constitution nor the relevant Supreme Court precedents contain 
comprehensive definitions of ``religion'' or ``religious organization'' 
that must be applied to this rule. Yet, an extensive body of judicial 
precedent provides practical guidance for understanding these terms. In 
addition, one of the objectives of this rule is to move away from 
unnecessary Federal inquiry into the religious nature, or absence of 
religious nature, of an applicant for USAID funds. With respect to any 
applicant for USAID funds, USAID's focus should always be that (1) the 
applicant is an ``eligible applicant'', as that term is defined for 
that program; (2) the applicant meets any other participation or 
eligibility criteria that the program may require; and (3) the 
applicant commits to undertake only eligible activities with USAID 
funds and to abide by all program requirements that govern those funds. 
Regardless of how an organization labels itself, it will be treated the 
same under the rule.

The Exemption for Prison Chaplains

    Comment: One commenter suggested a narrowing of the rule's 
exemption for direct funding of inherently religious activities 
conducted by chaplains and

[[Page 61722]]

religious organizations providing assistance to chaplains in prisons, 
detention facilities or community correction centers. This comment 
voiced concern that the exemption would allow an otherwise improper 
blending of religious doctrine with secular counseling.
    USAID Response: We continue to believe the rule's exemption is 
appropriate, given the unique nature and circumstances of a penal or 
correctional facility. This exception to the rule's prohibition on 
direct funding of inherently religious activities contemplates services 
provided by prison clergy and individuals and organizations who work 
with them. Correctional institutions are heavily regulated, and 
extensive government control over the prison environment means that 
prison officials must sometimes take affirmative steps, in the form of 
chaplaincies and similar programs, to provide an opportunity for 
prisoners to practice their religious beliefs. Without such efforts, 
religious freedom might not exist for prisoners. Of course, religious 
activities must be voluntary for inmates.

Miscellaneous

    Comment: One commenter expressed the view that the rule 
discriminates against foreign family planning non-governmental 
organizations (NGOs) that use other funding sources to perform, promote 
or advocate abortions, since those NGOs are ineligible for U.S. 
government assistance. The commenter stated that the rule created 
``special class'' status for faith-based organizations, relative to at 
least those NGOs because, while the rule only required religious 
organizations to separate proscribed religious activities from USAID 
funded programs and services, abortion advocacy NGOs were wholly 
ineligible to receive funds under the Mexico City Policy (66 FR 17303). 
The commenter recommended that the Mexico City Policy be rescinded.
    USAID Response: The rule seeks to level the playing field generally 
between religious organizations and non-religious organization entities 
in respect of Agency programming and grant eligibility. The rule is not 
intended to alter or rescind other rules or regulations that may 
disqualify certain organizations--religious or non-religious--for 
reasons other than their status as a religious organization. The Agency 
adheres to the Mexico City Policy regarding religious organizations and 
other entities that advocate or engage in abortion-related activities.

IV. Findings and Certifications

Paperwork Reduction Act of 1995

    No new information collection requirements are imposed by these 
regulations, nor are any existing requirements changed as a result of 
their promulgation. Therefore, the requirements of the Paperwork 
Reduction Act of 1995 (44 U.S.C. 3507(d)), regarding reporting and 
record keeping, are not applicable.

Executive Order 12866--Regulatory Planning and Review

    Executive Order 12866, Regulatory Planning and Review, requires 
that regulations be reviewed to ensure that they are consistent with 
the priorities and principles set forth in the Executive Order. The 
Agency has determined that this rule is consistent with these 
priorities and principles. The Office of Management and Budget (OMB) 
reviewed this rule under the Order and 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) and, accordingly, has reviewed the rule. This rulemaking 
implements statutory authority and reflects our response to comments 
received on the proposed rule that we published on June 7, 2004 in the 
Federal Register (69 FR 31773).

Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 605(b)) requires the 
Federal government to anticipate and reduce the impact of rules and 
paperwork requirements on small businesses and other small entities. In 
accordance with that Act, the USAID Administrator 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.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (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 on the private sector. This rule does not impose any 
Federal mandates on any State, local, or tribal governments, or the 
private sector, within the meaning of the Unfunded Mandates Reform Act 
of 1995.

Assessment of Federal Regulation and Policies on Families

    Section 654 of the Treasury and General Government Appropriations 
Act of 1999 requires Federal agencies to determine whether a proposed 
policy or regulation may affect family well-being. If the agency's 
determination is affirmative, then the agency must prepare an impact 
assessment addressing seven criteria specified in the law. The Agency 
has determined that these regulations will not have an impact on family 
well-being as defined in the legislation.

Executive Order 13132

    Executive Order 13132, Federalism, requires that Federal agencies 
consult with State and local government officials in the development of 
regulatory policies with federalism implications. The Agency has 
determined that this rule does not have federalism implications that 
require special consultations with State and local government 
officials.

Intergovernmental Review

    This final rule affects direct grant programs that are subject to 
Executive Order 12372 and the regulations in 34 CFR part 79. The 
objective of the Executive Order is to foster an intergovernmental 
partnership and to promote Federalism by relying on processes developed 
by State and local governments for coordination and review of proposed 
Federal financial assistance.
    The Agency has concluded that this rule will not create or affect 
any Federal financial assistance to States. However, to the extent this 
rule falls under the Order, we intend this document to provide early 
notification of the Agency's specific plans and actions for the 
affected programs.

Congressional Review

    This regulation is not a major rule as defined in 5 U.S.C. chapter 
8.

Catalog of Federal Domestic Assistance Numbers

    The Catalog of Federal Domestic Assistance program numbers for the 
programs affected by this rule are 98.001, 98.002, 98.003, 98.004, 
98.005, 98.006, 98.007, 98.008, 98.009.

Electronic Access to This Document

    You may view this document, as well as other Agency for 
International Development documents published in the Federal Register, 
in text or Adobe Portable Document Format (PDF) on the Internet.
    To use PDF you must have Adobe Acrobat Reader, [which is available 
free at this site]. If you have questions about using PDF, call the 
U.S. Government Printing Office (GPO), toll free, at 1-

[[Page 61723]]

888-293-6498; or in the Washington, DC area at (202) 512-1530.

    Note: The official version of this document is the document 
published in the Federal Register. Free internet access to the 
official edition of the Federal Register and the Code of Federal 
Regulations is available on GPO Access at: http://www.gpoaccess.gov/nara/index.html. (The Catalog of Federal domestic Assistance Number 
does not apply.)

List of Subjects

22 CFR Part 202

    Foreign aid, Grant programs, Nonprofit organizations.

22 CFR Part 205

    Foreign aid, Grant programs, Nonprofit organizations.

22 CFR Part 211

    Agricultural commodities, Disaster assistance, Food assistance 
programs, Foreign aid, Grant programs, Nonprofit organizations, 
Reporting and recordkeeping requirements.

22 CFR Part 226

    Accounting, Colleges and universities, Foreign aid, Grant programs, 
Hospitals, Nonprofit organizations, Reporting and recordkeeping 
requirements.

0
For the reasons stated above, Chapter II of title 22 of the Code of 
Federal Regulations is amended as follows:

PART 202--OVERSEAS SHIPMENT OF SUPPLIES BY VOLUNTARY NON-PROFIT 
RELIEF AGENCIES

0
1. The authority citation for part 202 is revised to read as follows:

    Authority: 22 U.S.C. 2381(a).


0
2. Add Sec.  202.10 to read as follows:


Sec.  202.10  Participation by faith-based organizations.

    The procedures established under this part shall be administered in 
compliance with the standards set forth in part 205, Participation by 
Religious Organizations in USAID Programs, of this chapter.

0
3. Revise part 205 to read as follows:

PART 205--PARTICIPATION BY RELIGIOUS ORGANIZATIONS IN USAID 
PROGRAMS

    Authority: 22 U.S.C. 2381(a).


Sec.  205.1  Grants and cooperative agreements.

    (a) Religious organizations are eligible, on the same basis as any 
other organization to participate in any USAID program for which they 
are otherwise eligible. In the selection of service providers, neither 
USAID nor entities that make and administer sub-awards of USAID funds 
shall discriminate for or against an organization on the basis of the 
organization's religious character or affiliation. As used in this 
section, the term ``program'' refers to Federally funded USAID grants 
and cooperative agreements, including sub-grants and sub-agreements. 
The term also includes grants awarded under contracts that have been 
awarded by USAID for the purpose of administering grant programs. As 
used in this section, the term ``grantee'' includes a recipient of a 
grant or a signatory to a cooperative agreement, as well as sub-
recipients of USAID assistance under grants, cooperative agreements and 
contracts.
    (b) Organizations that receive direct financial assistance from 
USAID under any USAID program may not engage in inherently religious 
activities, such as worship, religious instruction, or proselytization, 
as part of the programs or services directly funded with direct 
financial assistance from USAID. If an organization conducts such 
activities, the activities must be offered separately, in time or 
location, from the programs or services funded with direct financial 
assistance from USAID, and participation must be voluntary for 
beneficiaries of the programs or services funded with such assistance. 
These restrictions on inherently religious activities do not apply to 
programs where USAID funds are provided to chaplains to work with 
inmates in prisons, detention facilities, or community correction 
centers, or where USAID funds are provided to religious or other 
organizations for programs in prisons, detention facilities, or 
community correction centers, in which such organizations assist 
chaplains in carrying out their duties.
    (c) A religious organization that participates in USAID-funded 
programs or services will retain its independence and may continue to 
carry out its mission, including the definition, practice, and 
expression of its religious beliefs, provided that it does not use 
direct financial assistance from USAID to support any inherently 
religious activities, such as worship, religious instruction, or 
proselytization. Among other things, a religious organization that 
receives financial assistance from USAID may use space in its 
facilities, without removing religious art, icons, scriptures, or other 
religious symbols. In addition, a religious organization that receives 
financial assistance from USAID 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) USAID 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. USAID 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, USAID 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 USAID 
funds in this part. Sanctuaries, chapels, or other rooms that a USAID-
funded religious congregation uses as its principal place of worship, 
however, are ineligible for USAID-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 government-wide 
regulations governing real property disposition. (See 22 CFR part 226).
    (e) An organization that participates in programs funded by 
financial assistance from USAID shall not, in providing services, 
discriminate against a program beneficiary or potential program 
beneficiary on the basis of religion or religious belief.
    (f) No grant document, contract, agreement, covenant, memorandum of 
understanding, policy, or regulation that is used by USAID shall 
require only religious organizations to provide assurances that they 
will not use monies or property for inherently religious activities. 
Any such restrictions shall apply equally to religious and secular 
organizations. All organizations that participate in USAID programs, 
including religious ones, must carry out eligible activities in 
accordance with all program requirements and other applicable 
requirements governing the conduct of USAID-funded activities, 
including those prohibiting the use of direct financial assistance from 
USAID to engage in inherently religious activities. No grant document, 
agreement, covenant, memorandum of understanding, policy, or regulation 
that is used by USAID shall disqualify religious organizations from 
participating in USAID's programs because such organizations are 
motivated or influenced by religious faith to provide social services, 
or

[[Page 61724]]

because of their religious character or affiliation.
    (g) A religious organization's exemption from the Federal 
prohibition on employment discrimination on the basis of religion, set 
forth in Sec. 702(a) of the Civil Rights Act of 1964, 42 U.S.C. 2000e-
1, is not forfeited when the organization receives financial assistance 
from USAID.
    (h) Many USAID grant programs require an organization to be a 
``nonprofit organization'' in order to be eligible for funding. 
Individual solicitations that require organizations to have nonprofit 
status will specifically so indicate in the eligibility section of a 
solicitation. Grantees should consult with the appropriate USAID 
program office to determine the scope of any applicable requirements. 
In USAID programs in which an applicant must show that it is a 
nonprofit organization, other than programs which are limited to 
registered Private and Voluntary Organizations, the applicant may do so 
by any of the following means:
    (1) Proof that the Internal Revenue Service currently recognizes 
the applicant as an organization to which contributions are tax 
deductible under section 501(c)(3) of the Internal Revenue Code;
    (2) A statement from a state taxing body or the state secretary of 
state certifying that:
    (i) The organization is a nonprofit organization operating within 
the State; and
    (ii) No part of its net earnings may lawfully benefit any private 
shareholder or individual;
    (3) A certified copy of the applicant's certificate of 
incorporation or similar document that clearly establishes the 
nonprofit status of the applicant; or
    (4) Any item described in paragraphs (b)(1) through (3) of this 
section if that item applies to a state or national parent 
organization, together with a statement by the State or parent 
organization that the applicant is a local nonprofit affiliate.
    (i) The Secretary of State may waive the requirements of this 
section in whole or in part, on a case-by-case basis, where the 
Secretary determines that such waiver is necessary to further the 
national security or foreign policy interests of the United States.

PART 211--TRANSFER OF FOOD COMMODITIES FOR FOOD USE IN DISASTER 
RELIEF, ECONOMIC DEVELOPMENT, AND OTHER ASSISTANCE

0
1. The authority citation for part 211 is revised to read as follows:

    Authority: 7 U.S.C. 1726a(c).

0
2. Add Sec.  211.13 to read as follows:


Sec.  211.13  Participation by religious organizations.

    The funds provided under this part shall be administered in 
compliance with the standards set forth in part 205, Participation by 
Religious Organizations in USAID Programs, of this chapter.

PART 226--ADMINISTRATION OF ASSISTANCE AWARDS TO U.S. NON-
GOVERNMENTAL ORGANIZATIONS

0
1. The authority citation for part 226 is revised to read as follows:

    Authority: 22 U.S.C. 2381(a).

0
2. Amend Sec.  226.1 to add the following text at the end of the 
section:


Sec.  226.1  Purpose and applicability.

    * * * This part shall be administered in compliance with the 
standards set forth in part 205, Participation by Religious 
Organizations in USAID Programs, of this chapter.

    Dated: October 14, 2004.
Frederick W. Schieck,
Deputy USAID Administrator.
[FR Doc. 04-23566 Filed 10-18-04; 12:25 pm]
BILLING CODE 6116-01-P