```

[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]

            H.R. 7, THE ``COMMUNITY SOLUTIONS ACT OF 2001''

=======================================================================

                                HEARING

                               before the

                    SUBCOMMITTEE ON HUMAN RESOURCES

                                  AND

                SUBCOMMITTEE ON SELECT REVENUE MEASURES

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 14, 2001

                               __________

                           Serial No. 107-34

                               __________

         Printed for the use of the Committee on Ways and Means

                   U.S. GOVERNMENT PRINTING OFFICE
74-524                     WASHINGTON : 2001

----------------------------------------------------------------------------
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                      COMMITTEE ON WAYS AND MEANS

                   BILL THOMAS, California, Chairman

PHILIP M. CRANE, Illinois            CHARLES B. RANGEL, New York
E. CLAY SHAW, Jr., Florida           FORTNEY PETE STARK, California
NANCY L. JOHNSON, Connecticut        ROBERT T. MATSUI, California
AMO HOUGHTON, New York               WILLIAM J. COYNE, Pennsylvania
WALLY HERGER, California             SANDER M. LEVIN, Michigan
JIM McCRERY, Louisiana               BENJAMIN L. CARDIN, Maryland
DAVE CAMP, Michigan                  JIM McDERMOTT, Washington
JIM RAMSTAD, Minnesota               GERALD D. KLECZKA, Wisconsin
JIM NUSSLE, Iowa                     JOHN LEWIS, Georgia
SAM JOHNSON, Texas                   RICHARD E. NEAL, Massachusetts
JENNIFER DUNN, Washington            MICHAEL R. McNULTY, New York
MAC COLLINS, Georgia                 WILLIAM J. JEFFERSON, Louisiana
ROB PORTMAN, Ohio                    JOHN S. TANNER, Tennessee
PHIL ENGLISH, Pennsylvania           XAVIER BECERRA, California
WES WATKINS, Oklahoma                KAREN L. THURMAN, Florida
J. D. HAYWORTH, Arizona              LLOYD DOGGETT, Texas
JERRY WELLER, Illinois               EARL POMEROY, North Dakota
KENNY C. HULSHOF, Missouri           
SCOTT McINNIS, Colorado              
RON LEWIS, Kentucky                  
MARK FOLEY, Florida                  
KEVIN BRADY, Texas                   
PAUL RYAN, Wisconsin                 
                                     
                     Allison Giles, Chief of Staff
                      Janice Mays, Minority Chief 
                                 Counsel
                                 -------

                    Subcommittee on Human Resources

                  WALLY HERGER, California, Chairman

NANCY L. JOHNSON, Connecticut       BENJAMIN L. CARDIN, Maryland
WES WATKINS, Oklahoma               FORTNEY PETE STARK, California
SCOTT McINNIS, Colorado             SANDER M. LEVIN, Michigan
JIM McCRERY, Louisiana              JIM McDERMOTT, Washington
DAVE CAMP, Michigan                 LLOYD DOGGETT, Texas
PHIL ENGLISH, Pennsylvania          
RON LEWIS, Kentucky                  
                                -------

                Subcommittee on Select Revenue Measures

                    JIM McCRERY, Louisiana, Chairman

J.D. HAYWORTH, Arizona               MICHAEL R. McNULTY, New York
JERRY WELLER, Illinois               RICHARD E. NEAL, Massachusetts
RON LEWIS, Kentucky                  WILLIAM J. JEFFERSON, Louisiana
MARK FOLEY, Florida                  JOHN S. TANNER, Tennessee
KEVIN BRADY, Texas                   
PAUL RYAN, Wisconsin                 

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.

                            C O N T E N T S

                               __________

                                                                   Page

Advisory of June 7, 2001, announcing the hearing.................     2

                               WITNESSES

American Federation of State, County and Municipal Employees, 
  Nanine Meiklejohn..............................................   128

Aviv, Diana, United Jewish Communities...........................   124

Baptist Joint Committee on Public Affairs, J. Brent Walker.......   161

Corporation for Enterprise Development, Ray Boshara..............   111

Cortes, Reverend Luis, Jr., Nueva Esperanza, Inc., and National 
  Hispanic Religious Partnership for Community Health............   148

Crane, Hon. Philip M., a Representative in Congress from the 
  State of Illinois..............................................    10

Diament, Nathan J., Union of Orthodox Jewish Congregations of 
  America........................................................   152

Dunn, Hon. Jennifer, a Representative in Congress from the State 
  of Washington..................................................    14

Edwards, Hon. Chet, a Representative in Congress from the State 
  of Texas.......................................................    17

Food Donation Connection, Bill Reighard..........................    98

Hall, Hon. Tony P., a Representative in Congress from the State 
  of Ohio........................................................    20

Hudson Institute, Amy L. Sherman.................................   141

Humphreys, Katherine, Indiana Family and Social Services 
  Administration.................................................   137

Independent Sector, Sara Melendez................................   106

Indiana Family and Social Services Administration, Katherine 
  Humphreys......................................................   137

Meiklejohn, Nanine, American Federation of State, County and 
  Municipal Employees............................................   128

Melendez, Sara, Independent Sector...............................   106

Nadler, Hon. Jerrold, a Representative in Congress from the State 
  of New York....................................................    29

National Hispanic Religious Partnership for Community Health, 
  Reverend Luis Cortes, Jr.......................................   148

Nueva Esperanza, Inc., Reverend Luis Cortes, Jr..................   148

Reighard, Bill, Food Donation Connection.........................    98

Scott, Hon. Robert C., a Representative in Congress from the 
  State of Virginia..............................................    33

Sherman, Amy L., Hudson Institute................................   141

Shreveport Hospital of Shriners Hospitals for Children, Troy 
  Bryant Yopp, Jr................................................    94

Shriners Hospitals for Children, Troy Bryant Yopp, Jr............    94

Smoot, Samantha, Texas Freedom Network Education Fund............   168

Stearns, Hon. Cliff, a Representative in Congress from the State 
  of Florida.....................................................    27

Texas Freedom Network Education Fund, Samantha Smoot.............   168

Union of Orthodox Jewish Congregations of America, Nathan J. 
  Diament........................................................   152

United Jewish Communities, Diana Aviv............................   124

Walker, J. Brent, Baptist Joint Committee on Public Affairs, and 
  Georgetown University Law Center...............................   161

Watts, Hon. J.C., Jr., a Representative in Congress from the 
  State of Oklahoma..............................................    62

Yopp, Troy Bryant, Jr., Shriners Hospitals for Children, and 
  Shreveport Hospital of Shriners Hospitals for Children.........    94

                       SUBMISSIONS FOR THE RECORD

U.S. Department of Justice, Carl H. Esbeck, statement............   180

                                 ______

American Arts Alliance; American Association of Museums; American 
  Library Association; American Symphony Orchestra League; 
  Americans for the Arts; Association of Art Museum Directors; 
  Association of Performing Arts Presenters; College Art 
  Association, New York, NY; Council of Literary Magazines and 
  Presses, New York, NY; Dance/USA; Literary Network, New York, 
  NY; Museum Trustee Association; National Assembly of State Arts 
  Agencies; OMB Watch; Opera America; Theatre Communications 
  Group, New York, NY, joint letter..............................   190
American Jewish Committee, Richard T. Foltin, statement and 
  attachments....................................................   191
America's Second Harvest, Chicago, IL, Douglas O'Brien, statement 
  and attachments................................................   195
Association of Art Museum Directors, statement...................   200
Congress of National Black Churches, Inc., statement.............    36
Episcopal Church, statement and attachments......................    35
Georgetown University, Leo J. O'Donovan, statement...............   201
Hewlett-Packard Company, Palo Alto, CA, Dan Kostenbauder, 
  statement......................................................   202
Joint Venture: Silicon Valley Network, San Jose, CA, statement 
  and attachment.................................................   205
JSY Foundation, Harry L. Gutman, statement.......................   208
March of Dimes, Marina L. Weiss, statement.......................   210

 
            H.R. 7, THE ``COMMUNITY SOLUTIONS ACT OF 2001''

                              ----------                              

                         TUESDAY, JUNE 14, 2001

                  House of Representatives,
                       Committee on Ways and Means,
                           Subcommittee on Human Resources,
                   Subcommittee on Select Revenue Measures,
                                                    Washington, DC.
    The Subcommittees met, pursuant to notice, at 10:05 a.m., 
in room 1100 Longworth House Office Building, Hon. Wally Herger 
(Chairman of the Subcommittee) presiding.
    [The advisory announcing the hearing follows:]

ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS

                    SUBCOMMITTEE ON HUMAN RESOURCES

                SUBCOMMITTEE ON SELECT REVENUE MEASURES

                                                CONTACT: (202) 225-1025
FOR IMMEDIATE RELEASE
June 7, 2001
No. HR-6

 Herger and McCrery Announce Joint Hearing on H.R. 7, the ``Community 
                        Solutions Act of 2001''

    Congressman Wally Herger (R-CA), Chairman of the Subcommittee on 
Human Resources, and Congressman Jim McCrery (R-LA), Chairman of the 
Subcommittee on Select Revenue Measures, Committee on Ways and Means, 
today announced that the Subcommittees will hold a joint hearing on 
H.R. 7, the ``Community Solutions Act of 2001.'' The hearing will take 
place on Thursday, June 14, 2001, in the main Committee room, 1100 
Longworth House Office Building, beginning at 10:00 a.m.
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from invited witnesses only. 
Witnesses will include Members of Congress, social service program 
administrators, representatives of faith-based organizations, 
academics, and other experts in charitable giving and government 
efforts to spur greater individual and community involvement in aiding 
the needy. However, any individual or organization not scheduled for an 
oral appearance may submit a written statement for consideration by the 
Committee and for inclusion in the printed record of the hearing.

BACKGROUND:

    On March 29, 2001, Representatives J.C. Watts (R-OK) and Tony Hall 
(D-OH), along with Speaker Dennis Hastert (R-IL), introduced H.R. 7, 
the ``Community Solutions Act of 2001.'' Key features of this 
legislation are designed to provide incentives for charitable 
contributions by individuals and businesses, to improve the 
effectiveness and efficiency of various social services to individuals 
and families in need, and to enhance the ability of low-income 
Americans to gain financial security by building assets.
    Within the jurisdiction of the Subcommittee on Select Revenue 
Measures, H.R. 7 includes several tax-related proposals, including 
measures to provide a charitable contribution deduction for non-
itemizers, to permit tax-free withdrawals form individual retirement 
accounts (IRAs) for charitable contributions, to liberalize the 
restrictions on the donation of food inventory, and to create 
individual development accounts.
    Within the jurisdiction of the Subcommittee on Human Resources, 
Title II of H.R. 7 provides for enhanced opportunities for faith-based 
organizations to provide various social services. H.R. 7 builds on 
provisions first enacted in the 1996 welfare reform law that prohibited 
States from discriminating against faith-based organizations seeking to 
provide services using Temporary Assistance for Needy Families funds. 
Since 1996 similar ``charitable choice'' provisions have been added to 
Welfare-to-Work, community service, and substance abuse programs.
    In announcing the hearing, Chairman Herger stated: ``I commend the 
President, along with Representatives Watts and Hall and Speaker 
Hastert, for tapping the power of the faith-based community to help 
needy Americans. That was our goal in the welfare reform charitable 
choice provision. I am eager to learn more about their proposals in 
H.R. 7 to add new choices and services to help the needy.''
    Chairman McCrery added: ``In every community, there are countless 
examples of how charities help fulfill unmet needs. Congress needs to 
examine new ways to encourage Americans to help charities help 
communities. I look forward to examining the proposals in H.R. 7 which 
encourage more charitable giving.''
      

FOCUS OF THE HEARING:
      
    The focus of the hearing is to review H.R. 7, the ``Community 
Solutions Act of 2001.''

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:
      
    Any person or organization wishing to submit a written statement 
for the printed record of the hearing should submit six (6) single-
spaced copies of their statement, along with an IBM compatible 3.5-inch 
diskette in WordPerfect or MS Word format, with their name, address, 
and hearing date noted on a label, by the close of business, Tuesday, 
June 19, 2001, to Allison Giles, Chief of Staff, Committee on Ways and 
Means, U.S. House of Representatives, 1102 Longworth House Office 
Building, Washington, D.C. 20515. If those filing written statements 
wish to have their statements distributed to the press and interested 
public at the hearing, they may deliver 200 additional copies for this 
purpose to the Subcommittee on Human Resources office, room B-317 
Rayburn House Office Building, by close of business the day before the 
hearing.

FORMATTING REQUIREMENTS:

    Each statement presented for printing to the Committee by a 
witness, any written statement or exhibit submitted for the printed 
record or any written comments in response to a request for written 
comments must conform to the guidelines listed below. Any statement or 
exhibit not in compliance with these guidelines will not be printed, 
but will be maintained in the Committee files for review and use by the 
Committee.
    1. All statements and any accompanying exhibits for printing must 
be submitted on an IBM compatible 3.5-inch diskette WordPerfect or MS 
Word format, typed in single space and may not exceed a total of 10 
pages including attachments. Witnesses are advised that the Committee 
will rely on electronic submissions for printing the official hearing 
record.
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
    3. A witness appearing at a public hearing, or submitting a 
statement for the record of a public hearing, or submitting written 
comments in response to a published request for comments by the 
Committee, must include on his statement or submission a list of all 
clients, persons, or organizations on whose behalf the witness appears.
    4. A supplemental sheet must accompany each statement listing the 
name, company, address, telephone and fax numbers where the witness or 
the designated representative may be reached. This supplemental sheet 
will not be included in the printed record.
    The above restrictions and limitations apply only to material being 
submitted for printing. Statements and exhibits or supplementary 
material submitted solely for distribution to the Members, the press, 
and the public during the course of a public hearing may be submitted 
in other forms.

    Note: All Committee advisories and news releases are available on 
the World Wide Web at ``http://waysandmeans.house.gov''.

    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.

                                

    Chairman Herger. The Committee will come to order.
    I welcome all of our witnesses and guests to today's joint 
hearing on H.R. 7, the Community Solutions Act of 2001.
    It is a pleasure to be here today with colleagues from the 
Subcommittee on Select Revenue Measures and to have so many of 
our colleagues from both sides of the aisle with us to testify.
    I am interested in all of the issues raised by H.R. 7, 
including those designed to increase charitable giving and 
encourage more savings by low-income families.
    Those are all important goals, which public policy can and 
should promote.
    As Chairman of the Human Resources Subcommittee, I also 
look forward to testimony addressing what is often called 
``charitable choice.'' Charitable choice refers to changes made 
under the welfare reform and subsequent laws designed to permit 
more involvement by churches, synagogues, mosques, and others 
in the faith-based community to help Americans in need.
    We will hear today about what services are being offered 
and what the effect would be of expanding those services as 
H.R. 7 proposes.
    I trust we also will hear a number of concerns about 
separation of church and State and whether there are adequate 
protections built into the legislation. I share these concerns 
because I value the tradition of religious freedom that our 
country has enjoyed.
    We all have an interest in getting this right. For example, 
we provided a number of protections in the original charitable 
choice language in the 1996 welfare reform law. We are also 
eager to learn whether those protections are working as 
intended, which is an important concern as we consider further 
steps.
    To help us answer such questions, we have an impressive 
list of witnesses, including the co-authors of H.R. 7, 
Representatives J.C. Watts and Tony Hall. Their support for 
this legislation proves this effort can be a bipartisan one.
    There is other evidence of that as well. Let me quote from 
one of our recent presidential candidates, who expressed 
support for expanding charitable choice as H.R. 7 would do: ``I 
believe we should extend this carefully tailored approach to 
other vital services where faith-based organizations can play a 
role, such as drug treatment, homelessness, and youth violence 
prevention.''
    That quote was by then-Vice President Al Gore in a speech 
he delivered to the Salvation Army in 1999. Apparently, he was 
convincing, because today the Salvation Army is announcing its 
support for H.R. 7.
    So, this is an idea that crosses not only religious but 
political bounds as well. That makes perfect sense, when you 
consider that the goal is providing the best services and the 
greatest choices to those in need. All of us should agree on 
that.
    Without objection, each member will have the opportunity to 
submit a written statement and have it included in the record.
    At this point, Mr. Cardin, would you like to make an 
opening statement?
    [The opening statement of Chairman Herger follows:]

    Opening Statement of the Hon. Wally Herger, a Representative in 
 Congress from the State of California, and Chairman, Subcommittee on 
                            Human Resources

    I welcome all of our witnesses and guests to this morning's hearing 
on H.R. 7, the ``Community Solutions Act of 2001.''
    I am interested in all the issues raised by H.R. 7, including those 
designed to increase charitable giving and encourage more savings by 
low-income families. Those are all important goals, which public policy 
can and should promote.
    As Chairman of the Human Resources Subcommittee, I also look 
forward to our testimony addressing what is often called ``charitable 
choice''. Charitable choice refers to changes made under welfare reform 
and subsequent laws designed to permit more involvement by churches, 
synagogues, mosques and others in the faith-based community to help 
Americans in need. We will hear today about what services are being 
offered, and what the effect would be of expanding those services, as 
H.R. 7 proposes.
    I trust we also will hear about a number of concerns about 
separation of church and state, and whether there are adequate 
protections built into this legislation. I share these concerns because 
I value the tradition of religious freedom our country has enjoyed. We 
all have an interest in getting this right. For example, we provided a 
number of protections in the original charitable choice language in the 
1996 welfare reform law. We are also eager to learn whether those 
protections are working as intended, which is an important concern as 
we consider further steps.
    To help us answer such questions, we have an impressive list of 
witnesses, including the co-authors of H.R. 7, Representatives J.C. 
Watts and Tony Hall. Their support for this legislation proves this 
effort can be a bipartisan one. There is other evidence of that, too. 
Let me quote from one of our recent Presidential candidates who 
expressed support for expanding charitable choice, as H.R. 7 would do:
    ``I believe we should extend this carefully tailored approach to 
other vital services where faith-based organizations can play a role, 
such as drug treatment, homelessness, and youth violence prevention.''
    That quote was by then-Vice President Al Gore, in a speech he 
delivered to the Salvation Army in 1999. Apparently he was convincing 
because today the Salvation Army is announcing its support for H.R. 7.
    So this is an idea that crosses not only religious but political 
bounds as well. That makes perfect sense when you consider the goal--
providing the best services and greatest choices to those in need. All 
of us should agree on that.

                                

    Mr. Cardin. Thank you, Mr. Chairman.
    I appreciate this opportunity. I want to welcome our 
colleagues that are on the first panel.
    I think we all agree that religiously affiliated charities 
can and do make an incredibly important contribution to this 
Nation's effort to feed the hungry, house the homeless, and 
protect the defenseless.
    Regrettably, during the recent discussion about President 
Bush's faith-based proposal, a simple fact tends to get 
overshadowed: There is already a tradition of support and 
cooperation between government and religious charities.
    United Jewish Communities, Catholic Charities, Lutheran 
Services, and many other religiously affiliated charities 
receive significant portions of their budget from Federal, 
State, and local governments.
    The armies of faith and compassion, to which the President 
so often refers, are already marching. And they are doing so 
not only with our thanks and blessings, but also with direct 
government assistance.
    However, these organizations have established specific 
safeguards to prevent clear violations against the 
Constitution, such as using Federal funds to promote the 
advancement of specific religion.
    To the extent that President Bush now wants to tear down 
some of these firewalls between church and State, he is 
confronted with a number of questions for which his 
administration has yet to provide adequate response.
    For example, to ensure that government is funding secular 
services and religious messages, does the administration really 
want to subject churches, synagogues, and mosques to regular 
government audits?
    I understand the President's desire to open the door to 
Federal assistance more widely to smaller faith-based 
organizations, and I stand ready to help in that endeavor. But 
rather than establish a bypass around the constitutional 
protections designed to ensure the freedom of religion, our 
efforts may be better directed toward helping smaller faith-
based groups navigate the Federal grant-making process.
    Providing technical assistance in the design of programs 
and helping them to establish separate not-for-profit entities 
to provide government-funded services would be a good start.
    Before I conclude, let me express my greatest 
disappointment with President Bush's proposal to enlist more 
faith-based groups to meet the needs of the poor.
    The President's plan, as well as H.R. 7, provides almost no 
new resources to help people escape poverty. The scheme to 
extend the reach of charitable choice merely by putting more 
spoons into the bowl too small for the mouths that already to 
depend on it for nourishment is not the right solution.
    To expand access to affordable housing, treatment for 
substance abuse, quality childcare, hunger relief efforts, and 
other causes to which H.R. 7 would apply charitable choice, we 
need to increase our Nation's investment, not shift funding 
streams. Otherwise, we will establish little more than a shell 
game.
    Mr. Chairman, I look forward to hearing from our witnesses 
today, and hopefully to establishing a bipartisan appreciation 
for what religious charities already do with the assistance of 
government and what more they can do if our wallets only meet 
our rhetoric.
    Mr. Chairman, I just want to point out one other thing. 
Unfortunately, there is no one here from the administration 
that will be on our panel today. I find that regrettable.
    It seems to me that if we are going to try to work in a 
bipartisan way and to work with the administration, the 
administration should come before this Committee during our 
hearing process so that we have opportunity to question them on 
the proposal. But, unfortunately, there is no here from the 
administration on the panel.
    I look forward to hearing from the people that are here 
today and working so that we can enhance the ability of faith-
based groups to help us solve our national problems.
    Chairman Herger. Thank you, Mr. Cardin.
    [The opening statement of Mr. Cardin follows:]

 Opening Statement of the Hon. Benjamin L. Cardin, a Representative in 
                  Congress from the State of Maryland

    Mr. Chairman, I think we all agree that religiously-affiliated 
charities can and do make incredibly important contributions to this 
Nation's effort to feed the hungry, house the homeless, and protect the 
defenseless.
    Regrettably, during the recent discussion about President Bush's 
faith-based proposal, a simple fact tends to get overshadowed--there is 
already a tradition of support and cooperation between government and 
religious charities. United Jewish Communities, Catholic Charities, 
Lutheran Services and many other religiously-affiliated charities 
receive significant portions of their budgets from Federal, State and 
local governments.
    The armies of faith and compassion to which the President so often 
refers are already marching--and they are doing so not only with our 
thanks and blessing, but also with direct government assistance.
    However, these organizations have established specific safeguards 
to prevent clear violations against the Constitution, such as using 
Federal funds to promote the advancement of a specific religion.
    To the extent President Bush now wants to tear down some of these 
firewalls between church and state, he is confronted with a number of 
questions for which his Administration has yet to provide an adequate 
response. For example, to ensure that government is funding secular 
services and not religious messages, does the Administration really 
want to subject churches, synagogues, and mosques to regular government 
audits?
    I understand the President's desire to open the door to Federal 
assistance more widely to smaller faith-based organizations, and I 
stand ready to help him in that endeavor.
    But rather than establish a by-pass around Constitutional 
protections designed to ensure the freedom of religion, our efforts may 
be better directed towards helping smaller faith-based groups navigate 
the Federal grant-making process. Providing technical assistance in the 
design of programs, and helping them establish separate not-for-profit 
entities to provide government-funded services would be a good start.
    Before I conclude, let me express my greatest disappointment with 
President Bush's proposal to enlist more faith-based groups to meet the 
needs of the poor. The President's plan, as well as HR 7, provides 
almost no new resources to help people escape poverty. The scheme to 
extend the reach of charitable choice merely puts more spoons into a 
bowl too small for the mouths that already depend on it for 
nourishment.
    To expand access to affordable housing, treatment for substance 
abuse, quality child care, hunger-relief efforts and other causes to 
which HR 7 would apply charitable choice, we need to increase our 
Nation's investments, not just shift funding streams. Otherwise, we 
will establish little more than a shell game.
    I look forward to hearing from our witnesses today, and hopefully 
to establishing a bipartisan appreciation for what religious charities 
already do with the assistance of government, and what more they could 
do if our wallets only meet our rhetoric.
    Unfortunately, there is no one from the Administration here with us 
today to directly respond to some of the concerns that have been 
expressed about the President's proposal, so I guess we will have to 
soldier on without them. Thank you.

                                

    Chairman McCrery, would you like to make an opening 
statement?
    Chairman McCrery. Yes, thank you, Chairman Herger.
    This has been a busy week for the Select Revenue Measures 
Subcommittee. This is our third hearing. We had two hearings 
earlier this week on energy issues.
    And I will say, Mr. Cardin, even though we don't have 
anybody from the administration, looking out at the panel 
before us, we have a wealth of talent right here before us.
    On Tuesday, we had a panel of our colleagues that gave 
testimony on energy issues, and it was very enlightening, very 
informative, and I expect you will find the same from this 
panel of our colleagues this morning.
    Since it has been such a busy week, and we have such a 
crowded agenda today, Chairman Herger, I am going to dispense 
with my opening statement and submit it for the record, without 
objection.
    Thank you.
    [The opening statement of Chairman McCrery follows:]

Opening Statement of the Hon. Jim McCrery, a Representative in Congress 
   from the State of Louisiana, and Chairman, Subcommittee on Select 
                            Revenue Measures

    Good morning. Today, we conclude a busy week for the Subcommittee 
on Select Revenue Measures by joining with Chairman Herger, Ranking 
Member Cardin, and our colleagues on the Human Resources Subcommittee 
to examine the role the tax code can play in encouraging more 
charitable giving.
    I want to welcome a fellow Louisianan to today's hearing. Troy Yopp 
is former Chairman of the Board of Governors of the Shriners Hospital 
for Children in Shreveport and will provide us with a valuable 
perspective on this debate. The Shriners' long tradition of providing 
free medical care to children began in 1922, when they opened their 
first hospital in Shreveport.
    Charitable groups like the Shriners strengthen our communities--
they educate our children; they feed the hungry and shelter the 
homeless; they heal the sick and assist those struggling with the 
demons of addiction. They nourish our souls, individually through 
churches and temples and collectively through their contributions to 
small towns and big cities across America.
    Meeting these varied needs is a monumental challenge; fortunately 
Americans respond by generously donating their time and money to help 
those in need. According to Independent Sector, nearly 70 percent of 
all American households make charitable contributions each year to 
support local charities.
    One of the key provisions in both the President's budget and in the 
Watts-Hall bill would allow a deduction for non-itemizers. As my 
colleagues know, the tax code included a similar allowance in the early 
1980s. I am hoping the testimony today will enlighten us as to how such 
a deduction can work as well as help us guard against any pitfalls it 
may present.
    Another proposal to be featured today would make it easier for 
individuals to donate IRA assets to charity. Instead of receiving money 
from an IRA account as income, the Watts-Hall bill would exclude from 
income IRA distributions made directly to a charity by those over the 
age of 59\1/2\.
    While they have received less attention, several other important 
proposals will come before us today, including raising the limit on the 
amount of charitable contributions which can be made by a business and 
a proposal to encourage businesses to donate excess food inventory.
    We will also hear from our colleague, Congressman Cliff Stearns, 
about a tax levied on private foundations, and have an opportunity to 
consider whether it is reducing the foundations' ability to serve their 
communities by unnecessarily sending dollars to Washington. Finally, on 
the tax side, we will hear about a provision in the Watts-Hall bill 
which would help low-income individuals save and invest through 
matching contributions.
    In addition, this joint hearing will address the non-tax issues 
within the jurisdiction of the Human Resources Subcommittee, 
specifically the Charitable Choice provisions of H.R. 7. As a member of 
that Subcommittee, I am eager to learn more about how charitable choice 
could increase federal funding to religious organizations which provide 
critical social services.
    At the same time, I look forward to learning more about the 
questions which might arise when government assistance is provided to 
religious organizations. I am particularly interested in learning 
whether the legislation does or should alter the general exemption 
religious organizations have from rules prohibiting employment 
discrimination.
    The issues are indeed complex, but we have a distinguished group of 
witnesses, and I look forward to being enlightened by them.
    With that, I yield to my friend, the Ranking Minority Member, Mr. 
McNulty, for whatever opening comments he would like to make.

                                

    Chairman Herger. Without objection, so noted.
    Thank you, Mr. McCrery. Mr. McNulty, would you like to make 
an opening statement?
    Mr. McNulty. Yes, I would, Mr. Chairman.
    While it is said that true charity comes from the heart, 
tax laws can play an important role in providing incentives for 
individual and corporate charitable giving.
    I look forward to our discussion of proposals under the 
Subcommittees' jurisdiction to provide tax deductions for 
nonitemizers making charitable donations, expanded tax 
deductions for food donations, tax-free donations by retirees 
of individual retirement account (IRA) funds, and other 
suggestions to encourage charitable giving.
    There is no question that the nonprofit community provides 
critical assistance to the needy in our country. With annual 
revenues of over $600 billion, charities are uniquely effective 
in providing food, clothing, shelter, and health care, as well 
as educational and job training services, to the American 
public.
    Of course, the vast pool of American volunteers are the 
bedrock of our charitable effort. In 1998, for example, more 
than half of all adults provided some type of volunteer 
assistance. Further, more than 70 percent of households donated 
cash or goods to charities.
    Importantly, the Tax Code supports this Nation's commitment 
to our charitable community. In fiscal year 2001, for example, 
estimates show that charitable contribution deductions claimed 
by individuals and corporations will result in a Federal tax 
expenditure of more than $33 billion: about $24 billion for 
contributions made to social service organizations, $5 billion 
to educational institutions, and $4 billion to health 
organizations.
    As we discuss the tax provisions of H.R. 7, the Community 
Solutions Act of 2001, there is much bipartisan agreement on a 
number of the provisions of the bill. There are also some 
questions that we need to explore regarding the separation of 
church and State and the protection of civil rights for all 
employees.
    Also, as we proceed, I want to join my colleagues in 
emphasizing that the Committee needs to make sure that any 
additional tax benefits be paid for through appropriate revenue 
offsets. We need to make sure that the Medicare and the Social 
Security trust funds are not invaded to finance additional tax 
cuts.
    We need to address all aspects of the bill, including the 
views of groups interested in expanding the definition of 
charitable choice and becoming social service providers 
themselves.
    We are fortunate to have a witness today from the American 
Federation of State, County and Municipal Employees, whose 
members are already deeply involved with the delivery of social 
services and can evaluate what the Committee might do to 
enhance our social safety net.
    In conclusion, I want to join Ben Cardin in thanking 
Subcommittee Chairman McCrery and Subcommittee Chairman Herger 
for scheduling today's hearing. And I look forward to the 
testimony, especially from my distinguished colleagues.
    Thank you, Mr. Chairman.
    [The opening statement of Mr. McNulty follows:]

 Opening Statement of the Hon. Michael R. McNulty, a Representative in 
                  Congress from the State of New York

    While it is said that ``true charity comes from the heart,'' the 
tax laws can play an important role in providing incentives for 
individual and corporate charitable giving. I look forward to our 
discussion of proposals in H.R. 7 under the subcommittee's 
jurisdiction. They are: tax deductions for non-itemizers making 
charitable donations; expanded tax deductions for food donations; tax-
free donations by retirees of IRA funds; and, other suggestions to 
encourage charitable giving.
    There is no question that the non-profit community provides 
critical assistance to the needy in our country. With annual revenues 
of over $600 billion, charities are uniquely effective in providing 
food, clothing, shelter, and health care, as well as educational, and 
job training services to the American public.
    Of course, the vast pool of American volunteers are the bedrock of 
our charitable effort. In 1998, for example, more than half of all 
adults provided some type of volunteer assistance. Further, more than 
seventy percent of households donated cash or goods to charities.
    Importantly, the tax Code supports this Nation's commitment to our 
charitable community. In fiscal year 2001, for example, estimates show 
that charitable contribution deductions claimed by individuals and 
corporations will result in a Federal tax expenditure of more than $33 
billion. (About $24 billion for contributions to social service 
organizations, $5 billion to educational institutions, and $4 billion 
to health organizations.)
    As we discuss the tax provisions of H.R. 7, The Community Solutions 
Act of 2001, there is much bipartisan agreement on a number of the 
provisions of the bill. There are also some questions we need to 
explore regarding the separation of church and state and the protection 
of civil rights for all employees.
    Also, as we proceed, I join my colleagues in emphasizing that the 
Committee needs to make sure that any additional tax benefits be paid-
for through appropriate revenue offsets. We need to make sure that the 
Medicare and Social Security Trust Funds are not invaded to finance 
additional tax cuts.
    We need to address all aspects of the bill, including the views of 
groups interested in expanding the definition of charitable choice and 
becoming social service providers themselves. We are fortunate to have 
a witness today from the American Federation of State, County and 
Municipal Employees (AFSCME), whose members are already deeply involved 
with the delivery of social services and can evaluate what the 
Committee might do to enhance our social safety net.
    In conclusion, I join Ben Cardin in thanking Subcommittee Chairman 
McCrery and Subcommittee Chairman Herger for scheduling today's 
hearing.
    Thank you.

                                

    Chairman Herger. Thank you, Mr. McNulty.
    Before we move on to our testimony this morning, I would 
like to remind our witnesses to limit their oral statements to 
5 minutes. However, without objection, all the written 
testimony will be made a part of the permanent record.
    On the first panel today, we are honored to have a number 
of our House colleagues. I would like to welcome the Honorable 
Philip Crane of Illinois, Jennifer Dunn of Washington, Tony 
Hall of Ohio, Cliff Stearns of Florida, Mr. Jerrold Nadler of 
New York, Mr. Robert C. Scott of Virginia, and J.C. Watts of 
Oklahoma.
    And with that, if we could move to you, Mr. Crane, for 
testimony, please.

  STATEMENT OF THE HON. PHILIP M. CRANE, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF ILLINOIS

    Mr. Crane. Thank you, Mr. Chairman, for inviting me here 
this morning to testify on charitable giving, a subject near 
and dear to my heart.
    Charitable organizations perform an enormously important 
service to people of all races and ages. I have introduced 
three separate bills, each of which encourages charitable 
giving. I would like to say a few words about such giving in 
general, and then I will discuss each bill separately. Mr. 
Chairman, from spiritual counseling to rape crisis centers, 
charitable organizations are vital to the health and well-being 
of American citizens. Charity benefits both the giver and 
receiver in like proportions. The act of giving elevates the 
heart of the giver. The act of receiving elevates the condition 
of the recipient. Charity is thus a blessed act that should 
suffer no discouragement from something so mean as the Tax 
Code, which contains absurd yet very real disincentives to 
individuals willing and able to exercise the gift of charity.
    Such disincentives have terrible consequences in reducing 
the resources available to private organizations. And while it 
is hard to imagine an individual who gives for the purpose of 
getting a tax deduction, nevertheless, taxes can affect the 
amount an individual is willing to give.
    We now have an excellent opportunity to advance sound tax 
policy and sound social policy by returning to our Nation's 
historical emphasis on private activities and personal 
involvement in the well-being of our communities. My three 
bills will significantly increase the resources available to 
our charitable organizations.
    The first bill, Mr. Chairman, the Charitable Giving Tax 
Relief Act, will allow nonitemizers to deduct 100 percent of 
any charitable contributions up to the amount of the standard 
deduction. Under current law, while nonitemizers receive the 
standard deduction, only itemizers can take a deduction for 
their charitable contributions.
    Let me remind members on the panel here, as well as our 
colleagues on the Committee, this goes back to 1981. We 
provided this in the 1981 tax act. It had an expiration date, 
though, in 1986.
    In 1985, I introduced a bill to make it permanent. That did 
not fly. In 1986, I started introducing, and have every 
Congress since, legislation to restore that deduction for the 
nonitemizers.
    Nonitemizers are predominantly low and middle-income 
taxpayers, who, as a group, give generously to charitable 
causes. In other words, charitable organizations supported 
predominantly by lower income individuals are even more 
strapped for financial support than they need be. If a young 
couple struggling to make ends meet nevertheless wants to give 
$20 to their church, they certainly should not be discouraged 
from doing so.
    I introduced this bill on February 28, and it has been 
incorporated into H.R. 7.
    My second bill, Mr. Chairman, the Charitable Contributions 
Growth Act, H.R. 776, excludes from the itemized deductions 
haircut all qualified charitable contributions. Qualified 
medical expenses, certain investment interest expense, and 
deductions for casualty losses already receive this treatment. 
Certainly, charitable contributions should be treated no worse.
    Under current law, itemizing taxpayers with incomes above a 
certain threshold, $128,950 this year for a married couple 
filing jointly, suffer a phase-down in the total amount of 
charitable contributions they can take. The phase-down is at 
the rate of 3 percent of their itemized deductions for every 
$1,000 over the threshold, up to a total in lost deductions of 
80 percent. Thus, a taxpayer making a $10,000 contribution and 
subject to this phase-down could lose up to $8,000 in 
charitable deductions. This is part of the itemized deduction 
haircut administered as part of the 1986 tax reform act.
    As I said in my opening remarks, it is hard to imagine the 
individual who gives for the purpose of getting a tax 
deduction. Most individuals give to charity because to do so is 
a blessing. Nevertheless, taxes can affect the amount an 
individual is willing to give. When the effective price of 
charitable giving rises, which is the precise consequence of 
the phase-down in itemized deductions, there is a disincentive 
to give.
    My third bill, Mr. Chairman, the IRA Charitable Rollover 
Incentive Act of 2001, would allow individuals age 59 and a-
half or older to contribute amounts currently held in 
individual retirement accounts directly to qualified charities 
without having to first recognize the income for tax purposes 
and then take a charitable tax deductions. I introduced the 
bill, H.R. 774, on February 28, and it has been incorporated 
into H.R. 7 as well.
    The IRA was intended to encourage individuals to save for 
retirement. But due to the strong economy in recent years, and 
the general increase in asset values, many individuals have 
more than sufficient funds to retire comfortably. Thus, it is a 
common practice for retirees to transfer some of their wealth 
to charities and, in some cases, that wealth is held in an IRA.
    Unfortunately, in many cases under current law, such a 
simple arrangement results in a loss of some portion of the 
charitable deduction, and this legislation will give 
individuals more freedom to allocate their resources as they 
see fit while providing badly needed resources to churches, 
colleges, universities, and other social organizations.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Crane follows:]

  Statement of the Hon. Philip M. Crane, a Representative in Congress 
                       from the State of Illinois

    Mr. Chairman, thank you for inviting me here this morning to offer 
testimony on charitable giving, a subject near and dear to my heart. 
Charitable organizations perform an enormously important service to 
people of all races and ages. I have introduced three separate bills, 
each of which encourages charitable giving. I would like to say a few 
words about such giving in general, and then I will discuss each bill 
separately.
    Mr. Chairman, from spiritual counseling to rape crisis centers, 
charitable organizations are vital to the health and well-being of 
American citizens. Charity benefits both the giver and receiver in like 
proportions. The act of giving elevates the heart of the giver. The act 
of receiving elevates the condition of the recipient. Charity is thus a 
blessed act that should suffer no discouragement from something so mean 
as the tax code, which contains absurd, yet very real, disincentives to 
individuals willing and able to exercise the gift of charity. Such 
disincentives have terrible consequences in reducing the resources 
available to private organizations. And while it is hard to imagine an 
individual who gives for the purpose of getting a tax deduction, 
nevertheless taxes can affect the amount an individual is willing to 
give.
    We now have an excellent opportunity to advance sound tax policy 
and sound social policy by returning to our Nation's historical 
emphasis on private activities and personal involvement in the well-
being of our communities. My three bills, the Charitable Giving Tax 
Relief Act, the Charitable Contributions Growth Act, and the IRA 
Charitable Rollover Incentive Act, will significantly increase the 
resources available to our charitable organizations.
    The first bill, Mr. Chairman, the Charitable Giving Tax Relief Act, 
will allow non-itemizers to deduct 100 percent of any charitable 
contributions up to the amount of the standard deduction. Under current 
law, while non-itemizers receive the standard deduction, only itemizers 
can take a deduction for their charitable contributions. I introduced 
this bill, H.R. 777, on February 28th, and it has been 
incorporated into H.R. 7.
    Non-itemizers are predominantly low--and middle-income taxpayers 
who as a group give generously to charitable causes. However, lacking a 
specific deduction for their charitable contributions, there can be no 
question that they face a disincentive to making charitable 
contributions relative to itemizers, who tend to be upper-middle income 
and upper-income taxpayers. This certainly appears unfair. But, more 
importantly, it means charitable organizations supported predominantly 
by lower-income individuals are even more strapped for financial 
support than they need be. For example, churches serving lower-income 
communities have fewer resources to address the needs of their 
congregations as a result of this disincentive. If a young couple, 
struggling to make ends meet, nevertheless wants to give $20 to their 
church, they certainly should not be discouraged from doing so!
    I introduced similar legislation in the 106th Congress, 
and 149 Members signed on as co-sponsors. I have made two important 
changes to last year's bill, however. First, taxpayers will now be able 
to deduct the full amount of their contribution, rather than only half. 
Second, to prevent certain individuals from gaming the system I limit 
the amount a non-itemizer can take to the amount of the standard 
deduction.
    My second bill, Mr. Chairman, the Charitable Contributions Growth 
Act, excludes from the itemized deduction ``haircut'' all qualified 
charitable contributions. Qualified medical expenses, certain 
investment interest expense, and deductions for casualty losses already 
receive this treatment. Certainly charitable contributions should be 
treated no worse.
    Many taxpayers today contribute to charitable organizations out of 
the goodness of their hearts and in the expectation that they will not 
be subject to federal income tax on their gifts. However, in some cases 
taxpayers suffer a reduction in the amount of their charitable 
deductions. For example, under current law, itemizing taxpayers with 
incomes above a certain threshold ($128,950 this year for a married 
couple filing jointly) suffer a phase-down in the total amount of 
charitable contributions they can take. The phase-down is at the rate 
of 3 percent of their itemized deductions for every $1,000 over the 
threshold, up to a total in lost deductions of 80 percent. Thus, a 
taxpayer making a $10,000 contribution and subject to this phase-down 
could lose up to $8,000 in charitable deduction. This is part of the 
itemized deduction ``haircut'' administered as part of the 1986 Tax 
Reform Act.
    As I said in my opening remarks, it is hard to imagine the 
individual who gives for the purpose of getting a tax deduction; most 
individuals give to charity because to do so is a blessing. 
Nevertheless, taxes can affect the amount an individual is willing to 
give. When an individual's tax burden increases, that person has less 
discretionary income and thus less income to give to charity. And when 
the effective price of charitable giving rises, which is the precise 
consequence of the phase-down in itemized deductions, there is a 
disincentive to give.
    My third bill, Mr. Chairman, the IRA Charitable Rollover Incentive 
Act of 2001, would allow individuals age 59\1/2\ or older to contribute 
amounts currently held in Individual Retirement Accounts (IRAs) 
directly to qualified charities without having to first recognize the 
income for tax purposes and then take a charitable deduction. This 
legislation will give individuals more freedom to allocate their 
resources as they see fit while providing badly needed resources to 
churches, colleges and universities, and other social organizations. I 
introduced a similar bill in the 106th Congress, which 
garnered 125 co-sponsors. The essence of this bill was included in the 
tax bill vetoed by President Clinton in 1999 and was included again in 
the pension reform bill that passed last year. I introduced this Bill, 
H.R. 774, on February 28th, and it has been incorporated 
into H.R. 7.
    All IRA withdrawals are generally taxed as ordinary income. 
Currently, individuals may withdraw funds from an IRA without incurring 
an early withdrawal penalty once they reach age 59\1/2\. Under so-
called minimum distribution rules, an individual must begin making 
withdrawals by April 1st following the year he or she 
reaches age 70\1/2\. The IRA was intended to encourage individuals to 
save for retirement, but due to the strong economy in recent years and 
the general increase in asset values, many individuals have more than 
sufficient funds to retire comfortably. Thus it is a common practice 
for retirees to transfer some of their wealth to charities and, in some 
cases, that wealth is held in an IRA.
    If our tax code were not so laden with peculiarities and oddities, 
this legislation would not be needed. A taxpayer could readily 
recognize the income for tax purposes and take a charitable deduction. 
Unfortunately, in many cases under current law such a simple 
arrangement results in a loss of some portion of the charitable 
deduction.
    Finally, Mr. Chairman, another proposal that I believe ought to be 
considered in this context would encourage additional charitable giving 
by those generous individuals who already contribute the deductible 
maximum. Under current law, individuals who contribute appreciated 
property (such as stocks and real estate) to charity are subject to 
complex deduction limits. While donors can generally deduct charitable 
contributions up to 50 percent of their income, deductions for gifts of 
appreciated property are limited to 30 percent of income. For gifts of 
appreciated property to charities that are private foundations, 
deductions are limited to 20 percent of income. These limits under 
present law discourage charitable giving from the very people who are 
in the best position to make large gifts. Someone who has done well in 
the stock market should be encouraged to share the benefits. In order 
to fix this problem we should consider allowing contributions of 
appreciated property to be deductible within the same percentage limits 
as for other charitable gifts.
    Such a proposal would increase the percentage limitation applicable 
to charitable contributions of capital gain property to public by 
individuals from 30 percent of income to 50 percent of income. Thus, 
both cash and non-cash contributions to such entities would be subject 
to a 50 percent deductibility limit. In addition, I would propose 
increasing the percentage limitation for contributions of capital gain 
property to private foundations from 20 percent to 30 percent
    It is impossible to know how much capital is trapped by the current 
rollover rules and thus unavailable to our nation's charities. 
According to one report, there is over $1 trillion held in IRA 
accounts. If only 1 percent of this would be donated to charity but for 
the tax problems associated with charitable rollovers, this represents 
a $10 billion loss of resources to these organizations that do so much 
good.
    In closing, I would like to tell you how pleased I am to be 
offering these three bills, major portions of which have consistently 
received strong bi-partisan support. I hope we can finally see their 
enactment in 2001.
    Thank you, Mr. Chairman.

                                

    Chairman Herger. Thank you very much, Mr. Crane.
    I would also like to recognize the gentleman from Texas, 
Mr. Chet Edwards, who has joined us at the witness table. And 
now, for testimony, Ms. Dunn from Washington.

   STATEMENT OF THE HON. JENNIFER DUNN, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF WASHINGTON

    Ms. Dunn. Thank you very much, Mr. Chairmen.
    Americans in communities across the country give their 
time, talents, and money to help worthy causes. Americans have 
been and always will be generous people. No matter the social 
or economic burdens, Americans strive to make a difference to 
help those in need, not because they must, but because they 
care.
    In doing so, they strengthen our communities and Nation. As 
Alexis de Tocqueville wrote in the 1800s, our tradition of 
strong commitment to private charities is a model for the rest 
of the world.
    According to a study by the Independent Sector, the average 
household donated about $1,075 in 1999. I think that is an 
amazing number: $1,075 for the average household that was 
donated in 1999.
    America's generosity is significant. But by changing our 
Tax Code, we can do even more to encourage people to give.
    Our Tax Code encourages charitable contributions by 
allowing people who itemize to deduct those donations each 
year, but the deduction is currently unavailable to the two-
thirds, as Mr. Crane has said, of all taxpayers, nearly 85 
million Americans who don't itemize on their tax returns.
    The Tax Code further limits charitable donations by 
effectively imposing taxes on large gifts and by treating gifts 
of property and cash differently.
    I have introduced legislation that will reward people for 
their generosity and spur greater giving.
    The two issues that I would like to tell you about today, 
while similar to Mr. Crane's in many ways, have some 
differences.
    The first is called the Neighbor to Neighbor Act. It 
follows President Bush's lead by expanding the charitable 
deduction to nonitemizers.
    Additionally, the second bill, the Medical Research 
Investment Act, or the MRI Act, will channel more money to help 
discover cures and treatments for horrible diseases like 
Parkinson's and leukemia.
    The Neighbor to Neighbor Act has four main provisions. It 
extends the charitable deduction to nonitemizers equal to the 
allowable standard deduction given to individuals who don't 
itemize on their tax return.
    For example, an individual nonitemizer can deduct up to 
$4,550 worth of charitable contributions as they present their 
tax returns.
    It also allows individuals to donate to charity up to April 
15 of the new taxable year, and this is a variation on the 
Crane bill, and apply those donations against the previous 
year's taxable income.
    It also equalizes property and cash donations. Under 
current law, the amount of the allowable deduction for property 
is 30 percent of a person's income. This will rise to 50 
percent under this bill, the same amount that is now allowed 
for cash contributions.
    This bill also eliminates the 50 percent income limitation 
for the contribution of money from an IRA so that more 
resources do reach the charity before being taxed.
    These changes will strengthen all charities. According to a 
recent PricewaterhouseCoopers study, expansions of the 
deduction to nonitemizers would create $11 million new donors. 
And it could lead to an additional $14.6 billion in 
contributions.
    In my State of Washington, charities could see a $1.7 
billion increase in donations over the next 5 years. That is 
why over a dozen Washington State-based charities and nonprofit 
organizations have endorsed this legislation.
    Expanding the charitable deduction to include nonitemizers 
will also provide broad-based tax relief to low and middle 
income Americans. These are the folks who overwhelmingly use 
the standard deduction.
    The second measure is called the MRI Act, the Medical 
Research Investment Act. It will improve our public health by 
encouraging donations to medical research groups.
    Under the current Tax Code, deductible charitable cash 
gifts to support medical research are limited to 50 percent of 
an individual's adjusted gross income. The Medical Research 
Investment Act would increase the deductibility to 80 percent 
of a person's income.
    In addition, the act allows people to donate stock without 
being penalized. Under current law, an individual who would 
like to donate $1,000 to charity has to sell $1,400 worth of 
that stock to pay the taxes. In my bill, the donor would not 
pay any capital gains taxes if he chooses to turn those stocks 
over to charity.
    These seemingly small changes will have an enormous impact 
on funding for medical research. According to an independent 
study conducted by PricewaterhouseCoopers, the MRI Act could 
lead to an additional $180 million donated to medical research 
in this year alone.
    The Neighbor to Neighbor Act and the Medical Research 
Investment Act each enjoys strong support from the charitable 
community. Several of the provisions in the Neighbor to 
Neighbor Act are found in H.R. 7, and I am hopeful that my 
colleagues will help ensure that medical research also will be 
included.
    It is important for us to remember that the American's 
social safety net is woven with two distinct threads: 
government assistance and private charity. Though private 
charities can never replace government, we should endeavor as 
lawmakers to craft policies that will tap into the generosity 
of the average American.
    I strongly believe both of these bills will accomplish that 
noble goal.
    [The prepared statement of Ms. Dunn follows:]

Statement of the Hon. Jennifer Dunn, a Representative in Congress from 
                        the State of Washington

    Americans in communities across the country give their time, 
talents, and money to help worthy causes. Americans have been and 
always will be generous people. No matter the social or economic 
burdens, Americans strive to make a difference to help those in need--
not because they must, but because they care. In doing so, they 
strengthen our communities and nation. As Alexis de Tocqueville wrote 
in the 1800s, our tradition of a strong commitment to private charities 
is a model for the rest of the world.
    According to a study by the Independent Sector, the average 
household donated approximately $1,075 in 1999. Americans' generosity 
is significant, but by changing our tax code we can do more to 
encourage people to give.
    Our tax code encourages charitable contributions by allowing people 
who itemize to deduct those donations each year. But the deduction is 
unavailable to two-thirds of all taxpayers, nearly 85 million 
Americans, who do not itemize. The tax code further limits charitable 
donations by effectively imposing taxes on large gifts and by treating 
gifts of property and cash differently.
    I have introduced legislation that will reward people for their 
generosity and spur greater giving. The Neighbor to Neighbor Act 
follows President Bush's lead by expanding the charitable deduction to 
non-itemizers. Additionally, the Medical Research Investment Act will 
channel more money to help discover cures and treatments for horrible 
diseases such as Parkinson's and leukemia.
    The Neighbor to Neighbor Act has four main provisions:

   It extends the charitable deduction to non-itemizers equal 
        to the allowable standard deduction. For example, an individual 
        non-itemizer can deduct up to $4,550 of charitable 
        contributions.
   It allows individuals to donate to charity up to April 15th 
        of the new taxable year and apply those donations against the 
        previous year's taxable income.
   It also equalizes property and cash donations. Under current 
        law, the amount of the allowable deduction for property is 30% 
        of an individual's income; this will rise to 50%, the amount 
        allowed for cash contributions.
   It eliminates the 50% income limitation for the contribution 
        of money from an IRA so that more resources reach the charity 
        before being taxed.

    These changes will strengthen all charities. According to a recent 
study, expansion of the deduction to non-itemizers would create 11 
million new donors and could lead to an additional $14.6 billion in 
contributions.
    In my home state of Washington, charities could see a $1.7 billion 
increase in donations over the next five years. That is why over a 
dozen Washington state based non-profit organizations have endorsed my 
legislation.
    Expanding the charitable deduction to include non-itemizers will 
also provide broad-based tax relief to low and middle income Americans. 
These are the people who overwhelmingly use the standard deduction.
    The second measure, the Medical Research Investment Act (MRI Act), 
will improve our public health by encouraging donations to medical 
research groups. Under the current tax code, deductible charitable cash 
gifts to support medical research are limited to 50% of an individual's 
adjusted gross income. The Medical Research Investment Act simply 
increases the deductibility to 80%.
    In addition, the Act allows people to donate stock without being 
penalized. Under current law, an individual who would like to donate 
$1,000 to a charity has to sell $1,400 of stocks to pay the taxes. In 
my bill, the donor would not have any capital gains taxes.
    These seemingly small tax changes will have an enormous impact on 
funding for medical research. According to an independent study 
conducted by PriceWaterhouseCoopers, the MRI Act could lead to an 
additional $180 million donated to medical research per year.
    The Neighbor to Neighbor Act and the Medical Research Investment 
Act each enjoy strong support from the charitable community. Several of 
the provisions in the Neighbor to Neighbor Act are found in H.R. 7. I 
am hopeful my colleagues will help ensure that medical research is also 
included.
    It is important for us to remember that the American social safety 
net is woven with two distinct threads--government assistance and 
private charity. Although private charity can never replace government 
assistance, lawmakers should endeavor to craft policies that will tap 
into the generosity of average Americans. I strongly believe both of 
these bills will accomplish that noble goal.

                                

    Chairman Herger. Thank you very much, Ms. Dunn.
    Mr. Edwards has indicated that he is involved in a markup 
now, so without objection, if we could move to Mr. Edwards for 
testimony, and then you will leave for your markup again. Mr. 
Edwards?

    STATEMENT OF THE HON. CHET EDWARDS, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF TEXAS

    Mr. Edwards. Thank you, Chairman Herger, and members of the 
Committee.
    Let me thank you for dealing seriously and carefully with 
an issue that our Founding Fathers felt was so important they 
not only put it in the Bill of Rights, they put it in the first 
16 words of the First amendment thereof, the whole issue of 
what is the proper relationship between government and 
religion.
    I think the issue before us today in this Congress is not 
whether faith is a powerful force. As a person of faith, I 
believe there is no power that equals that. The question is not 
whether charities do good work in America.
    I think the challenging question we must face as Members of 
Congress is how do we help charities without entwining politics 
and religion, which all of human history and all of our 
knowledge of human behavior shows is a terrible, threatening 
mix, when we allow government to begin to regulate and fund 
religion.
    Let me say that just yesterday we passed a resolution on 
the floor of the House, I believe unanimously, condemning the 
Afghanistan regime for their mistreatment of religious 
minorities. In China today, citizens are being jailed because 
of their religious faith. In the Middle East, people are put 
every day in prison because their religious beliefs are not 
consistent with the beliefs of the majority religion of that 
country.
    I would ask the members of this Committee today to ask 
yourselves: Is there any other nation in the world today, 
perhaps in the history of the world, that has more religious 
freedom, more religious tolerance, or more religious 
generosity, than the United States of America?
    We are the crown jewel to the world. We are a beacon to the 
world of how to handle religious freedom and religious 
tolerance.
    There is a reason we have gotten it right in America. 
Unlike most countries, we don't intertwine government and 
religion.
    And separation of church and State, Mr. Chairman, does not 
mean keeping people of faith out of government. It means, 
according to our Founding Fathers, keeping government out of 
religion.
    I think there is a right way and wrong way to help 
charities do good work in America. The right way is to provide 
tax incentives to those who, out of their own charity, give to 
these organizations.
    I think the wrong way is to go down the path as proposed in 
some legislation, including H.R. 7 by Mr. Watts and Mr. Hall, 
that would really for the first time in our country's history, 
along with two or three other bills we have recently passed, 
would have the Federal Government tax dollars going directly, 
not to faith-based groups or charities, but directly into our 
houses of worship, into our synagogues, into our mosques.
    I think that this is a prescription for government 
regulation of religion, for intolerance, ultimately, for in-
fighting as 2,000 different religions in America compete for 
billions of dollars of Federal funding.
    I urge this Committee and all Members of Congress, wherever 
we eventually come down on this legislation, to think carefully 
about our need to be extremely cautious about getting 
government dollars involved in our houses of worship.
    I think there are three specific things, Mr. Chairman, we 
can do to stop this type of encroachment of government into 
religion.
    The first is, in H.R. 7 or any other bill we pass, let's 
say dollars can go to faith-based charities, but they can't go 
directly to a house of worship.
    Imagine, 10 years from now, there are Federal auditors 
going into our synagogues and our churches. Do they eventually 
prosecute the pastors, the rabbis, the church committees? I 
think that is fraught with great, great disaster.
    Secondly, I don't think anyone should support--and I have 
not heard anyone that said they would in principle--the idea of 
using your and my tax dollars to allow other individuals to use 
government resources to force their religion, their faith, upon 
other people.
    Just within the last 2 weeks, we have had testimony from 
one group, though, that has used, I believe, government funds 
and said part of their goal was to complete Jews. Jews across 
America found that, rightfully so, to be an offensive 
statement. This particular group said they would not hire 
people of the Jewish faith.
    That is why I think it is so important that we not only 
prohibit proselytizing but also discrimination using Federal 
dollars. The Methodist church wants to hire a Methodist pastor. 
As a Methodist, I think that is right. That is an exemption 
they should have under the civil rights code.
    But to allow anyone, any taxpayer, to take your and my tax 
dollars and put out a sign and say people of any particular 
faith are not allowed to be hired because of their faith alone 
I think is wrong.
    There is a right way and wrong way to support charities. I 
thank you for your serious attention to what is an extremely 
important and complicated issue.
    Thank you, Mr. Chairman and members.
    [The prepared statement of Mr. Edwards follows:]

 Statement of the Hon. Chet Edwards, a Representative in Congress from 
                           the State of Texas

    Chairman Herger and McCrery, Ranking Members McNulty and Cardin, 
and Members of the Subcommittees:
    Thank you for allowing me to testify today on Charitable Choice as 
provided in H.R. 7, the Community Solutions Act. I appreciate your and 
the subcommittee's interest in this very important issue and for giving 
it the attention it deserves.
    I want to say that as a person of faith, I believe religion has a 
profound impact on our private values and personal lives and upon our 
public life as a nation. Because of this fact, I am not questioning the 
need for religious bodies to help with social problems.
    But, I believe the fundamental question that faced our founding 
fathers and faces us today is this: what it the proper partnership of 
government and religion.
    In my opinion, Charitable Choice is the wrong solution to a real 
problem. Under current law, faith-based groups may already accept 
federal dollars under three conditions: they cannot be pervasively 
sectarian, they cannot proselytize, and they cannot discriminate on the 
basis of religion in their employment practices.
    Charitable Choice changes those conditions. Charitable Choice makes 
it possible for the government to subsidize churches and other 
thoroughly religious entities that provide social services. This 
proposal will provide tax dollars to religious groups and open the door 
to government review of church activities.
    For many years the law has permitted groups that are affiliated 
with religious bodies (e.g. Catholic Charities and Lutheran Social 
Services, Jewish Federations) to receive tax funds to provide secular 
social services. But charitable choice represents a radical and 
misguided revision of the law. Indeed, many ministers believe that 
Charitable Choice will do great harm to religion.
    Carl Esbeck, testifying as the Senior Counsel to the Deputy 
Attorney General of the United States, recently stated at a hearing 
before the Constitution Subcommittee of the House Judiciary Committee 
that the Charitable Choice provisions of H.R. 7 do not allow 
proselytization, either warranted or unwarranted, during the government 
funded program. This is definitely a step in the right direction. 
However, this clarification does not solve all my problems with 
charitable choice.
    Because regulation always follows tax funds, Charitable Choice 
opens the door to invasive government monitoring, regulation and 
accounting of churches, clergy, and other leaders of the church. For 
these reasons, people like Freddy Garcia, who runs the highly 
successful Victory Fellowship ministry for drug addicts in San Antonio, 
has said, ``I don't want any grants. I'm a church . . . All I want is 
for the government to leave me alone.''
    Also, because there is limited money in the public purse and 
thousands of religious groups in our country, charitable choice will 
force the government to pick and choose which religions it funds. 
Churches may have to compete for government grants before elected 
legislators. ``The best way I know of to destroy religion is to have 
all the churches fighting over a big pot of money,'' says Rev. J. Brent 
Walker, general counsel of the Baptist Joint Committee on Public 
Affairs.
    Charitable Choice will generate serious problems that have not been 
seen on a large scale in this country in over 200 years--outright 
religious infighting, intolerance and discrimination.
    This is a perfect program if you want your tax dollars going to any 
and every self-proclaimed religious group, you'd like the government 
auditing your church and you have no problem with ignoring the Bill of 
Rights and its protections of religious freedom.
    The American public recognizes the danger Charitable Choice poses 
to religious freedom. In fact, 68 percent of Americans contacted in a 
Pew Forum poll worry that Charitable Choice type programs could lead to 
government involvement in religion.
    If we allow government to fund and become involved in religion, it 
will harm religion, not help it. It is people of faith who must point 
out that church-state separation does not mean keeping people of faith 
from being involved in government but rather it means keeping 
government from being involved in religion.
    I believe Madison got it right in the Bill of Rights, ``Congress 
shall make no law respecting an establishment of religion or 
prohibiting the free exercise thereof.'' For over two centuries, those 
16 words have worked to protect our religious freedom, and in my 
opinion, make religious liberty the crown jewel of America's experiment 
in democracy.
    As students of human behavior, and human history, Madison and 
Jefferson understood that, in general, politicians, if allowed, could 
not withstand the temptation to use religion as a means to their own 
political ends.
    Our faith is and should be a powerful force in the private and 
public lives of elected officials; none of us has the right to use the 
power or laws of government to force our religious faith upon others.
    The Bill of Rights and the high principle of church state 
separation have made America a land of unparalleled religious freedom 
and tolerance. We tamper with those principles at our own peril.
    I will end with this statement made by Martin Luther king, Jr. 
``The church must be reminded that it is not the master or the servant 
of the state, but rather the conscience of the state.'' (Strength to 
Love, p. 47,1963)

                                

    Chairman Herger. Thank you for your testimony, Mr. Edwards. 
Now we will move to one of the principal sponsors of this 
legislation, H.R. 7, Mr. Hall.

    STATEMENT OF THE HON. TONY P. HALL, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF OHIO

    Mr. Hall. Thank you, Mr. Chairman and members.
    I do appreciate the chance to participate in this hearing. 
There has been a lot of controversy, there has been a lot of 
heat. I am hoping that this Committee can bring enough light to 
the public debate. I am hopeful that your work on this bill 
will kind of right that imbalance.
    I am thankful to Mr. Watts for bringing this idea to me. I 
was a very easy sell. I have been participating in faith-based 
organizations for years. I do a lot of work in the area of 
hunger.
    It is very interesting, that for tens of years and longer, 
we have been putting hundreds of millions of dollars every year 
through international faith-based organizations. As a matter of 
fact, the three top nonprofit agencies in the world are World 
Vision, Cooperative Assistance and Relief Everywhere, Inc., and 
Catholic Relief Services, and two out of the three are faith-
based. They do a very, very good job of separating religion, 
faith, proselytizing, and delivering the services.
    I think here we are not talking about large organizations. 
Large organizations can pretty much take care of themselves. 
They form 501(c)(3)s.
    We are talking about smaller organizations, organizations 
that, every year, are having a tough time raising money, but 
they are doing the job. And they are doing a tremendous job.
    And if it wasn't for them, there wouldn't be anybody else 
there. And they are there because of their faith, but they 
don't wear their faith on their lapel. They are not trying to 
convert people to God or to any other religion. They are 
delivering the goods. They are doing it because of their faith.
    I am thinking of two organizations, one in Appalachia in 
southeast Ohio that I visited last year. It is out of my 
district. I have helped them. It is the poorest county in all 
of Ohio. One in 10 people is suffering from hunger.
    And a guy by the name of Mel Franklin, through the 
Methodist Church, is delivering goods and services. As far as I 
know, he is not getting any Federal help. But he is just doing 
the job. If it wasn't for him and his program, it wouldn't be 
done.
    I know of a nonprofit, faith-based organization over here 
that I work with in Anacostia. And there are two men there that 
are ex-athletes. One is a great track man; another one used to 
play for the Cleveland Browns.
    Well, they work with kids in Anacostia High School, kids 
that just need love and attention. I have been with them in 
their high school where the kids love them, and the teachers 
come up and hug them.
    After school, these kids come over to their houses. They 
have a weight-training studio. They have a recording studio. 
And they just teach them about life.
    And it is in an area where there are more murders in that 
neighborhood than any other place in Washington, DC. And it has 
always been that way. There is nobody else in the neighborhood. 
I don't see any secular groups wanting to go down there and do 
the work. This is a two-three man program.
    And that is pretty much what we are talking about when we 
are talking about funding faith-based organizations, small 
organizations that have a track record, that are doing the job.
    And they don't apply for Federal funds because it is 
cumbersome and it is burdensome. And there is a heck of a lot 
of paperwork. But they ought to be part of the mix, if we are 
ever going to address the issues like hunger and poverty, if we 
are ever going to solve some of the problems in this country.
    We should not have hunger in America. We have 31 million 
people that go to bed hungry three or 4 days out of every 
month. We ought to end it. And we can end it, if we work 
together and if everybody is part of the competition and 
receiving the funds.
    I want to draw your attention to one provision of the bill 
that will assist in the fight against hunger. It is a bill that 
I introduced for several years now. It is called the Good 
Samaritan Tax Act. This would encourage donations of food from 
the private sector. It would allow all businesses, instead of 
only corporations, a tax break for donating food. We treat food 
differently.
    This idea of ending hunger in America is only one part of 
it. Faith-based organizations, if they can demonstrate that 
they can do a better job, then they should receive a grant.
    Reverend Luis Cortes, who you will hear from later, put it 
best. He said to me that the Latino congregations he serves, 
they want nothing more than access to these resources that have 
been available to other groups for years. They want to have a 
chance.
    I am not a constitutional expert. I am not a lawyer. I am 
told the language in the bill is good and it is strong. And I 
know that we will be debating that.
    And, finally, I want to say that there are a lot of 
supporters. We have heard a lot of opponents to this bill, but 
what about the supporters? U.S. Conference of Catholic Bishops, 
pretty good, pretty sincere organization here; the Salvation 
Army, a wonderful organization; World Vision; the Union of 
Orthodox Jewish Congregations of America; the Corp. for 
Enterprise Development; the Center for Faith-Based Initiative. 
And it goes on and on and on. I would like to submit for the 
record letters from the U.S. Conference of Catholic Bishops and 
the Salvation Army.
    [The following was subsequently received:]

           Department of Social Development and World Peace
                                  Washington, DC 20017-1194
                                                      June 11, 2001

Hon. Tony P. Hall
United States House of Representatives
Washington, DC 20515

    Dear Representative Hall:

    The United States Conference of Catholic Bishops welcomed the 
announcement earlier this year of the President's Faith-Based and 
Community Initiatives proposal because of the proposal's focus on 
overcoming poverty, and its affirmation of the complementary roles and 
responsibilities of religious groups. community organizations and 
government. (See enclosed statement.)
    We write to reaffirm our support for the initiative and to offer 
our help in seeking to refocus the debate on the needs of poor people 
and the call to meet the moral challenge posed by so much poverty in 
the midst of so much affluence in our land. Unfortunately, much of the 
debate thus far has been polarized and ideological, focused more on old 
battles over church-state issues and attempts to gain partisan 
advantage than on new opportunities to reach out to help those pushed 
to the sidelines of our National economic life. But we see in the 
President's proposal, and legislation implementing it, new assets in 
addressing the most difficult problems in our neighborhoods and 
communities: persistent poverty, violence, substance abuse, inadequate 
housing, and obstacles faced by those who are entering the job market.
    The sad fact is that in many communities where disinvestment and 
discrimination exacerbate the problems of addiction, family 
disintegration, and violence, churches and community-based charities 
are often the only institutions still there and able to address the 
pervasive poverty of their neighbors. We have to find better ways to 
build the capacity and support the hard work of these community 
lifelines. This is why we support the Faith-Based and Community 
Initiatives proposal and will work with Congress to refine, improve and 
pass H.R. 7, the Community Solutions Act of 2001.
    In particular, the bishops' conference strongly supports the 
following provisions of H.R. 7: first, allowing non-itemizers to claim 
charitable deductions on their taxes, and second, expanding 
``charitable choice'' to allow religious organizations to participate 
in government funded programs on the same terms as other groups, 
without altering their religious character. Charitable choice already 
applies to the Temporary Assistance to Needy Families and welfare-to-
work grant programs, Community Service Block Grants, and substance 
abuse treatment and prevention services under the Public Health 
Services Act. H.R. 7 would extend charitable choice to programs 
relating to juvenile delinquency, crime prevention, housing, the work 
force, older Americans, child care, community development, domestic 
violence, hunger, and job access and transportation.
    While we take seriously the concerns and fears of those who have 
doubts about stronger ties between religious groups and the Federal 
government, it is worth noting that religious groups have been 
permitted to hire their own members under Title VII of the Civil Rights 
Act for over 35 years. The bishops' conference, which has long been a 
vigorous advocate and defender of America's civil rights laws, believes 
there is no conflict between strong civil rights protections and 
application of Title VII to faith-based and community initiatives under 
charitable choice. Indeed, we believe that the faith--based and 
community initiatives proposal is a positive and needed recognition of 
the pluralism of American religious life and the contributions of 
religious and non-profit community institutions and groups.
    This initiative should lead to greater investment of public and 
private resources in overcoming poverty, including additional Federal 
resources for the potential new opportunities created by H.R. 7. While 
this legislation opens the door to groups that may have been left out 
of public programs in the past, more competition over the same or fewer 
resources is not an answer. Indeed, a commitment to increase Federal 
resources to address the needs of the poor would strengthen the 
proposal and assist its supporters. We will urge Congress to include 
President Bush's proposed Compassion Capital Fund in H.R. 7 as a first 
step toward making more resources available and encouraging expanded 
public-private partnerships.
    It is also important to acknowledge that faith-based and community 
efforts cannot substitute for just public policy and the 
responsibilities of the larger society, including the Federal 
government. The efforts of religious and community groups can touch 
hearts and change lives, but their work cannot replace needed 
government action to address the more than 40 million Americans without 
health care, the many children who go to bed hungry, and the millions 
of families who work every day, but cannot provide a decent future for 
their children. Our nation still needs significant public investments 
in health care, nutrition, child care and housing. Faith-based and 
community initiatives are essential, but government still has an 
indispensable role in assuring that the basic needs of the American 
people are met.
    Amid all the controversy, we need to remind ourselves why the 
President's proposal and this legislation are necessary. The simple 
fact is that our nation leaves too many people without the resources 
they need to build a life of dignity, without hope for a future of 
opportunity. Bureaucratic ``business as usual'' and the re-fighting of 
old ideological and partisan battles are not adequate responses to this 
moral scandal, this national challenge. Clearly, the faith-based and 
community initiatives proposal and the passage of H.R. 7 will not end 
the struggle to overcome poverty, but they can play a significant part 
in advancing it.

            Sincerely yours in Christ,
                         His Eminence Cardinal Roger Mahony
                                  Archbishop of Los Angeles
                                Chairman, Domestic Policy Committee

                                         The Salvation Army
                                 Alexandria, Virginia 22313
                                                      June 12, 2001

Hon. Tony Hall
1432 Longworth House
Washington, DC 20515-3503

    Dear Mr. Hall:

    As the National Commander of The Sa1vatian Army, I am writing to 
seek your support for The Community Solutions Act of 2001 (HR7). We 
believe that this piece of legislation can create a stronger and 
expanded social service network in this country. We also believe that 
the outcome will be more needed services to more of America's poor for 
many, many years to come.
    Last year 37 million people came to The Salvation Army for help and 
we embraced each of them with unconditional love and compassion. In 
fact, for more than 120 years, The Salvation Army has worked to build a 
social service network in communities throughout our country providing 
aid and comfort to those in need. Today, through our highly integrated 
network of nearly four million professionals and volunteers, who work 
in 9,222 centers of operation, we provide services in every zip code 
and every congressional district in America, including the one you 
represent.
    While not all of our programs are in partnership with the 
government, many of them are, serving senior citizens, prison inmates 
and their families, victims of domestic abuse, the homelessness, low-
income children, those affected by drug addiction, the unemployed. The 
list is long--the needs are many. This is precisely why we see great 
value in HR 7.
    In our view, HR7 will help people by expanding provisions under 
``charitable choice'' to promote greater access to those who need the 
types of social services provided by The Salvation Army and other 
faith-based organizations. These provisions further previous charitable 
choice legislation enacted with bi-partisan support in 1996 and 1998 
that apply to the Welfare-to-Work program, Community Services Block 
grant program and several drug treatment programs. We see great 
potential, for example, in the establishment of Individual Development 
Accounts (IDAs) that will help low-income families begin building 
toward financial stability.
    Additionally, HR7 will provide millions more Americans with the 
opportunity to realize the benefits of charitable giving. The non-
itemizer tax deduction in the bill is vital, in our estimate, for 
increasing donations to charities, and potentially could raise $14 
billion per year from 11 million new charitable contributions.
    We are heartened by the renewed efforts in Congress to broaden our 
country's social service outreach, and the support of faith-based 
organizations such as The Salvation Army. I appreciate your interest in 
these matters, and ask for your personal support of this bill.

            Sincerely yours,
                                    Commissioner John Busby
                                                 National Commander

                                

    I think that the best kind of faith, the best kind of 
religion, is the kind of faith and religion that St. Francis 
said a long time ago. He said something to the effect of: We 
need to preach the gospel at all times, and if necessary we 
need to use words.
    And the best kind of faith I think is not converting 
people, it is helping people and loving them. And that is what 
we are talking about. We are not talking about large 
organizations. We are talking about organizations that are so 
good, but they have this funding problem every year.
    It is hard for them to compete for money and to develop and 
expand their program.
    And that is what I think faith-based is all about.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Hall follows:]

 Statement of the Hon. Tony P. Hall, a Representative in Congress from 
                           the State of Ohio

    Chairmen Herger and McCrery, Ranking Members Cardin and McNulty: I 
appreciate your hosting this joint hearing on the Community Solutions 
Act. It is an honor to testify before your subcommittees today, and I 
look forward to a discussion of the challenges of serving Americans in 
need and of the ways this bill tries to meet those challenges. 
Unfortunately, there has been too much heat and not enough light in the 
public debate so far. I am hopeful that your work on this bill will 
right that imbalance.
    I want to begin by thanking President Bush for his leadership on 
the faith-based and community initiative. His commitment to this has 
been remarkable, and it is a pleasure to assist him.
    I also want to thank Congressman Watts, my co-sponsor, and Speaker 
Hastert, who has given us both the support and encouragement this 
initiative merits. I also want to acknowledge Congressman Bobby Scott, 
who is a good friend and colleague, despite our disagreements on this 
issue.

Vinton County, Ohio
    I am involved with this issue because I am determined to see an end 
to hunger in America. I have spent most of my Congressional career 
focused on how to alleviate hunger and its related problems, at home 
and around the world. Serving as chairman of the Select Committee on 
Hunger remains one of my proudest accomplishments, and I am pleased 
that this initiative has revived some of the bi-partisan spirit that 
drove that Committee to its many successes.
    Last summer, I toured Appalachian communities in Southeastern Ohio, 
Kentucky and West Virginia. In one of my state's poorest counties, I 
visited CARE United Methodist Outreach B an organization distributing 
food to more than 350 families (about one in 10 of Vinton County's 
people). In addition to food, this group provides household 
necessities, clothing, job assistance and almost anything else that a 
person might need. Reverend Mel Franklin works tirelessly to care for 
all of those in his parish, and often dips into his own shallow pockets 
to help those in need.

Anacostia, DC
    A long way from Vinton County B but just a few minutes from where 
we sit today B Reverend Ricky Bolden, J.T. Musgrove and Reverend Steve 
Fitzhugh work at The House, an initiative that works with youth from 
Anacostia High School in one of the toughest neighborhoods in the 
District. These former athletes provide academic, athletic and artistic 
activities, as well as positive role models for many teenagers who 
don't have caring men in their lives. Their gumption is sobering: one 
of the teenagers they were working with was murdered two blocks away 
from their front door. But they have made progress: with their help, a 
gang leader has turned his life around and now works with other at-risk 
teens in The Houses' youth service corps.
    These are just two of the thousands of examples of faith-based 
organizations around the country. Whether in rural Appalachia or inner-
city DC, whether they are feeding people or tending to their other 
problems, these community-minded ministers are working where no one 
else wants to go. And, surprisingly often, they are achieving successes 
that no one else is even attempting. The truth is this: without groups 
like theirs, some of the people who need help most probably would not 
be served.

Hunger as an Example
    My work on hunger has brought me face-to-face with everyday heroes 
like these men of God and with the men, women and children that they 
serve. In fact, almost three quarters of all community kitchens and 
food pantries across the country are run by churches, congregations or 
other faith-based organizations.
    In my own district of Dayton, Ohio, a survey of 100 Miami Valley 
faith communities B ranging from Methodist to Muslim and Baptist to 
Baha'i B found that most of these congregations were providing food 
through pantries or kitchens, often in conjunction with other 
congregations or agencies.
    With 31 million Americans hungry or threatened by hunger, there is 
no question that these groups are essential to the social fabric of our 
lives. With widespread reports that food pantries are seeing sharp 
increases in requests for their help, it is clear that more needs to be 
done to assist both these organizations and the people they serve. 
Hunger is just one of the issues that this bill would address.

Good Samaritan Tax Act
    I want to draw your attention to one provision of the bill that 
will assist in the fight against hunger, before moving on to the 
charitable choice provisions. In recent years, I have repeatedly 
introduced a bill called ``The Good Samaritan Tax Act.'' This would 
encourage donations of food from the private sector, by putting 
donations of food on the same tax footing as donations of other items. 
It will allow all businesses, instead of only corporations, a tax break 
for donating food and it would clear up a question about the actual 
value of donated food. In turn, this would encourage farmers, 
restaurants and others to be more generous in their donation of food to 
programs aimed at helping hungry Americans.
    This year, Congressman Richard Baker of Louisiana, along with 
Representatives John Lewis, Jim Ramstad, Karen Thurman, Phil English 
and Charlie Rangel, have all joined me in introducing H.R. 990. I also 
am thankful to Amo Houghton who has been a strong champion of this 
idea, along with Senators Lugar and Leahy. I know they share my hope 
that this provision will increase the food that is donated to charities 
B many of them faith-based B that provide emergency food aid to the one 
in 10 Americans who turn to them for help. I am pleased that the 
provisions of H.R. 990 have been included in H.R. 7.

Need for Legislation
    It is because of my work on hunger that I am supporting the 
President's initiative. I have been to inner-city neighborhoods; I have 
been to Native American reservations; I have been to our rural areas. I 
have seen people in need in our nation's richest communities, and in 
the shadow of our Capitol. I have seen people struggle to get their 
lives back together and to provide for their families.
    And I have seen people of all kinds of faith B even if it is simply 
a faith in humankind B make tremendous differences in peoples' lives.
    Simply put, our bill would allow religious organizations to compete 
on a level playing field with other groups in order to provide certain 
social services. This is not about rewarding certain denominations or 
favoring specific faith-based organizations. This is about finding the 
groups that will get the best results in caring for ``the least, the 
last and the lost.''
    If a faith-based group can demonstrate that it does that better 
than a secular group, then it should receive the grant. A group should 
not receive any money simply because it is faith-based. Federal funds 
should be an investment that produces results. But if a faith-based 
group can get those results, it should not be barred from competing for 

Federal funds.
    Reverend Luis Cortes, who you will hear from later, put it best. He 
told me that the Latino congregations he serves want nothing more than 
access to these resources that have been available to other groups for 
years. In their neighborhoods, the church is the only institution that 
the members of these congregations feel they control. Just as many 
African-American communities found, Hispanic empowerment and self-
improvement are intertwined with the church.

Constitutional Questions
    Some observers have raised concerns about the constitutionality of 
charitable choice and the potential erosion of the separation of church 
and state. I am not a Constitutional expert, but I do want to point out 
a number of the bill's provisions designed to address these concerns 
explicitly.
    ``Federal, state or local government funds that are received by a 
religious organization for the provision of services constitutes aid to 
individuals and families in need and not aid to the religious 
organization,'' the bill states in Section 201(c)(2).
    The bill continues, ``the receipt by a religious organization of 
Federal, state or local government funds is not and should not be 
perceived as an endorsement by the government of religion or the 
organization's religious beliefs or practices.''
    The bill does allow religion to be a consideration in hiring 
decisions, but this simply continues the Title VII exemption of the 
Civil Rights Act of 1964. HR 7 does not change current civil rights 
law; in fact, it specifically states in Section 201 (e) (3), ``nothing 
in this section alters the duty of a religious organization to comply 
with the nondiscrimination provisions prohibiting discrimination on the 
basis of race, color, and national origin or sex and visual impairment 
or disability or age.''
    Another important provision of the bill is its prohibition against 
proselytizing using government funds in Section 201 (I).: ``No funds 
shall be expended for sectarian worship, instruction or 
proselytization. A certificate shall be signed by such organizations 
that gives assurance that the organization will comply.''
    Faith-based groups should provide services to the poor out of their 
love of God, not because they want to convert someone to their specific 
belief. They do this already, but this provision underscores that this 
is Congress' intent in this legislation.
    Finally, nowhere does the bill state that a religious organization 
must apply for funding. If any organization is worried that government 
funds will corrupt its religious mission, or come with too many strings 
attached, or pose any other problem, it should not apply for Federal 
funds. If any organization thinks that the Federal government will be 
its savior and provide everything it needs, it should rethink its 
theology. The funds that this initiative aims to open to more 
organizations are not meant for everybody. Those groups that are so 
infused with faith that there can be no separation between that faith 
and any service it provides probably should not apply for these funds.

Opponents of the Legislation
    I know that many critics have voiced their opposition to this bill. 
I have met with some of these critics, including many who are friends 
with whom I work on other issues.
    But there are also many organizations that do support The Community 
Solutions Act, including many that already are working on the front 
lines of the fight against poverty and misery.
    This week, the U.S. Conference of Catholic Bishops voiced their 
strong support for this bill. Its letter explained why this way: ``the 
sad fact is that in many communities where disinvestment and 
discrimination exacerbate the problems of addiction, family 
disintegration, and violence, churches and community-based charities 
are often the only institutions still there and able to address the 
pervasive poverty of their neighbors. We have to find better ways to 
build the capacity and support the hard work of these community 
lifelines. This is why we support the Faith-Based and Community 
Initiatives proposal and will work with Congress to refine, improve and 
pass H.R. 7, the Community Solutions Act of 2001.''
    The Conference also specifically addresses the fears of employment 
discrimination: ``it is worth noting that religious groups have been 
permitted to hire their own members under Title VII of the Civil Rights 
Act for over 35 years. The bishop's conference, which has long been a 
vigorous advocate and defender of America's civil rights laws, believes 
there is no conflict between strong civil rights protections and 
application of Title VII to faith-based and community initiatives under 
charitable choice.''
    The Salvation Army, which serves more than 37 million Americans in 
every ZIP code in the country, also supports this initiative. ``We are 
grateful for the efforts being made in Congress to expand charitable 
giving . . . and we welcome the Community Solutions Act of 2001 (H.R. 
7), which would expand these provisions to a greater number of federal 
programs. Both [provisions] would assist The Army in serving the 
neediest residents of our communities throughout America, while 
maintaining our religious identity . . . we believe that this piece of 
legislation can create a stronger and expanded social service network 
in this country. We also believe that the outcome will be more needed 
services to more of America's poor for many, many years to come.
    Other respected organizations have endorsed the Community Solutions 
Act as well, including:
     Habitat for Humanity International,
     the Union of Orthodox Jewish Congregations of America,
     the National Association of Evangelicals,
     Corporation For Enterprise Development,
     World Vision,
     the Center for Faith-Based Initiative,
     the Christian Community Development Association,
     Evangelicals for Social Action, and
     the National Hispanic Religious Partnership.

Conclusion
    I want to conclude by lamenting that this initiative has gotten 
caught up in partisan politics. This should not be an issue that 
divides Democrats and Republicans, and I hope there will be room for 
compromise.
    I think that we need to refocus on how we can best serve those in 
need. I support the bill in its current form, but I stand willing to 
work with people of good will on both sides to ensure that low-income 
individuals are better served. That is the bottom line of this bill and 
my support for this initiative.
    For example, I wholeheartedly support the President's proposal to 
include a Compassion Capital fund that would provide federal funds to 
leverage money from the private sector. This fund would provide 
training and technical assistance to local congregations and other 
community-based groups, as well as meet certain social priorities, such 
as working with children of prisoners. We need additional resources to 
meet these challenges and this fund would be a step in the right 
direction. I strongly encourage the committee to add a provision to 
authorize this Compassion Capital Fund, as President Bush requested.
    I want to give St. Francis, a Catholic saint, the last word. He 
said, ``Preach the gospel at all times. If necessary, use words.'' 
Every faith tradition is filled with commandments to help the poor, the 
widows and the orphans. Our government should do everything we can to 
assist those who live their faith every day by following religious 
teachings that we should all care for the least among us.

                                

    Chairman Herger. Thank you, Mr. Hall. And, again, I want to 
thank you not only for testimony today but for your many years 
of working in this area. Thank you very much for your 
leadership.
    We do have two votes on the floor. The first is a 15-minute 
vote followed by a 5-minute vote.
    Why don't we maybe hear one more, if you don't mind, Mr. 
Stearns, and then we will briefly recess after that.

   STATEMENT OF THE HON. CLIFF STEARNS, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF FLORIDA

    Mr. Stearns. Thank you, Mr. Chairman. I think I can put 
this together quickly.
    I ask unanimous consent that my entire opening statement be 
part of the record.
    Chairman Herger. Without objection.
    Mr. Stearns. I appreciate the opportunity to speak to the 
Committee regarding H.R. 804. I also want to thank the Ways and 
Means Committee members who are all supporting this effort, Mr. 
Crane, Mr. Lewis, Mr. Jefferson, Ms. Thurman, Ms. Johnson, Mr. 
Ramstad, in addition, our distinguished colleague, Mr. Watts, 
for his support.
    One of the most effective steps Congress could take to spur 
charitable giving would be to repeal the excise tax on net 
investment income, which is part of these private foundations.
    Private foundations are subject to a 2 percent excise tax 
on their net investment income. Private foundations generally 
must make annual distributions for charitable purposes equal to 
roughly 5 percent of the fair market value of the foundation's 
endowment assets. The excise tax paid acts as a credit in 
reducing the 5 percent requirement.
    This law represents several problems. I will briefly give 
you three reasons why we need the repeal.
    It was enacted in 1969, Mr. Chairman, as a way to offset 
the cost of government audit of these organizations. However, 
the audits since that time have gone down dramatically. In 
1990, the excise tax raised about $204 million; now it is up to 
$500 million. Yet the audits themselves are dropping from 1,200 
down to 191, so the Internal Revenue Service (IRS) has all this 
extra money.
    Number two, the Joint Committee on Taxation (JCT) 
recognized in its April 2001 recommendation that we need to 
simplify the Tax Code, particularly dealing with these private 
foundations. The actual complexity of coming up with the excise 
tax based upon the investment income is very onerous. And they 
have to, many times, go to the IRS to try to understand it. 
There is additional complexity in the actual calculation. They 
have to go back and forth with the IRS.
    And lastly, the tax is inequitable because other tax-exempt 
organizations are also audited, however, Mr. Chairman, private 
foundations are the only tax-exempt organizations that are, in 
fact, taxed.
    So I urge you, Mr. Chairman, to repeal the excise tax. We 
reduced it in 1978. We reduced it in 1984. And we can repeal it 
in the year 2001 as part of this package on H.R. 7. We have 
58,000 private foundations. By doing this, there will be $500 
million extra money that will be available for charitable 
giving.
    So my bill, in effect, is brand new money, providing $500 
million a year. So I respectfully urge the Committee to include 
the repeal of the excise tax in the appropriate legislation.
    And I thank you, Mr. Chairman.
    [The prepared statement of Mr. Stearns follows:]

Statement of the Hon. Cliff Stearns, a Representative in Congress from 
                          the State of Florida

    Thank you Mr. Chairman.
    I first want to thank you for allowing me the opportunity to appear 
before the Subcommittee this morning regarding HR 804--a bill to repeal 
the excise tax on the net investment income for private foundations. I 
would also like to thank those Ways and Means Committee Members who are 
supporting this effort: Mr. Crane, Mr. Lewis, Mr. Jefferson, Ms. 
Thurman, Ms. Johnson, and Mr. Ramstad. In addition, I also want to 
thank my colleague Mr. Watts for his support.
    One of the most effective steps Congress could take to spur 
charitable giving would be to repeal the excise tax on net investment 
income. As you know, private foundations generally are subject to a 2 
percent excise tax on their net investment income. The tax can be 
reduced to 1 percent in any year in which the foundation's percentage 
of distributions for charitable purposes generally exceeds the average 
percentage of its distributions over the five preceding taxable years.
    Private foundations generally must make annual distributions for 
charitable purposes equal to roughly 5 percent of the fair market value 
of the foundation's endowment assets. The excise tax paid acts as a 
credit in reducing the 5 percent requirement.
    This law presents several problems.
    First, the original need for the tax no longer exists. The tax was 
originally enacted in the Tax Reform Act of 1969 as a way to offset the 
cost of government audits of these organizations. However, excise tax 
revenues have steadily climbed and IRS audits of private foundations 
have steadily dropped over the past decade. In 1990, the excise tax 
raised $204 million and the IRS conducted 1,200 audits of private 
foundations. In 1999, the last year for which figures are available, 
the excise tax raised $499.6 million with the IRS conducting 191 
audits.
    Congress reduced this tax in 1978 and 1984. In both instances it 
was noted that the adjustments were necessary because the revenues 
collected from the tax were more than what was necessary to fund IRS 
activities regarding these foundations. Evidence of this is found in 
the current year budget for the IRS regarding exempt organizations, 
which is about $58 million.
    Second, as the Joint Committee on Taxation recognized in its April 
2001 recommendations to simplify the tax code:
          The excise tax based on investment income creates complexity 
        because every private foundation, except exempt operating 
        foundations, is required to calculate net investment income, 
        which is a technical and difficult calculation. Indeed, the IRS 
        often has to rule whether certain income is includible in the 
        calculation of net investment income. In addition, the two-tier 
        nature of the tax means that private foundations have to 
        calculate their average percentage payout for the base period 
        and decide whether to increase charitable distributions in 
        order to obtain the lower rate. Solely because of this excise 
        tax, foundations are required to make quarterly estimated tax 
        payments. Additional complexity exists for taxable private 
        foundations because such foundations are required to calculate 
        the tax on net investment income as well as any unrelated 
        business income tax that would have been owed if the foundation 
        were a taxable foundation.
    Finally the tax is inequitable as other tax-exempt organizations 
are also audited, however, private foundations are the only tax-exempt 
organizations that are, in fact, taxed.
    Mr. Chairman, repeal of the excise tax would result in an increase 
in qualifying distributions of hundreds of millions of dollars every 
year, boosting the ability of charitable organizations to address 
national priorities across the range of fields that are the focus of 
some 58,000 private foundations. The state of Florida ranks 
11th in the country in total foundation giving with over 
2,000 foundations. Roughly 90% of those are private foundations.
    I respectfully urge the committee to include repeal of the excise 
tax in appropriate legislation.
    Thank you and I am happy to answer any questions.

                                

    Chairman Herger. Thank you very much, Mr. Stearns. And with 
that, we will go and vote and return as soon as possible. And 
this hearing stands in recess.
    [Recess.]
    Chairman Herger. The Subcommittee on Human Resources and 
Select Revenue Measures will reconvene. And with that, we will 
continue with our witnesses. Mr. Nadler from New York, please.

   STATEMENT OF THE HON. JERROLD NADLER, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF NEW YORK

    Mr. Nadler. Thank you very much. I want to thank the Chairs 
and ranking members for the opportunity to address an issue 
that is of such great importance to this Nation and to the 
preservation of our first freedom.
    It is important to stress that both government and 
religious organizations have a long and productive history of 
providing needed services to those most in need in our society. 
What is in question is whether or not the nature of that 
relationship should be radically altered. And if so, what are 
the consequences? What would the consequences be for the rights 
of our most vulnerable neighbors?
    Let me start by saying that I support the proposal to 
permit tax deductions for charity for nonitemizers. That is not 
included in the charitable choice issue.
    There are three issues with respect to charitable choice.
    First, should we permit discrimination in employment or in 
the receipt of social services given out by religious 
organizations with Federal money? Religious organizations today 
are exempt from the prohibition against employment 
discrimination with respect to Title VII of the Civil Rights 
Act on the basis of religion in functionaries of the 
organization. No one is going to tell a House of Worship, you 
have to permit a woman priest or a woman rabbi.
    The question is, should we alter the law to permit 
discrimination on the basis of religion or sex in who ladles 
out the soup at the Federally funded soup kitchen run by the 
church, or who is entitled to have the soup? Should we allow 
discrimination on the basis of religion in that? And I submit 
that the answer to that is no.
    And that is the first of the three major provisions of the 
charitable choice bill before us: that for the first time, the 
law would permit that kind of discrimination in a publicly 
funded program.
    The second question is, should we permit proselytization, 
or religious propaganda, or worship or training as a condition 
for the receipt of Federally funded services through a faith-
based organization? Today, if the Fifth Avenue Baptist Church 
wants to set up the Fifth Avenue Baptist Church Soup Kitchen, 
Inc., they can certainly do so. But they cannot say, as a 
condition of coming to lunch, poor people have to listen to a 
religious lecture or have to engage in prayer.
    Under this legislation, I greatly fear that the churches 
would be able to do that. They can certainly do that now with 
their own money. For example, the Salvation Army does what I 
just described.
    There is nothing wrong with that, as long as it is not the 
taxpayers' money. Madison's view, as expressed in ``Memorial 
and Remonstrance,'' is that it is a violation of individual 
religious liberty to compel a citizen to support another faith. 
This view is still valid, whether it applies to the hiring of 
teachers in his time or in funding pervasively sectarian 
activities today.
    And in addition to which, there is the insistence in H.R. 7 
that there must be funding for a secular alternative in order 
to allow that kind of religious domination, in effect, of the 
social service. But the fact is, we know that very often the 
alternative will not exist in the real world. It would require 
a huge infusion of funds. In fact, the President's budget cuts 
down on funds for many of these social programs instead of 
increasing it. And in the real world, those funds wouldn't be 
available.
    To quote Professor Laycock, one of the majority witnesses 
at the Subcommittee on the Constitution's hearings on this 
subject: To permit this kind of activity without a secular 
alternative really being available in every local community 
would be a ``fraud.'' And we know that would not really happen.
    The third objection is the question of the funding of 
pervasively sectarian institutions. Today, the Fifth Avenue 
Baptist Church may compete, and it is perfectly proper that it 
competes on an equal footing, with the Fifth Avenue Block 
Association for the grant of Federal funds to run the soup 
kitchen or the homeless shelter or any such program. However, 
it has to set up a separate organization to do it so that the 
funds are not commingled.
    To allow the commingling of the funds without a separate 
organization would lead to, (A) government audit and 
regulations of the churches, which is a very dangerous 
proposition; and, (B) it would lead to allocation fights.
    The most divisive thing you have in Congress, as you know, 
is should New York get half a percent more of transportation 
funds than Pennsylvania, half a percent less, or vice versa. I 
would hate to see this country torn apart by an annual 
allocation fight: Should the Methodists get half a percent more 
and the Presbyterians a half percent less and the Catholics a 
quarter percent more?
    That kind of dispute has torn apart many foreign countries. 
We do not need that in the United States.
    And that would be, I suspect, a result of this legislation, 
if we are not very careful.
    I genuinely fear for religious autonomy in a world without 
the Lemon test and without the Sherbert rule. Religious 
institutions are being coaxed into a devil's bargain.
    In the wake of Boerne, Congress's efforts to protect such 
protections by statute seem to have come to very little. The 
day will come when having permitted excessive entanglement 
between religious institutions and the government, there will 
be no protection for religion when government flexes its 
muscles.
    I do not understand why some of my conservative colleagues 
suddenly have so much trust in big government that they are 
willing to take such a phenomenal risk.
    I thank you, Mr. Chairman.
    [The prepared statement of Mr. Nadler follows:]

Statement of the Hon. Jerrold Nadler, a Representative in Congress from 
                         the State of New York

    I want to thank the Chairs and Ranking Members for the opportunity 
to address an issue that is of great importance to this nation and to 
the preservation of our first freedom. As the Ranking Democratic Member 
of the Judiciary Committee's Subcommittee on the Constitution, I have 
been very involved in the examination of this legislation, and of other 
proposals to alter the manner in which religiously-affiliated 
institutions and faith-based programs interact with government.
    I think it is important to stress that both government and 
religious organizations have a long and productive history of providing 
needed services to those most in need in our society. I do not think 
that anyone is today arguing that these relationships ought to be 
severed or curtailed. What is in question is whether the nature of that 
relationship should be radically altered, and if so, what the 
consequences would be for the rights of the most vulnerable of our 
neighbors.
    Recently, our Subcommittee examined the current state of the law 
which is, I think it is fair to say, in great flux. Certainly the split 
opinion by the Supreme Court in Mitchell v. Helms demonstrates just how 
closely divided the Justices are on the very difficult issues which 
surround any entanglement between government and religion. While my 
sympathies are well known to my colleagues, the difficult issues with 
which the Court has been grappling--how much religious activity should 
be permitted in a publicly funded program, which programs should be 
allowed to participate, what are the rights of program participants and 
employees vis-a-vis the a publicly funded benefit, how much separation, 
if at all, should there be between the clearly sectarian and the 
clearly secular functions of an agency--are not trivial. We would do a 
disservice to the nation if we simply wished these difficulties away 
and pretended that they did not exist.
    Madison's view, as expressed in his Memorial and Remonstrance, that 
it is a violation of individual religious liberty to compel a citizen 
to support another faith, is still valid, whether it applies to the 
hiring of teachers of religious instruction (as was the case in 
Madison's time) or in funding other pervasively sectarian activities, 
as Mr. Justice Thomas and three other Justices hope to permit. We are 
treading on very shaky ground and it is perhaps a good time to reflect 
on the fact that the Establishment clause exists not, as some have 
argued, to protect government from religion, but to protect religion 
from government and to protect the conscience of each individual from 
the prospect of anyone using the power or resources of the state to 
coerce them in any way on the most fundamental matters of belief.
    Where government funding is used, issues of discrimination in 
employment or against potential program participants, must be 
adequately addressed. As the Supreme Court pointed out nearly 20 years 
ago in the Bob Jones University case, which has been the subject of an 
alarming epidemic of amnesia over the last year, the United States does 
have a compelling interest in eliminating all vestiges of 
discrimination on the basis of race, and I would add, on other grounds 
that the Congress, as well as state and local governments, have found 
fit to include. Public money comes from every American taxpayer, 
regardless of race, religion, creed, national origin, disability, 
gender, sexual orientation or identity, and no American should be 
denied employment opportunities or the ability to receive government 
funded services on those bases.
    There is a tension in the various proposals we have seen between 
religious autonomy, guaranteed to the participating programs, and the 
rights of participants and employees to be free from discrimination or 
proselytization. We clearly want religious institution to be free from 
government meddling. We do not want the government to tell a house of 
worship who can officiate at religious exercises or who can teach the 
faith. No one wants to tamper with that fundamental principle. 
Congress, in enacting Title VII of the Civil Rights Act of 1964 carved 
out an exception for religious institutions for this reason.
    But when religious institutions qua religious institutions become 
the purveyors of social services, what happens where there is a 
conflict? How are the rights of the religious institution, the employee 
and the program participant balanced? The legislation is woefully 
inadequate in addressing these problems which go to the heart of the 
religious liberty and civil rights interests of all concerned. It is 
especially a problem when the service government purchases from a 
faith-based organization is not purely secular in nature.
    For example, there are drug treatment programs run by the Nation of 
Islam or by some Christian groups, and I am sure by other faiths, where 
the religious activity and the religious conversion of the individual, 
is the cure for addiction. To say that we are funding a secular service 
when the people who are trying to beat drug addiction, people who are 
about as vulnerable as anyone in this society, are going to a program 
which tells them that they must accept a particular faith in order to 
get their lives on track, is pure fiction. Similarly, where you allow 
commingling of funds and activities, so that food is provided with 
public funds, then there is a break for prayer, and then the secular 
activity is continued strains credulity. It is an invitation for abuse 
of the public fisc and for those who need help the most and who are 
least able to object.
    H.R. 7, incidentally, does say that a secular alternative must be 
provided to anyone seeking a particular service who requests one. Prof. 
Laycock, and other Majority witnesses, agreed that, in order to protect 
the religious liberty of program participants, this must be a part of 
the plan. He said that without guaranteeing such a secular alternative, 
the program would be a ``fraud.'' But how does this square with 
reality? The bill can say it, but it provides no new funds for the 
alternative. In fact, the President's budget necessitates cuts in many 
of these programs, and many of those programs do not provide services 
to anyone who needs them now. Have any of you ever tried to get a 
constituent who wanted to clean up into drug treatment? There are long 
waiting lists for these programs which receive both public and private 
funds. Will Congress impose yet another unfunded mandate on state and 
local governments, or is this language meaningless? The Rev. Donna 
Lawrence Jones, an African American Methodist Minister from 
Philadelphia, who runs a faith-based program, and who was a Majority 
witness before our Subcommittee in support of H.R. 7, was very blunt 
when asked about the effectiveness of faith based programs. She told 
the Members that Congress would need to provide the necessary funds for 
these services if we wanted these programs to succeed. G-d can work 
miracles, but soup kitchens need money to buy soup, and drug treatment 
programs need to hire qualified counselors and pay rent.
    I think many members approve of the various tax incentives for 
individuals to make donations to charitable programs, but these were 
not included in the big tax cut bill the President just signed. What 
was included was an elimination of the estate tax which has provided a 
tremendous incentive for the wealthy to engage in estate planning which 
included charitable gifts. Will we have the money to do all of this, 
and will it be a net gain for charities after the elimination of the 
estate tax? I hope this Committee, which has jurisdiction over such 
matters, considers these questions carefully and reports to the rest of 
us what you have found.
    Finally, on the subject of religious autonomy, I genuinely fear for 
religious autonomy in a world without the Lemon test and without the 
Sherbert rule. Religious institutions are being coaxed into a devil's 
bargain. There is precious few constitutional restrictions on the rules 
government may now apply to religious institutions. In the wake of 
Boerne, Congress' efforts to provide such protections by statute--an 
effort in which three of our witnesses were key players--seems to have 
come to naught. The day will come when, having permitted excessive 
entanglement between religious institutions and the government, there 
will be no protection for religion when government flexes its muscles. 
I do not understand why my conservative colleagues suddenly have so 
much trust in big government that they are willing to take such a 
phenomenal risk.

                                

    Chairman Herger. Thank you very much, Mr. Nadler. And now 
we will hear from the gentleman from Virginia, Mr. Scott.

  STATEMENT OF THE HON. ROBERT C. SCOTT, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF VIRGINIA

    Mr. Scott. Thank you very much, Mr. Chairman, Mr. Chairman, 
and ranking members, members of the Committee.
    I am pleased to have the opportunity to appear before you 
today to share my concerns regarding the charitable choice 
portion of H.R. 7.
    I am not aware of much controversy about the other 
provisions of that bill and the other bills. I would just want 
to focus on charitable choice.
    Religiously affiliated organizations, including Catholic 
Charities, Lutheran Services, Jewish Federations, and a vast 
array of smaller faith-based organizations already sponsor 
government programs under current law without charitable 
choice. And contrary to President Bush's assertions, I am not 
aware of anyone who opposes these organizations operating 
publicly funded programs and providing services.
    They are funded like all other private organizations are 
funded. They are prohibited from using taxpayer money to 
advance their religious beliefs, and they are subject to civil 
rights laws.
    Now, before you can intelligently discuss the pros and cons 
of charitable choice, you first have to answer one fundamental 
question, and that is: Are you funding the faith or not?
    I am not surprised that the administration isn't here, 
because they have given conflicting answers to that question.
    At Notre Dame, for example, the President said: government 
should never fund the teaching of faith, but should support the 
good works of the faithful.
    The bill itself prohibits Federal funds being used to pay 
for proselytization.
    Now, if government is not funding the faith, then there is 
no need to discuss the preservation of the religious character 
of the sponsoring organization; there is no need to provide 
separate secular services elsewhere; there is no need to 
provide for discrimination in employment. In fact, there is no 
need for charitable choice.
    If government is not funding the faith, organizations can 
receive funding without charitable choice just like Catholic 
Charities does now.
    Unfortunately, the provision in charitable choice 
guaranteeing the right to retain the religious character of the 
sponsor also guarantees that they will be promoting religious 
views. And the prohibition against using Federal funds for 
proselytization does not prevent volunteers from taking 
advantage of the captured audience and converting the Federal 
program into a virtual worship service.
    Furthermore, many supporters of charitable choice 
acknowledge that the religious experience is exactly what is 
being funded.
    At a forum a few months ago, the junior Senator from 
Pennsylvania, the main sponsor in the Senate of charitable 
choice, criticized me for not recognizing that with some drug 
rehabilitation programs, religion is a methodology.
    John DiIulio indicated in a recent interview with the 
Associated Press that pervasively religious programs could 
apply for directed grants. At recent congressional hearings, 
sponsors explained that their programs are successful because 
of the religious nature of the program.
    Yet, how are we to conform these statement to the 
President's government should never fund the teaching of faith 
but should support the good works of the faithful, or the 
Department of Justice testimony last week that said absolutely 
no religious activity, funded privately or not, could occur 
during the government program.
    Now, Mr. Chairman, you have to answer that question: Are 
you funding the faith or not?
    If not, you don't need charitable choice. If so, then you 
have to candidly address the Establishment Clause of the First 
amendment in having government officials pick and choose 
between religions to see whose faith will be advanced during 
the government-sponsored program.
    My complete remarks outline an analysis of how this would 
work with vouchers, and you would have a different analysis. 
But here, you are directly picking the program to be funded.
    Now, Mr. Chairman, there is another important issue, and 
that is, should we allow employment discrimination in a 
Federally funded program? Mr. Chairman, you remember that there 
was a time when some Americans, solely because of their 
religion, were not considered qualified for certain jobs.
    Before the Civil Rights Acts of the sixties, people of the 
certain religions were routinely discriminated against when 
they sought employment. Sixty years ago this month, President 
Roosevelt established a principle in an executive order that 
you can not discriminate in government defense contracts based 
on race, religion, color, or national origin. And the civil 
rights laws of the sixties outlawed schemes in which job 
applicants were rejected solely because of their religious 
beliefs.
    Now, some of us are, frankly, shocked that we would even be 
having a debate over whether the sponsor of a Federally funded 
program can discriminate in hiring, but then we remember that 
the passage of the civil rights laws of the sixties was not 
unanimous, and we have to use charitable choice to redebate 
basic antidiscrimination laws.
    I believe that publicly funded employment discrimination 
was wrong in the forties and sixties, and it is still wrong.
    Some of us have suggested that organizations should be able 
to discriminate in employment based on those that share their 
vision and philosophy. Under current civil rights laws, you can 
discriminate on views on environment, abortion, gun control, 
whatever you want, but because of our sorry history of 
discrimination against certain Americans, we had to establish 
protected classes. And under present law, you cannot 
discriminate against an individual based on race, sex, national 
origin, or religion.
    Now, the President and supporters of charitable choice have 
promised to invest needed resources in our inner cities, but it 
is insulting to suggest that you can't get those investments 
unless you turn back the clock on civil rights.
    Now, there are a lot of other issues that I just want to 
mention as issues.
    You indicated that we want to see how this thing has been 
implemented under present law. Well, it hasn't been implemented 
under present law because President Clinton's administration 
viewed this as unconstitutional, and that is why they have not 
been implemented.
    You mentioned Vice President Gore. I don't know exactly 
what his comments meant, but the Democratic platform that he 
ran on specifically said that faith-based organizations ought 
to be funded, but not with discrimination and not with 
proselytization.
    There are a number of other issues, whether or not this 
will help small organizations. Small organizations, civic or 
religious, are still going to have the problems. They are going 
to have to still apply for a grant. They are going to still 
have to develop the program and implement it with Federal 
regulations. They are going to subject to audits.
    There is no technical assistance in charitable choice, 
which would help, or no grants to tell them how to run an 
after-school programs and that kind of thing. We have licensing 
problems. The privatization issue, what happens, since there is 
no money in it, if the church gets the contract and the 
government gets defunded as a result, what happens to those 
employees?
    And I want to introduce letters from the Episcopal Church, 
the Congress of National Black Churches, and a list of a 1,000 
religious leaders who support that same position, don't want 
discrimination, don't want proselytization during the 
government contracts.
    [The following was subsequently received:]

   Statement of the Episcopal Church, Office of Government Relations
   Episcopal Church Establishes Policy on Public Funding of ``Faith-
                        based'' Social Services

    Washington, D.C.--The Episcopal Church issued a resolution 
supporting the ``longstanding practice of receiving public funding for 
faith-based social services so long as such programs do not 
discriminate or proselytize as part of receiving services.''
    ``The purpose of this resolution is to articulate the Episcopal 
Church's strong conviction on the policy of public funding of faith-
based social services,'' said Frank T. Griswold, Presiding Bishop and 
Primate of the Episcopal Church. ``Receiving public moneys from local, 
State or Federal Governments is nothing new to the Episcopal Church or 
other faith-based groups for that matter. I am pleased the questions 
around this issue have brought serving the needs of others to our 
public discourse.''
    The Executive Council of the Episcopal Church, USA, meeting in Salt 
Lake City approved the statement June 11, and also called on the 
Federal Government to increase public funding for programs aimed at 
critical human needs. The statement also requested that the government 
improve the delivery of assistance to faith-based organization by 
simplifying paperwork requirements, providing timely payment for 
services, and appropriate technical assistance.
    The Church supports proposals to use the Tax Code to create 
incentives for increasing charitable giving. The recent tax bill signed 
by President Bush last week did not include tax incentives to non-
itemizing tax payers. Tax incentives proposals, supported by almost 
every major faith and denomination, were dropped in the reconciliation 
process by House and Senate negotiators.
    Parishes, diocese, and Episcopal-related service providers were 
urged to consider carefully the ramifications of accepting public 
moneys and explore separate incorporation for the delivery of social 
services with public funds. The Church also called on the business 
community to create partnerships with faith-based organizations and 
parishes as part of their social responsibilities.
    While supporting the receipt of public money in some cases for 
social services, the statement also calls for secular, non-religiously 
affiliated programs to be available in the same community should 
proselytizing and religious discrimination exemptions--allowed to 
religious groups--be permitted in a program as in current charitable 
choice law or in President Bush's faith-based initiatives.
    Tom H. Hart of the Episcopal Church's Office of government 
Relations in Washington, D.C. said, ``This position balances the 
increasing need for social services with fairness and accountability in 
the use of public dollars.''
    ``The Church recognizes that discrimination has no place in the 
delivery of social services,'' Hart said. ``The government should and 
certainly can expand the opportunity parishes and faith-organizations 
have to help those in need with public funds, but should clearly put 
new money behind those proposals and critical existing programs.''
    [The attachments are being retained in Committee files.]
       Statement of the Congress of National Black Churches, Inc.

                             Press Release

For Immediate Release
Contact: Danita Ferguson Oliver
(202) 371-1091

Leaders of Historic Black Denominations Meet in Washington to Discuss 
President Bush's Faith-Based Initiative

    Washington, D.C.--Among the Black clergy that met with the 
President in Washington on Monday, March 12 to share perspectives about 
Bush's faith-based initiative were denominational leaders from the 
major Black historic denominations. These denominational leaders are 
Members of the Congress of National Black Churches, Inc., (CNBC) an 
ecumenical coalition of the eight major historic black denominations. 
Through denominational collaborative efforts, CNBC provides programs, 
technical assistance and training, with government and private funds, 
to support, strengthen and sustain the Black community.
    CNBC therefore supports the concept of a faith-based initiative 
that facilitates and supports the efforts of faith-based groups through 
the distribution of government funds. ``The President's `faith-based' 
initiative,'' stated CNBC chairman Bishop Cecil Bishop of the African 
Methodist Episcopal Zion Church, ``raises issues of concern. . . . We 
met on Monday to gather additional information on this initiative.'' 
Bishop added, ``We also wanted to make sure the President knows who the 
leaders of the African American denominations are.''
    Noting that CNBC Members as a collective, nor as the heads of the 
individual major historic black denominations, have not made a 
statement in support of Bush's proposed faith-based initiative, Bishop 
stated, ``Denominational leaders would not make a statement of support 
without consultation with their communions.''
    CNBC denominational Members agree however that they could not 
support legislation that allows for: discrimination based on creed; or 
for the responsibility of government to be redefined where that 
responsibility is placed on faith-based organizations.
    ``The church, particularly the black church,'' Bishop added, ``has 
historically been the protector and advocator for the disenfranchised 
and disadvantaged.'' CNBC is committed to providing programs and 
services to disenfranchised communities and persons most in need of 
charitable support. ``CNBC supports partnerships that maintain the 
dignity and proper role of all entities striving to address the needs 
of our most vulnerable population,'' Bishop stated. ``Therefore,'' he 
added, ``We would be opposed to legislation, of any kind, that derails 
the independence of black churches, limits their freedom or silences 
its prophetic voice.'' For churches to successfully retain their 
independence, CNBC Members agree that top-notch technical assistance 
and training prior to entering into a contractual relationship with the 
Federal, state and local governments is needed.
    In addition to Bishop, other CNBC Members present at the meeting 
were: Dr. William Shaw, President, National Baptist Convention, USA, 
Inc.; Bishop Charles Helton, Presiding Prelate for the 7th Episcopal 
District, Christian Methodist Episcopal church; Bishop T. Larry 
Kirkland, Ecumenical Officer for the African Methodist Episcopal 
Church; and Dr. S. Thurston, Vice President, National Baptist 
Convention of America, Inc.
    Founded in 1978 and based in Washington, D.C., CNBC is an 
ecumenical coalition of eight major historically African American 
denominations: African Methodist Episcopal; African Methodist Episcopal 
Zion; Christian Methodist Episcopal; Church of God in Christ; National 
Baptist Convention of America, Inc.; National Baptist Convention USA, 
Inc.; National Missionary Baptist Convention of America; and 
Progressive National Baptist Convention, Inc. Together, these 
denominations represent 65,000 Member churches and a congregation 
Membership of more than 20 million people. CNBC's mission is to foster 
Christian unity, charity and fellowship and to collaborate in 
ministries, which promote justice, wholeness, fulfillment, and affirm 
the moral and spiritual values of faith.

  An Open Letter to President Bush and Congress From America's Clergy
                              May 16, 2001

    Dear President Bush and Members of the U.S. Congress:
    We welcome the goal of empowering communities of faith to work 
effectively with government and other civic institutions. As leaders 
from traditions representing the diversity and breadth of the religious 
landscape in our Nation today, we affirm the critical role of faith as 
a source of healing in our society. Whether by commandment from Holy 
Scriptures or lessons from prophets and messengers, we share a calling 
to care for those who are suffering, to help those who have been left 
behind and to embrace those who have been forgotten.
    It is out of our commitment to the success of such faith-based 
enterprises that we are writing today to express our serious 
reservations about the provisions commonly referred to as ``Charitable 
Choice'' in the Administration's Faith-Based Initiative. The 
``Charitable Choice'' proposals would inject government dollars and 
bureaucratic oversight directly into houses of worship and other 
pervasively religious organizations. We believe this portion of the 
Faith-Based Initiative poses numerous dangers to both religion and 
government.
    These provisions would entangle religion and government in an 
unprecedented and perilous way. The flow of government dollars and the 
accountability for how those funds are used will inevitably undermine 
the independence and integrity of houses of worship. Allowing 
government officials to pick and choose among religions for limited 
government funds will foster an unhealthy competition between religions 
and could lead to an insidious form of political abuse. Exempting 
government-funded religious institutions from employment laws banning 
discrimination on the basis of religion weakens our nation's civil 
rights protections for those seeking to provide assistance to those in 
need.
    Such new legislation is not necessary. For decades many houses of 
worship have set up separate religiously affiliated institutions to 
perform government-funded social services, a system that has protected 
both the autonomy of houses of worship and the integrity of government 
programs.
    Partnerships between religion and government must be undertaken 
with great caution so as not to undermine the very integrity and 
freedom that allows both the followers and the institutions of religion 
to practice and keep faith in our Nation.
    We urge you to protect the sacred role of religion in our nation by 
rejecting this avenue of infusing government funds into America's 
religious institutions.
            Sincerely,
    Dr. Gary L. Abbott Sr. First Baptist Church, Milledgeville, GA
    Rabbi Joel N. Abraham, Plainfield, NJ
    Rabbi Arthur Abrams, Temple Beth Shalom, Sun City, AZ
    Rev. Amos Acree Jr. Network of Religious Communities, East Aurora, 
NY
    Rev. Marjorie Adams, First Unitarian Church, Austin, TX
    Rev. L.T. ``Red'' Adams, First Unitarian Church, Austin, TX
    Rev. Lesley M. Adams, St. Johns Chapel, Geneva, NY
    Dr. Charles G. Adams, Pastor, Hartford Memorial Baptist Church, 
Detroit, MI
    James R. Adams, President, The Center for Progressive Christianity, 
Cambridge, MA
    Rabbi David Adelson, East End Temple, New York, NY
    Rev. Dr. David W. Adkins, Starling Avenue Baptist Church, 
Martinsville, VA
    Rabbi Richard D. Agler, Congregation B'nai Israel of Boca Raton, 
Boca Raton, FL
    Rabbi Daniel S. Alexander, Congregation Beth Israel, 
Charlottesville, VA
    Rev. Denise M. Allen, Temple of Isis, Los Angeles, CA
    Rabbi Daniel R. Allen, President, Masorti Foundation for 
Conservative Judaism in Israel, New York, NY
    Rev. George P. Aloser, Roman Catholic, Novi, MI
    Rabbi Rebecca Alpert, Member, Mishkan Shalom, Philadelphia, PA
    Rev. Dr. David A. Ames, Episcopalian, Providence, RI
    Rev. Ron J. Anderson, Morningstar Community Church, Worcester, MA
    Dr. Fred W. Andrea III, First Baptist Church, Aiken, SC
    Rev. A.F. Archer, Priest, St. George Eastern Orthodox Church, 
Pharr, TX
    Rev. Charles W. Archibald, Albuquerque (U.U.C.), Durango, CO
    Rabbi Melanie Aron, Congregation Shir Hadash, Los Angeles, CA
    Rabbi Haim Asa, Temple Beth Tikvah of Northern Orange Co. 
Fullerton, CA
    Dr. H. Mark Ashworth, Ebenezer Baptist Church, Monticello, FL
    Rev. Jay Atkinson, Unitarian Universalist Church, Studio City, CA
    Dr. Dennis R. Atwood, Webster Groves Baptist Church, St. Louis, MO
    Rev. Jack Averill, First Baptist Church, Olean, NY
    Rev. Dr. Douglas R. Baer, Interim Pastor, McKinley Presbyterian 
Church, Champaign, IL
    Rev. David Bahr, Archwood United Church of Christ, Cleveland, OH
    Dr. Raymond Bailey, Seventh and James Baptist Church, Waco, TX
    Rev. Marcia B. Bailey, Central Baptist Church, Wayne, PA
    Rev, Steven Baines, Baptist, Washington, DC
    Rabbi Kerry Baker, Congregation Kol Halev, Austin, TX
    Dr. Robert C. Balance, Heritage Baptist Church, Cartersville, GA
    Rev. David T. Ball, PhD, Denison University, Granville, OH
    Rev. Kim Keethler Ball, First Baptist Church, Granville, OH
    Rev. William E. Ballard, United Methodist Church, Eagle Grove, IA
    Dean Isam E. Ballenger, Baptist Theological Seminary at Richmond, 
Richmond, VA
    Rev. D. Mark Bariaon, Central Presbyterian, Louisville, KY
    Rabbi Stephen F. Barrack, Temple Beth Shalom,
    Pastor Michael Barron, Eastern Oklahoma Presbyterian Church (USA), 
Broken Arrow, OK
    Rev. S. John Bartley, St. John Baptist Church, Atlanta,GA
    Rev. Mr. Randol G. Baston, Catholic Diocese of Davenport, IA
    Dr. John Mark Batchelor, White Oak Baptist Church, Clayton, NC
    Dr. Dennis N. Bazemore, First Baptist Church, Wallace, NC
    Rabbi Brian K. Beal, Temple Shaari Emeth, Manalapan, NJ
    Rev. Brent Beasley, First Baptist Church, Eagle Lake, TX
    Rev. Paul Beckel, Southwest Unitarian Universalist Church, 
Strongsville, OH
    Rev. Dr. Randolph W.B. Becker, Williamsburg Unitarian 
Universalists, Williamsburg, VA
    Rev. Jody Anne Becker, St. Anselm Church, Ross, CA
    Rabbi Shelley Kovar Becker, Temple Hesed, Scranton, PA
    Rev. Wells E. Behee, Unitarian Universalist Church, New Madison, OH
    Rabbi Martin P. Beifield, Jr., Congregation Beth Ahabah, Richmond, 
VA
    Rabbi Marc J. Belgrad, Congregation Beth Am, Buffalo Grove, IL
    Rev. Dr. Mark L. Belletini, First Unitarian Universalist Church, 
Columbus, OH
    Rev. William R. Belli, Retired, Calvary Baptist Church, Norristown, 
PA
    Rev. Bonnie L. Benda, Canaeron United Methodist Church, Denver, CO
    Rev. Bonnie L. Benda, Canaeron United Methodist Church, Denver, CO
    Rabbi James M. Bennett, Temple Beth El, Charlotte, NC
    Dr. Candace R. Benyei, Teaching Elder, The Congregation of the Way, 
Redding, CT
    Rabbi Peter S. Berg, Temple Emanu-El, Dallas, TX
    Rev. Charles V. Bergstrom, Lutheran (ELCA), West Yarmouth, MA
    Rabbi Michael Berk, Union of American Hebrew Congregations, San 
Francisco, CA
    Rabbi William C. Berk, Temple Chai, Phoenix, AZ
    Rabbi H. Phillip Berkowitz, Temple Beth Or, Washington Twp, NJ
    Rabbi Marc E. Berkson, Congregation Emanu-El B'ne Jeshurun, 
Milwaukee, WI
    Rabbi Alvin K. Berkun, Tree of Life Congregation, Pittsburgh, PA
    Rabbi Alan Berlin, Temple Solel, Paradise Valley, AZ
    Rabbi Donald R. Berlin, Union of American Hebrew Congregations, 
Washington, DC
    Rev. Charline Berry, First Baptist Church, Gaithersburg, MD
    Rev. Gina Bethune, University Baptist Church, Austin, TX
    Rev. Dr. Larry Bethune, University Baptist Church, Austin, TX
    Rabbi Jonathan Biatch, Beth El Hebrew Congregation, Alexandria, VA
    Rev. Leonard B. Bjorkman, PhD, Presbyterian Church (USA), Syracuse, 
NY
    Rev. Lee Blackburn, Chaplain, United Church of Christ, Kansas City, 
KS
    Rev. Elaine L. Blanchard, 6th Avenue United Church (United Church 
of Christ), Denver, CO
    Dr. Michael Bledsoe, Riverside Baptist Church, Washington, DC
    Rabbi Barry H. Block, Temple Beth-El, San Antonio, TX
    Rabbi Irving Bloom Reform Rabbi, Mobile, AL
    Rev. Dr. James E. Bodman, Minister, Unitarian Universalist Church 
of Orange County, Anaheim, CA
    Rev. Whitney S. Bodman, UIA, Franklin, MA
    Rev. Dr. Jack H. Boelens, Presbytery of the New Covenant, Houston, 
TX
    Rev. Richard Bolin, La Canada United Methodist Church, La Canada, 
CA
    Pastor Bruce M. Bowen, Colesville Presbyterian Church, Silver 
Spring, MD
    Rabbi Bradd, H. Boxman, United Jewish Center, Danbury, CT
    Rev. David Boyd, St. Michael the Archangelv Episcopal Church, 
Lexington, KY
    Rev. John H. Brand, N.Texas Conference, United Methodist Church, 
Austin, TX
    Rev. Morris H. Bratton, United Methodist Church, Kingsland, TX
    Rev. Dr. G. Stanford Bratton, Network of Religious Communities, 
Buffalo, NY
    Rev. F. David Breckenridge, Rolling Hills Baptist Church, 
Fayetteville, AR
    Rev. T. Edwards Breed, St. Andrew Lutheran Church, Cedar Rapids, IA
    Rev. Dr. Sylvanus G. Brent, Associate Minister, Plymouth 
Congregational UCC, Washington, DC
    Dr. Luther G. Brewer, Greenwood Forest Baptist Church, Cary, NC
    Rev. Roger Brewin, Minister, First Unitarian Church, Hobart, IN
    Rev. James R. Bridges, Parish Minister, Unitarian Universalist 
Society of Orange County, Rock Tavern, NY
    Jeff Briere, Intern Minister, Unitarian Church of Hinsdale, 
Hinsdale, IL
    Rev. Bryan Brock, First Baptist Church, Gaithersburg, MD
    Rev. Ken Brooker-Langston, Disciples of Christ, Annapolis, MD
    Rabbi Jerald M. Brown, Temple Ahavat Shalom, Northridge, CA
    Very Rev. Donald G. Brown, Trinity Episcopal Cathedral, Sacramento, 
CA
    Pastor Dean Brown, St. John's UMC, Sebring, FL
    Rev. Stephen L. Brown, Church of the Nazarene, San Bruno, CA
    Dr. W. Steven Brown, First Baptist Church, Walterboro, SC
    Rev. Martha Brown, Associate Minister, Henson Valley Christian 
Church, Fort Washington, MD
    Rev. Hugh E. Brown III, Episcopal Priest, Protestant Chaplain, 
Georgetown University, Washington, DC
    Rev. Michael W. Brown, Unitarian Universalist, Peoria, IL
    Rev. Anne Broyles, Malibu United Methodist Church, Malibu, CA
    Rev. David A. Brynelson, First Baptist Church, Paola, KS
    Rev. Daniel Budd, First Unitarian Church, Cleveland, OH
    Rev. Jim Bundy, Sojourners United Church of Christ, 
Charlottesville, VA
    Rev. Kenneth E. Burke Jr., Pastor, East Washington Heights Baptist 
Church, Washington, DC
    Jim Burklo, Campus Minister, United Campus Christian Ministry at 
Stanford University, Stanford, CA
    Rev. John P. Burns, University Baptist Church, College Park, MD
    Rev. Roanald C. Burnsworth, Judson Baptist Church, Belle, WV
    Dr. Michael J. Burr, Community Church of Issaquah, Issaquah, WA
    Rabbi Marcus L. Burstein, Temple Rodef Shalom, Falls Church, VA
    Rev. Franklyn Busby, D.Mus, Washington Plaza Baptist Church, 
Reston, VA
    Rabbi John L. Bush, Temple Anshe Hesed, Erie, PA
    Rev. Daniel L. Buttry, First Baptist Church, Dearborn, MI
    Roger Butts, Intern Minister, UU Church of Annapolis,, Annapolis, 
MD
    Rev. Sally Bystroff, Third Presbyterian Church, Troy, NY
    Rev. Mark S. Caldwell, PhD, Baptist, Nashville, TN
    Rev. Dr. Stanley N. Califf, Our Saviour's Lutheran Church, Orange, 
CA
    Rabbi Paul D. Caplan, Temple Anshe Sholom, Olympia Fields, IL
    Pastor William Carcamo, Iglesia Bautista Jerusalem, West Hills, CA
    Rev. Joseph G. Carey, Faith Presbyterian Church, Dunedin, FL
    Rev. Barbara Carlson, (U.U.C.), Bloomington, IN
    Rev. Robert W. Carlson, D.Min. Chair, Episcopalian, Silver Spring, 
MD
    Rev. Tracy A. Carol, Community Christian Church (Disciples of 
Christ), Camdenton, Missouri
    Rabbi Kenneth Carr, Congregation Beth Am, Los Altos Hills, CA
    Rev. Brad Carrier, Unitarian Universalist Fellowships, Grants Pass 
& Bend, OR
    Rev. Charles C. Carrimore Jr., Roberdel Baptist Church, Rockingham, 
NC
    Rev. Colleen Carrol, Community Christian Church (Disciples of 
Christ), Camdenton, MO
    Dr. Cornelius Carter Jr., Canaan Baptist Church, Washington, DC
    Rev. Mark S. Caruana, Tabernacle Baptist Church, Utica, NY
    Rabbi Joshua L. Caruso, Temple Beth El, Spring Valley, NY
    Rev. Gary L. Carver, First Baptist Church, Chattanooga, TN
    Rev. Steven Charles Case, Grace Baptist Church, Westmont, NJ
    Rev. Michael D. Castle, Cross Creek Community Church, Dayton, OH
    Rev. Ignacio Castuera, United Methodist, Pacific Palisades, CA
    Rev. Michael Catalano, Unity of the Hills, Branson, MO
    Rev. Donna M. Cavedon, United Church of Christ, Hanover, NH
    Rev. Eunice I. Chalfant, Celebration of Life Church (United Church 
of Religious Science), Kettering, OH
    Dr. David, P. Chandler, Chair of Adult Ministries, Downy United 
Methodist Church, Downey, CA
    Rev. Gary L. Chapman, PhD, (U.C.C), Burlington, IA
    Rabbi Joshua Chasan, Ohavi Zedek Synagogue, Burlington, VT
    Rev. Larry Chesser, Baptist, Burke, VA
    Rev. Barbara Child, Unitarian Universalist Church of Tampa, Tampa, 
FL
    Rev. Kyle Childress, Austin Heights Baptist Church, Nacogdoches, TX
    Pastor, Dennis Christiansen, First Baptist Church, Clifton Springs, 
NY
    Rev. Linda Morgan Clark, United Methodist, Muskogee, OK
    Rev. Maryell Cleary, Unitarian Universalist, East Lansing, MI
    Rev. Mark M. Clinger, First Baptist Church, Madison, WI
    Rabbi David B. Cohen, Congregation Sinai, Milwaukee, WI
    Rabbi Kathy S. Cohen, Roanoke, VA
    Rabbi Paul F. Cohen, Temple Jeremiah, Northfield, IL
    Rabbi Hillel Cohn, Congregation Emanu El, San Bernadino, CA
    Rabbi Edward Cohn, Temple Sinai, New Orleans, LA
    Rabbi Holly Cohn, Congregation Kol Am, Ballwin, MO
    Rev. Donald R. Cole, Salem Baptist Church, Brandenburg, KY
    Rev. Lawrence B. Coleman, Churchland Baptist Church, Chesapeake, VA
    Rev. Don Coleman, Pastor, University Church, Chicago, IL
    Rev. Ann Marie Coleman, Pastor, University Church, Chicago, IL
    Rev. Jacqueline Collins, Unitarian Church, Charleston, SC
    Rev. Thomas H. Collins, Blackstone Baptist Church, Blackstone, VA
    Rabbi Neil Comess-Daniels, Beth Shir Shalom, Santa Monica, CA
    Rabbi Ernest J. Conrad, Temple Kol Ami, West Bloomfield, MI
    Rev. Rollin A. Conway, PhD, United Methodist, Bay Village, OK
    Pastor Ronald L. Cook, First Baptist Church, Brownwood, TX
    Rev. Harry T. Cook, Rector, St. Andrews Episcopal Church, Clawson, 
MI
    Rev. Dennis Coon, Trinity United Methodist Church, Des Moines, IA
    Rev. Robert D. Cooper, United Methodist, Dallas, TX
    Rev. Judith M. Coplen, Presbyterian Church (USA), Fayetteville, AR
    Rev. Forest Cornelius, PhD, American Baptist Churches, USA, 
Waterloo, IA
    Rev. Lew B. Cort, Liberty Baptist Church, Springfield, MO
    Rabbi Laurie Coskey, Poway, CA
    Rev. Ragan Courtney, Terrytown Baptist Church, Austin, TX
    Rev. Cynthia Clawson, Courtney, Terrytown Baptist Church, Austin, 
TX
    Rev. Sam Cox, UMC, Kailua, HI
    Pastor Susan Halcomb Craig, United University Church, Los Angeles, 
CA
    Rev. Katie Lee Crane, First Parish of Sudbury, Sudbury, MA
    Dr. Kent Cranford, First Baptist Church, Commerce, GA
    Dr. Marion Crayton, Ebenezer A.M.E. Church, Fort Washington, MD
    Rev. Jimmy Creech, Methodist, Raleigh, NC
    Anna Lee Crockett, Retired Minister, Aspen Hill Christian Church, 
Silver Spring, MD
    Dr. Jesse J. Croom, First Baptist Church of Ahoskie, Ahoskie, NC
    Rev. Vaughn Crowetipton, Auburn First Baptist Church, Auburn, AL
    Rev. Dr. Steve J. Crump, Unitarian Church of Baton Rouge, Baton 
Rouge, LA
    Sister Mary Ann Cunningham, S.L. National Coalition of American 
Nuns, Denver, CO
    David R. Currie, Executive Director, Texas Baptist Committed, San 
Angelo, TX
    Rev. Andrew B. Currier, First Baptist Church, Overland Park, KS
    Rev. Bryant Currier, First Baptist Church, Waverly, KS
    Rev. Arthur E. Curtis, Minister, Unitarian Universalist Fellowship, 
Anchorage, AK
    Rev. Thomas H. Cusick, St. Anthony Catholic Church, Belleville, MI
    Rev. Peg Custer, St. Andrew's-in-the-Valley Episcopal Church, 
Tamworth, NH
    Rev. Ben F. Dake, First Presbyterian Church, Cottage Grove, OR
    Rev. Paul E. Dakin, Warrenton Baptist Church, Warrenton, VA
    Rev. Dr. Beverly Dale, Executive Director, Christian Association at 
the University of Pennsylvania, Philadelphia, PA
    Rev. Gary Dalton, Belmont Baptist Church, Charlottesville, VA
    Pastor Jim Dammon, First Baptist Church, Port Arthur, TX
    Dr. C. Mackey Daniels, President, Progressive National Baptist 
Convention, Washington, DC
    Rev. James G. Daniely, United Campus Ministry, Petersburg, VA
    Rabbi Dan Danson, Mt. Sinai Congregation, Wausau, WI
    Rev. Nancy Darnell, First Baptist Church, Boulder, CO
    Rev. Barbara Davenport, Skagit Unitarian Fellowship, Mt. Vernon, WA
    Denise Taft Davidoff, Moderator, Unitarian Universalist 
Association, Boston, MA
    Dr. Gary D. Davidson, Pastor, Johnstown Baptist Church, Johnstown, 
OH
    Father Bill Davis, Immaculate Heart of Mary Catholic Church, 
Houston, TX
    Rev. Larry E. Davis, Third Baptist Church, St. Louis, MO
    Rev. Tom Davis, United Church of Christ, Saratoga Springs, NY
    Rev. Deborah Davis-Johnson, Immanuel Baptist Church, Portland, ME
    Dr. W. Robert DeFoor, Harrodsburg Baptist Church, Harrodsburg, KY
    Rev. Linda, DeLaine, Riverside Baptist Church, Washington, DC
    Rev. Gregory Dell, Broadway United Methodist Church, Chicago, IL
    Rev. John D. Dennis, First Presbyterian Church, Corvallis, OR
    Rev. Hance Dilbeck, First Baptist Church, Ponca City, OK
    Rabbi Lucy H.F. Dinner, Temple Beth Or, Raleigh, NC
    Dr. Larry K. Dipboye, First Baptist Church, Oak Ridge, TN
    Rev. Noel J. Doherty, St. Dunston's Episcopal Church, Tulsa, OK
    Rev. Daniel O. Donmoyer, St. Paul (Lebanon) Lutheran Church of 
Felton (ELCA), Felton, PA
    Rev. Judith Downing, Unitarian Universalist, Fairhaven, MA
    Rabbi William Dreskin, Woodlands Community Temple, White Plains, NY
    Rev. Louis E. Drew, First Baptist Church, Plaistow, NH
    Rabbi Ellen Weinberg Dreyfus, B'nai Yehuda Beth Sholom, Homewood, 
IL
    Rev. Dr. Tom F. Driver, The Paul J. Tillich Professor of Theology 
and Culture Emeritus, Union Theological Seminary, New York, NY
    Rev. Renee DuBose, Our Hope Metropolitan Community Church, Athens, 
GA
    Rev. Michael R. Duncan, Eminence Baptist Church, Eminence, KY
    Rev. Karen N. Dungan, Osage First United Methodist, Osage, IA
    Rev. Dee Dunn, Judson Baptist Church, Minneapolis, MN
    Rev. Dr. James M. Dunn, Wake Forest University Divinity School, 
Winston-Salem, NC
    Rabbi Elizabeth Dunsker, Congregation Beth Israel, Austin, TX
    Rev. Jane Dwinell, Unitarian Universalist, Derby Line, VT
    Rev. David W. Dyson, Lafayette Avenue Presbyterian Church, 
Brooklyn, NY
    Rev. Mary Earle, Episocpal, San Antonio, TX
    Rev. Stan Easty, St. Peter's Episcopal Church, Sunbury, NC
    Rabbi Judith B. Edelstein, Temple Hatikvah, Flanders, NJ
    Rev. Rebecca A. Edmiston-Lange, Emerson Unitarian Church, Houston, 
TX
    Rabbi Lisa A. Edwards, Ph.D. Congregation Beth Chayim Chadashim, 
Los Angeles, CA
    Rabbi Denise Eger, Congregation Kol Ami, West Hollywood, CA
    Rev. Dea Lemke Eggleston, Asbury United Methodist Church, Austin, 
TX
    Rev. Mitzi N. Eilts, National Coordinator, United Church of Christ 
Coalition for LGBT Concerns, Guilford, CT
    Rev. Lauren D. Ekdahl, Trinity United Methodist, Lincoln, NE
    Rabbi Monty Eliasov, Heart of Texas Havurah, Austin, TX
    Rev. Jack W. Elliott, Delmar Baptist Church, Town & Country, MO
    Rev. Kathleen Ellis, Unitarian Universalist Fellowship, College 
Station, TX
    Rabbi Sue Levi Elwell, Regional Director, PA Council-Union of 
American Hebrew Congregations, Philadelphia, PA
    Rev. Dr. Dorothy May Emerson, Unitarian Universalist, Medford, MA
    Rev. William England, First Baptist Church, St. Paul, MN
    Rev. Michael E. England, M.Div. Pastor, Metropolitan Community 
Church of Greater Hayward, San Lorenzo, CA
    Karen J. English, Deacon, Second Congregational United Church of 
Christ, Memphis, TN
    Rev. Dr. Steven Epperson, South Valley Unitarian Universalist 
Society, Salt Lake City, UT
    Rev. Paul Eppinger, Arizona Ecumenical Council, Phoenix, AZ
    Rev. Karen R. Erskine, Creative Spirit Lutheran Parish, Aaronsburg, 
PA
    Rabbi S. Joan Glazer Farber, Greenwich Reform Synagogue, Greenwich, 
CT
    Rev. Dr. Ronald L. Farmer, The Wallace All Faiths Chapel, Chapman 
University, Orange, CA
    Rev. Dr. David Albert Farmer, Silverside Church, Wilmington, DE
    Rev. Thomas P. Farrel, Newmen Center at the Univ. of KY, Lexington, 
KY
    Rabbi David E. Fass, Temple Beth Shalom, New City, NY
    Pandit J.P. Fedhi, Hindu Temple of Fresno, Fresno, CA
    Rev. Joseph H. Feiler, Myers Park Baptist Church, Charlotte, NC
    Rev. Jean A. Feiler, Myers Park Baptist Church, Charlotte, NC
    Rabbi Dena A. Feingold, Beth Hillel Temple, Kenosha, WI
    Rabbi Morley T. Feinstein, Temple Beth-El, South Bend, IN
    Rabbi Marla J. Feldman, Detroit, MI
    Dr. Robert U. Ferguson, Jr., Trinity Baptist Church, Seneca, SC
    Rabbi Helen Ferris, Temple Israel of North Westchester, Croton, NY
    Sister Maureen Fiedler, Sisters of Loretta, Brentwood, MD
    Rev. Kathy Manis Findley, Providence Baptist Church, Little Rock, 
AR
    Dr. Larry Finger, First Baptist Church, Lavonia, GA
    Rabbi Steven M. Fink, Temple Oheb Shalom, Baltimore, MD
    Rabbi Arnold G. Fink, Beth El Hebrew Congregation, Alexandria, VA
    Rev. Roberta Finkelstein, Unitarian Universalists of Sterling, 
Sterling, VA
    Rev. W.W. Finlator, Pastor Emeritus, Pullen Memorial Baptist 
Church, Raleigh, NC
    Rev. Wendy Fish, First Unitarian Universalist Church, Columbus, OH
    Rabbi Adam D. Fisher, Temple Isaiah, Stony Brook, NY
    George H. Fisher, Coordinator, United Church of Christ Coaliton, 
Miami, FL
    Rev. E.B. Fletcher, Priest of the Wiccan World International 
Religious Alliance, San Angelo, TX
    Dr. Ronald B. Flowers, Christian Church (Disciples of Christ), Fort 
Worth, TX
    Dr. Don Flowers, Jr., Providence Baptist Church, Charleston, SC
    Rabbi Steven Folberg, Congregation Beth Israel, Austin, TX
    Rev. Luise Forseth, Judson Memorial Baptist Church, Minneapolis, MN
    Rev. Lucy Forster-Smith, Chaplain (Presbyterian), Macalester 
College, St. Paul, MN
    Rev. Nick Foster, University Baptist Church, Montevallo, AL
    Rev. Anne Carroll Fowler, St. John's Episcopal Church, Jamaica 
Plain, MA
    Rabbi David M. Frank, Temple Solel, Encinitas, CA
    Rabbi Robert P. Frazin, Temple Solel, Hollywood, FL
    Rev. Marcia C. Free, United Church of Christ, Fresno, CA
    Rabbi David Freedman, B'nai Israel Synagogue, Rochester, MN
    Rabbi Allen I. Freehling, University Synagogue, Los Angeles, CA
    Pastor Michael Wade Freeman, First Baptist Church, Del Rio, TX
    Pastor Inga Freyer Nicholas, Michigan Avenue Baptist Church, 
Saginaw, MI
    Pastor Ron Freyer Nicholas, Michigan Avenue Baptist Church, 
Saginaw, MI
    Rabbi Susan Friedman, Beth Shalom of Cary North Carolina, Raleigh, 
NC
    Rabbi John Friedman, Judea Reform Congregation, Durham, NC
    Rev. Roger Fritts, Senior Minister, Cedar Lane Unitarian Church, 
Bethesda, MD
    Cannon John Frizzel, Episcopal Church, Alexandria, VA
    Rev. Yoshiaki Fujitani, Buddhist, Honolulu, HI
    Rev. Dean Fullerton, United Methodist, Boone, IA
    Dr. Ted W. Fuson, Culpeper Baptist Church, Culpeper, VA
    Matt Gaines, Pastor of Worship, First Baptist Church, Gaithersburg, 
MD
    Rabbi Ruth Gais, Ph.D., NY Kollel, Hebrew Union College, New York, 
NY
    Rev. Sara Galindo, Laurens First Christian Church (Disciples of 
Christ), Laurens, IA
    Rev. R. Lee Gallman, Jr., Ginter Park Baptist Church, Richmond, VA
    Rev. Albert Gani, Church of the Path, Austin, TX
    Rev. Robin Gani, Church of the Path, Austin, TX
    George T. Gardner, Senior Minister, College Hill United Methodist 
Church, Wichita, KS
    Rev. Gail R. Geisenhainer, Emerson Unitarian Universalist Church, 
Canoga Park, CA
    Rabbi David G. Gelfand, Jewish Center of New Hampshire, East 
Hampton, NY
    Rev. Rudi Gelsey, Williamsburg Unitarian Universalists, 
Williamsburg, VA
    Rev. William C. George, Patterson Park Baptist Church, Baltimore, 
MD
    Rabbi Kim S. Geringer, Jewish, Short Hills, NJ
    Rabbi Dr. Gary S. Gerson, Oak Park Temple B'Nai Abraham Zion, Oak 
Park, IL
    Chaplain Anne Gibbons, Lynchburg College, Lynchburg, VA
    Rev. Kendyl Gibbons, PhD, The First Unitarian Society of 
Minneapolis, Minneapolis, MN
    Bishop Wendell N. Gibbs, Episcopalian Diocese of Michigan, Detroit, 
MI
    Rev. Robert Sherrill Gibson, First Baptist Church, Erwin, TN
    Rev. Richard S. Gilbert, PhD, First Unitarian Church, Rochester, NY
    Rabbi George D. Gittleman, Congregation Shomrei Torah, Santa Rosa, 
CA
    Rabbi James Glasier, Washington Hebrew Congregation, Washington, DC
    Dr. Clyde G. Glazener, Gambrell Street Baptist Church, Fort Worth, 
TX
    Rabbi Gary,Glickstein, Temple Beth Sholom, Miami Beach, FL
    Rabbi Neal Gold, Anshe Emeth Memorial Temple, New Brunswick, NJ
    Rabbi Irwin N. Goldenberg, Temple Beth Israel, York, PA
    Rabbi Mark N. Goldman, Rockdale Temple, Cincinnati, OH
    Rabbi Andrea Goldstein, Congregation Shaare Emeth (Jewish Reform), 
St. Louis, MD
    Rabbi Lisa L. Goldstein, Hillel of San Diego, San Diego, CA
    Rabbi Jerrold Goldstein, Associate Director, UAHC, Pacific 
Southwest Region, Los Angeles, CA
    Rabbi Jeffrey W. Goldwasser, Congregation Beth Israel, North Adams, 
MA
    Pastor A.J. Good, Community United Church of Christ, Champaign, IL
    Rabbi Robert A. Goodman, Temple Beth Shalom, Winter Haven, FL
    Rabbi Maralee Gordon, Congregation Beth Shalom, DeKalb, IL
    Rabbi Samuel N. Gordon, Congregation Sukkat Shalom, Wilmette, IL
    Rev. Dr. Robert E. Goss, Universal Fellowship of Metropolitan 
Community Churches, St. Louis, MO
    Rabbi Bruce L. Gottlieb, Sinai Temple, Michigan City, IN
    Rev. Beth Graham, Unitarian-Universalist Fellowship of Huntington, 
Huntington, NY
    Dr. N. Nelson Granade, Jr., First Baptist Church, North Wilkesboro, 
NC
    Gydhia Susan Granquist, Irminsul Aettir, Renton, WA
    Rev. Henry Green, Pastor, Heritage Baptist Church, Annapolis, MD
    Rabbi Alan Greenbaum, Temple Adat Elohim, Thousand Oaks,CA
    Rev. Georganne Greene, Unitarian Universalist Society of 
Springfield, Springfield, MA
    Rev. James Greenlee, Religious Organizing Project of KY, 
Louisville, KY
    Rev. David C. Gregg, Lake Street Church, Evanston, IL
    Ellen Grigsby, Chapter Coordinator, United Church of Christ 
Coalition for LGBT Concerns, Albuquerque, NM
    Rev. David Grimm, Unitarian-Universalist Fellowship, Manhattan, KS
    Rev. David Grishaw-Jones, Minister for Church and Community, First 
Church (UCC) in Cambridge, Cambridge, MA
    Rev. Roger D. Grow, United Church of Christ, Iowa City, IA
    Rabbi Marc Gruber, Temple Israel, Dayton, OH
    Rev. Gwynne Guibourd, PhD, Universal Fellowship of MCC, Los 
Angeles, CA
    Rev. David Gunn, First Baptist Church, Peoria, AZ
    Rabbi Eric S. Gurvis, Temple Shalom of Newton, Newton, MA
    Rabbi Tom Gutherz, Agudath Sholom Congregation, Lynchburg, VA
    Rabbi Jason Gwasdoff, Temple Israel, Stocton, CA
    Rev. Nathanael B. Habel, Virginia Baptist, Lynchburg, VA
    Rev. Jeffrey Haggray, Pennsylvania Avenue Baptist Church, 
Washington, DC
    Rev. Graylan Scott Hagler, Senior Minister, Plymouth Congregational 
United Church of Christ, Washington, DC
    Rev. Jimmy Hagwood, Robersonville First Baptist Church, 
Robersonville, NC
    Rev. S. Dennis Hale (retired), Southern Baptist Convention, 
Notasulga, AL
    Rev. Sidney G. Hall III, Trinity United Methodist Church, Austin, 
TX
    Therisia L. Hall, Licensed Practitioner, Religious Science, 
Branson, MO
    Rabbi Stanley Halpern, Temple Israel, Gary, IN
    Rev. L.M. Hamby, Unitarians and Universalists of Costal Georgia, 
St. Simons Island, GA
    Rev. David B. Hammar, First Baptist Church, Fort Dodge, IA
    Rev. Paul L. Hammer, PhD, The Interfaith Alliance of Rochester, 
Rochester, NY
    Rev. Dr. Edward J. Hansen, Pastor Hollywood United Methodist 
Church, Hollywood, CA
    Jaydee R. Hanson, General Board of Church & Society of the United 
Methodist Church, Washington, DC
    Rev. Cedric A. Harmon, Progressive National Baptist, Washington, DC
    Rev. Dr. Marni Harmony, First Unitarian Church, Orlando, FL
    Rabbi Sheldon J. Harr, Jewish--Temple Kol Ami, Plantation, FL
    Rev. Dr. Dale C. Harris, United Methodist, Hillsboro, OR
    Rev. Mark, W. Harris, First Parish of Watertown, Watertown, MA
    Rev. Linda E. Hart, Emmanuel Baptist Church, Ridgewood, NJ
    Rabbi Stephen Hart, Temple Chai, Long Grove, IL
    Dr. Stan Hastey, Executive Director, The Alliance of Baptists, 
Washington, DC
    Rev. Barbara Haugen, Unitarian Universalist Church, Pittsfield, MA
    Rev. Dr. Henry Hawkins, New Bethel Baptist, Indianapolis, IN
    Rev. Paul, C. Hayes, Second Baptist Church, Suffield, CT
    Rev. Ann L. Hayman, Mary Magdalene Project (Presbyterian), Reseda, 
CA
    Dr. Henry, P. Haynes, First Baptist Church, Vinita, OK
    Rev. Phil Heard, Pine Grove Baptist Church, Madison, FL
    Dr. Fred E. Heifner, Jr., Baptist, Nashville, TN
    Rev. Edward K. Heininger, Pilgrim Congregational United Church of 
Christ, St. Louis, MO
    Rabbi Shari Heinrich, Congregation Shalom, Milwaukee, WI
    Rev. Robert E. Heizer, Owl Creek Baptist Church, Mt. Vernon, OH
    Rev. Lillie M. Henley, Unitarian Universalist Minister, Toledo, OH
    Rev. Wanda M. Henry, Riverside Baptist Church, Washington, DC
    Rev. Jeffery L. Hensley, South Venice Baptist Church, Venice, FL
    Rev. David Hermanson, Trinity Church (Episcopal), Asbury Park, NJ
    Rev. Anne Herndon, Unitarian Universalist, Leonardtown, MD
    Rev. Dr. Burley Herrin, Associate Regional Minister, Christian 
Church (Disciples of Christ), IL & WI
    Dr. William T. Higgins, Manassas Baptist Church, Manassas, VA
    Rev. Dr. Daniel G. Higgins, Jr. Unitarian Universalists of Chester 
River, Chestertown, MD
    Rev. Cheryl M. Hill, Highland Park Baptist Church, Austin, TX
    Rev. Craig D. Hirshberg, Unitarian Universalist, Somerville, NJ
    Dr. Timothy W. Hobbs, Northwoods Baptist Church, Chamblee, GA
    Rev. Dr. William Chris, Hobgood, Regional Minister, Christian 
Church (Disciples of Christ), Wheaton, MD
    Rabbi Lisa Hochberg-Miller, Temple Beth Torah, Ventura, CA
    Rev. Linda Hoddy, Unitarian Universalist Congregation, Saratoga 
Springs, NY
    Rev. Kenneth D. Holden, Georgetown Baptist Church, Georgetown, KY
    Dr. James F. Holladay, Jr., Lyndon Baptist Church, Louisville, KY
    Rabbi Anthony D. Holz, Kahal Kadosh Beth Elohim, Charleston, SC
    Rev. Melvin A. Hoover, Unitarian Universalist Association, Boston, 
MA
    Rev. H. James Hopkins, Lakeshore Avenue Baptist Church, Oakland, CA
    Ellen Evert Hopman, Druid, Order of the Whiteoak, Amherst, MA
    Dr. Mark E. Hopper, First Baptist Church, Bowling Green, KY
    Rev. Gerard Howell, Central Baptist Church, Lexington, KY
    Wesley V. Hromatko, D.Min., Unitarian Universalist, Lake Wilson, MN
    Rev. J.R. Huddlestun, Heritage Baptist Fellowship, Canton, GA
    Vice President David G. Hunt, American Baptist Churches, USA, 
Portland, OR
    Dr. Mary E. Hunt, Director, Women's Alliance for Theology, Ethics, 
and Ritual, Silver Spring, MD
    Rev. Tyrone Hunt, Walker Memorial Christian Church, Memphis, TN
    Pastor Joseph D. Huse, Immanuel Baptist Church, Minot, ND
    Priestess Kristin Hutchinson, Hexenhaus Church of Isis & Thor, 
Shawnee, KS
    Dr. Randy L. Hyde, Pulaski Heights Baptist Church, Little Rock, AR
    Rev. Richard E. Ice, L.H.D. American Baptist Churches USA, Alameda, 
CA
    Rev. Kip Ingram, Twinbrook Baptist Church, Rockville, MD
    Dr. William E. Ingram, Berryville Baptist Church, Berryville, VA
    Rev. T. Floyd Irby, Jr., West End Baptist Church, Suffolk, VA
    Rabbi Marc D. Israel, Religious Action Center of Reform Judaism, 
Washington, DC
    Rabbi Lisa Izes, Temple Sinai, Rochester, NY
    Rabbi Lawrence Jackofsky, Union of American Hebrew Congregations, 
Dallas, TX
    Rev. Terry C. Jackson, First Baptist Church, Arnett, OK
    Rev. Leonard B. Jackson, First A.M.E. Church, Los Angeles, CA
    Rabbi Dr. Steven L. Jacobs, Temple B'nai Sholom, Huntsville, AL
    Rabbi Robert A. Jacobs, Harford Jewish Center-Temple Adas Shalom, 
Havre de Grace, MD
    Rabbi Steven B. Jacobs, Temple Kol Tikvah, Woodland Hills, CA
    Rabbi Howard L. Jaffe, Temple Isaiah, Lexington, MA
    Rev. R. Allen James, Executive Director, The Institute of 
Theological & Interdisciplinary Studies, Stillwater, MN
    Greta K. Jensen, Interim Pastor St. Paul's United Church of Christ, 
Seattle, WA
    Rev. Madeline Jervis, Pastor, Clarendon Presbyterian Church, 
Arlington, VA
    Rev. Bryan D. Jessup, The Unitarian Universalist Church of Fresno, 
Fresno, CA
    Rev. Sandra D. John, Washington Plaza Baptist Church, Reston, NY
    High Priestess Tamra Johnson, Wiccan, Orlando, FL
    Rev. Howard E. Johnson, Roeland Park United Methodist Church, 
Roeland Park, KS
    Rev. Charles F. Johnson, Second Baptist Church, Lubbock, TX
    Rev. Sally S. Johnson, Beacon Hill Presbyterian Church, Austin, TX
    Rev. Kathryn Johnson, Methodist Federation for Social Action, 
Washington, DC
    Rev. William Johnson, Baptist, Baltimore, MD
    Rev. Dr. Rockford A. Johnson, United Methodist Church of the 
Shepherd, Tulsa, OK
    Dr. James B. Johnson II, Williamsburg Baptist Church, Williamsburg, 
VA
    Rev. Robert A. Jones, Reformed Church in America, Seven Lakes, NC
    Rev. Bobbi Kaye Jones, Grace United Methodist Church, Corpus 
Christi, TX
    Dr. Stephen D. Jones, First Baptist Church, Birmingham, MI
    Rev. Sheree H. Jones, First Baptist Church, Aiken, SC
    Rev. J. Stephen Jones, Southside Baptist Church, Birmingham, AL
    Rev. Robert L. Jordan, First Baptist Church, Camp Springs, MD
    Rev. Dr. Richard W. Jordan, Antioch Baptist Church, Taylorsville, 
NC
    Rev. David M. Jordan, First Baptist Church, Rockingham, NC
    Rev. Dr. Robert Mark Jordon, First Baptist Church, Front Royal, VA
    Rabbi Michael Joseph, Ohef Sholom Temple, Norfolk, VA
    Rabbi Samuel K. Joseph, Jewish, Cincinnati, OH
    Rabbi Bruce Kadden, Temple Beth El, Salinas, CA
    Rabbi Bruce E. Kahn, Temple Shalom, Chevy Chase, MD
    Rabbi Gerald M. Kane, Temple Beth El, Las Cruces, NM
    Rabbi Steven Kaplan, Temple Beth Torah, Fremont, CA
    Rev. Robert J. Karli, First English Lutheran Church (ELCA), Austin, 
TX
    Gail, P. Karp, Cantor, Temple Emanuel, Davenport, IA
    Rabbi Henry Jay Karp, Temple Emanuel, Davenport, IA
    Rabbi Peter E. Kasdan, Temple Emanu-El, Livingston, NJ
    Rev. Max A. Kaser, American Baptist Churches in the U.S.A. Valley 
Forge, PA
    Rabbi Alan J. Katz, Temple Sinai, Rochester, NY
    Rev. Dr. Bob Kaufmann, Interim Minister, First Unitarian Church, 
Palm Beach County, FL
    Rabbi Karyn Kedar, Union of American Hebrew Congregations, 
Northbrook, IL
    Rev. Margaret Keip, Unitarian Universalist Congregation of Marin, 
San Rafael, CA
    Rev. Marti Keller, Minister, Georgia Mountains UU Church, 
Dahlonega, GA
    Dr. Paul J. Kent, Southern Hills Baptist Church, Tulsa, OK
    Canto Penny Kessler, United Jewish Center, Danbury, CT
    Rev. Kit Ketcham, Wy'east Unitarian Universalist Congregation, 
Portland, OR
    Rev. David W. Key, Lake Oconce Community Church, Grennsboro, GA
    Dr. Barry K. Keys, First Baptist Church, Forest City, NC
    Rev. Harry C. Kiely, United Methodist Church, Silver Spring, MD
    Shaun M. King, Pastor of Youth, First Baptist Church, Gaithersburg, 
MD
    Rabbi Ralph P. Kingsley, Temple Sinai of North Miami Dade, North 
Miami Beach, FL
    Rabbi Paul J. Kipnes, Congregation Or Ami, Calabasas, CA
    Rev. Bill R. Kirton, Cameron United Methodist Church, Denver, CO
    Rabbi Joseph Klein, Temple Emanu-El, Oak Park, MI
    Rabbi Richard L. Klein, Temple Beth Jacob, Concord, NH
    Rev. Bob Kleinheskel, M.S.W. Christ Community Church, Spring Lake, 
MI
    Rabbi Elliott A. Kleinman, Union of American Hebrew Congregations, 
Cleveland, OH
    Rev. Albert J. Kleinsasser Jr., First Baptist Church, Winona, MN
    Rev. Calvin R. Knapp, Unitarian Universalist Association, 
Nashville, TN
    Rabbi Peter S. Knobel, Beth Emet The Free Synagogue, Evanston, IL
    Rev. Jan Vickery, Knost, First Parish in Norwell, Norwell, MA
    Rev. Geoffrey Knowlton, Pastor First Congregational Church, United 
Church of Christ, Pelham, NH
    Rev. Lamont M. Koerner, Luther Campus Ministry (ECLA), St. Paul, MN
    Rabbi Douglas Kohn, Beth Tikvah Congregation, Hoffman Estates, IL
    Rabbi Neil Kominsky, Temple Emanuel of the Merrimack Valley, 
Lowell, MA
    Rabbi Ira L. Korinow, Temple Emanu-El, Haverhill, MA
    Rabbi Audrey R. Korotkin, Temple Judea Mizpah, Skokie, IL
    Rev. Dr. Nana Kratochvil, Unitarian Universalist Fellowship, 
Muskegon, MI
    Rabbi Robert L. Kravitz, Director, American Jewish Congress, 
Arizona Chapter, Scottsdale, AZ
    Rev. Arlyce Kretschman, First Baptist Church, Owego, NY
    Rev. Hilary Landau Krivchenia, Unitarian Universalist Church, 
Lafayette, IN
    Rabbi Charles A. Kroloff, President Central Conference of American 
Rabbis/Senior Rabbi Temple Emanu-El West, Westfield, NJ
    Rev. Keith Kron, Unitarian Universalist Association, Boston, MA
    Rev. R. Courtney Krueger, First Baptist Church, Pendleton, SC
    Rev. Dr. James Kubal-Komoto, Saltwater Unitarian Universalist 
Church, Des Moines, WA
    Rabbi Harold L. Kudan, Am Shalom Congregation, Glencoe, IL
    Rev. Kurt A. Kuhwald, Northwest Unitarian Universalist Congregation 
of Atlanta, Atlanta, GA
    Rabbi Vernon Kurtz, North Suburban Synagogue Beth El, Highland 
Park, IL
    Rev. Peter G. Laarman, Judson Memorial Church, New York, NY
    Rabbi Alan Lachtmann, Temple Beth David, Temple City, CA
    Minister, Freddie Lanton, Sr. Pastor Antioch Christian Church, 
Varnville, SC
    Rev. Dr. Steven C. Larson, Lutheran, Austin, TX
    Robert T. Latham, Minister, First Unitarian Church of Oakland, 
Oakland, CA
    Edith R. Lauderdale, Warden, Church of the Atonement, Tenafly, NJ
    Rabbi Alan Lavin, PhD, Temple Hillel, Niwoodmere, NY
    Rev. Grace T. Lawrence, First Baptist Church, Lykens, PA
    Rabbi Martin S. Lawson, Temple Emanu-El, San Diego, CA
    Pastor Raymon Leake, First Baptist Church, Meridian, MS
    Rev. Sandra Gillogly, Lee, Uncompahgre Unitarian Universalist 
Society, Grand Junction, CO
    Rabbi Robert Leib, Old York Rd. Temple, Abington, PA
    Rev. Joe H. Leonard, American Baptist, Wayne, PA
    Rev. Dr. Bill J. Leonard, Wake Forest University Divinity School, 
Winston-Salem, NC
    Rev. Peter Leong, Southwest Chinese Baptist Church, Stafford, TX
    Rabbi Eugene H. Levy, Congregation B'nai Israel, Little Rock, AR
    Rabbi Richard N. Levy, Hebrew Union College-Jewish Institute of 
Religion, Los Angeles, CA
    Dr. Joseph T. Lewis, Second Baptist Church, Petersburg, VA
    Rabbi Laura Lieber, Temple Shalom of Fayetteville, Fayetteville, AR
    Rabbi Valerie Lieber, Temple Beth Ahavath Sholom, Brooklyn, NY
    Rabbi David, A. Lipper, Temple Emanuel, McAllen, TX
    Rev. Mr. Daniel J. Little, Deacon, Catholic Church of the Americas, 
St. Petersburg, FL
    Rabbi Lewis C. Littman, Temple Bat Yam, Ft. Lauderdale, FL
    Rev. Ellen Dohner Livingston, Monte Vista Unitarian Universalist 
Congregation, Montclair, CA
    Rabbi Robert H. Loewy, Congregation Gates of Prayer, Metairie, LA
    Robert L. Loffer, Associate Conference Minister, Nebraska 
Conference United Church of Christ, Lincoln, NE
    Dr. W. Randall Lolley, Cooperative Baptist Fellowship, Raleigh, NC
    Rabbi Andrea C. London, Beth Emet The Free Synagogue, Evanston, IL
    Rev. Gary Long, Westwood Baptist Church, Springfield, VA
    Rabbi Scott Looper, Congregation Or Shalom, Vernon Hills, IL
    Rev. M. Lynne Smouse Lopez, Ainsworth United Church of Christ, 
Portland, OR
    Rev. Charles Harvey Lord, Disciples of Christ, Chicago, IL
    Rev. May Lord, Chicago Disciples of Christ Union, Chicago, IL
    Rev. Marguerite D. Lovett, Unitarian Universalist Church, Long 
Beach, CA
    Dr. Stephen W. Lucas, Highland Park Baptist Church, Austin, TX
    Rev. Gene Mace, The United Methodist Church, West Peoria, IL
    Sister Miriam Therese MacGillis, Catholic, Blairstown, NJ
    Rev. Nancy Machin, Pagan Elder, Valparaiso, IN
    Rabbi Avi Magid, Temple Emanu-El, Honolulu, HI
    Daniel, C. Maguire, Professor of Moral Theology, Marquette 
University, Milwaukee, WI
    Rev. Dennis L. Maher, Presbyterian Church USA, Peoria, IL
    Rev. Daniel J. Maiden, Victoria Congregation Church (UCC), Jamaica, 
NY
    Dr. Jean P. Malcolm, Quaker, San Diego, CA
    Rabbi Mark Mallach, Temple Beth Ahm, Springfield, NJ
    Rev. C.J Malloy, Jr., First Baptist Church, Georgetown, Washington, 
DC
    Rev. Kerry A. Maloney, United Church of Christ, Whitman, MA
    Rev. Frances H. Manly, First Unitarian Universalist Church of 
Niagara, Niagara Falls, NY
    Rev. Judith G. Mannheim, First Parish in Needham, Needham, MA
    Rabbi Sanford T. Marcus, D.D. Tree of Life Congregation, Columbia, 
SC
    Rabbi Janet Marder, Congregation Beth Am, Los Altos Hills, CA
    Rabbi Bonnie Margulis, Reform Judaism, Springfield, VA
    Rev. Gail Lindsay Marriner, First Unitarian Church, Houston, TX
    Rev. Ronny Marriott, Sunset Canyon Baptist Church, Dripping 
Springs, TX
    Rev. Anne Marsh, Co-Minister, Unitarian Universalist Church, 
Canton, NY
    Rabbi Gregory S. Marx, Jewish, Spring House, PA
    Rabbi Steven S. Mason, North Shore Congregation Israel, Glencoe, IL
    Rev. Michael Ray Mathews, Grace Baptist Church, San Jose, CA
    Rev. Carolyn A. Mathis, First Baptist Church, Greenville, SC
    Rev. Stephen L. Mathison-Bowie, Central Presbyterian Church, 
Eugene, OR
    Rev. Walter C. May, Sr. Pastor Kingshighway Missionary 
BaptistChurch, Pine Bluff, AR
    Rabbi Gary A. Mazo, Cape Cod Synagogue, Hyannis, MA
    Rick McClatchy, Executive Minister, Cooperating Baptist Fellowship 
of Oklahoma, Norman,OK
    Dr. Donald L. McClung, First Baptist Church, Hawkinsville, GA
    Rev. Robert McCluskey, Swedenborgian Church, New York, NY
    Rev. Dr. George H. McConnel, Westminster Presbyterian Church, 
Dayton, OH
    Rev. Robert McConnell, Senior Minister, First Presbyterian Church 
of Manhattan, Manhattan, TX
    Rev. B.L. McCormick, Baker Chapel AME, Ft. Worth, TX
    Rev. Thomas L. McCracken, First Christian Church, Lexington, TX
    Rev. Kevin McDonald, First Baptist Church, Hamilton, TX
    Rev. Timothy McDonald, First Iconium Baptist Church, Atlanta, GA
    Rev. David W. McFarland, Cache Valley Unitarian Universalists, 
Logan, UT
    Rev. Richard L. McGuffin, Interim Pastor, First Baptist Church, 
Horton, KS
    Dr. John W. McKain, Suncrest Baptist Church, Tulsa, OK
    Rev. Susan McKeegan-Guinn, Calvin-Sinclair Presbyterian Church, 
Cedar Rapids, IA
    Dr. Jack McKinney, Pullen Memorial Baptist Church, Raleigh, NC
    Dr. Johnny F. McKinney, Boulevard Baptist Church, Anderson, SC
    Rev. Coyse David, McLemore, Second Baptist Church, Russellville, AR
    Rev. Elizabeth McMaster, Unitarian Church of Los Alamos, Los 
Alamos, NM
    Rabbi Ralph Mecklenberger, Beth--El Congregation, Fort Worth, TX
    Rabbi Michele Medwin, Temple Sholom, Broomall, PA
    Rev. Paul S. Mefford, Zion United Church of Christ, Henderson, KY
    Rev. Edwin Mehlhaff, United Church of Christ, Houston, TX
    Rabbi Bernard Mehlman, Temple Israel, Boston, MA
    Rabbi Paul Menitoff, Central Conference of American Rabbis, New 
York, NY
    Rev. Steven H. Meriwether, St. Charles Avenue Baptist Church, New 
Orleans, LA
    Rev. Deborah Mero, All Souls Church, West Brattleboro, VT
    Rev. Ralph Mero, Unitarian Universalist, Framingham, MA
    Rev. William Messenger, Our Savior Catholic Center, Los Angeles, CA
    Rabbi Joseph B. Meszler, Washington Hebrew Congregation, 
Washington, DC
    Rev. Judith M. Metzger, St. Paul's Episcopal Cathedral, Buffalo, NY
    Rev. Judith Meyer, Minister, Unitarian Universalist Community 
Church, Santa Monica, CA
    Rabbi Joel Meyers, Executive Director, The Rabbinical Assembly, New 
York, NY
    Rabbi Brian I. Michelson, Reform Congregation Oheb Sholom, Reading, 
PA
    Rabbi Dr. Laurence Milder, Congregation Beth El, Bangor, ME
    Rabbi Eric Milgrim, Temple B'nai Shalom, East Brunswick, NJ
    Rev. Linda Miller, Universal Life Church, Ventura, CA
    Rev. Elizabeth L. Miller, Unitarian Universalist Church of the 
Monterey Peninsula, Carmel, CA
    Rev. James C. Miller, The First Baptist Church in America, 
Providence, RI
    Rev. Robert I. Miller, Duarte, CA
    Brother, Larry Mills, Buchanan Street Chapel, Amarillo, TX
    Dr. Michael J. Mitchell, Gault Avenue Baptist Church, Fort Payne, 
AL
    Rev. Marsha Mitchiner, First Existentialist Congregation, Atlanta, 
GA
    Rev. Kenneth R. Mochel, Minister, Unitarian Universalist Church of 
Auburn, Auburn, NY
    Rabbi Jack Moline, Agudas Achim Congregation, Alexandria, VA
    Rev. Douglas J. Monroe, The First United Methodist Church of Reno, 
Reno, NV
    Sonya Montana, Interim Minister, First Unitarian Universalist 
Church, Ann Arbor, MI
    Rev. R. Patrick Moore, Lakeshore Drive Baptist Church, Little Rock, 
AR
    Pastor Paul G. Moore, Sans Souci Baptist Church, Greenville, SC
    Rev. Denis E. Moore, Senior Pastor Metropolitan Community Church, 
San Jose, CA
    High Priestess Heather Morcroft, Coven of the Crescent Path, 
Orlando, FL
    Rev. Judith Morris, Norfolk Unitarian Universalist Church, Norfolk, 
VA
    Rev. Dr. B. Wayne Morris, Central Baptist Church, Lawton, OK
    Rabbi Jay Moses, Temple Sholom, Chicago, IL
    Rabbi Michael L. Moskowitz, Temple Shir Shalom, West Bloomfield, MI
    Rev. Ralph W. Mueckenheim, United Methodist Church, Hempstead, NY
    Rev. Robert W. Muise, St. Peters U.C.C. Lancaster, PA
    Dr. Robert C. Mulkey, First Baptist Church, DeLand, FL
    Rev. Allen B. Mullinox, Virginia Highland Baptist Church, Atlanta, 
GA
    Rev. Neil Mulock, Bethel Presbyterian Church, Waterloo, IA
    Dr. James Gordon, Munro, Vienna Baptist Church, Vienna, VA
    Rev. Martha Murchison, Presbyterian Church (USA), Dallas, TX
    Patrick Murfin, Moderator, Congregational Unitarian Church, 
Woodstock, IL
    Rev. Joseph M. Murphy, First Congregational Church, United Church 
of Christ, Walla Walla, WA
    Dr. Kenneth L. Myers, Hendricks Avenue Baptist Church, 
Jacksonville, FL
    Rev. Monshin Paul, Naamon, Karuna Tandai Dharma Center (Buddhist), 
East Chatham, NY
    Rev. Ronald Y. Nakasone, Buddhist, Fremont, CA
    Rev. Silvio Nardoni, Unitarian Universalist Community Church of 
Santa Monica, Santa Monica, CA
    Rev. Rhonda G. Nash, Hull's Memorial Baptist Church, 
Fredericksburg, VA
    Rev. Norman V. Naylor, Unitarian Universalist, Southfield, MI
    Rev. John A. Nelson, United Church of Christ, Dover, MA
    Dr. Robert M. Newell, Memorial Drive Baptist Church, Houston, TX
    Rev. Mark A. Newton, Baptist Temple, San Antonio, TX
    Rev. Alan Newton, Underwood Baptist Church, Wauwatosa, WI
    Rev. Donald Ng, First Chinese Baptist Church, San Francisco, CA
    Rev. Walter R. Nickel, First Baptist Church, Vinton, IA
    Pastor Kerry R. Ninemire, Pastor St. Mary's Catholic Church, 
Salina, KS
    Rev. Victor H. Nixon, Pulaski Heights United Methodist Church, 
Little Rock, AR
    Rev. James Norman, Unitarian Universalist, Concord, NH
    Pastor James F. Norris III, Lawtonville Baptist Church, Estill, SC
    Rev. Lloyd L. Noyes, American Baptist Churches, USA, Depew, NY
    Rev. Richard A. Nugent, Minister, The Universalist Society, New 
York, NY
    Rev. Nancy Holmes Nyberg, Pastor First Congregational United Church 
of Christ, Carpentersville, IL
    Rev. Dr. William R. Nye, All Souls Bethlehem Church, Brooklyn, NY
    Shannon O'Donnell, Catholic Chaplain, Washington Corrections 
Center, Shelton, WA
    Rev. Dr. Sarah W. Oelberg, Nora Unitarian Universalist Church, 
Hanska, MN
    Rabbi Stacey K. Offner, Shir Tikvah Congregation, Minneapolis, MN
    Rev. Paul Ojibway, S.A. Graymore Ecumenical and Interreligious 
Institute, Washington, DC
    Rev. Marcia Olsen, Unitarian Universalist, Laguna Beach, CA
    Rev. Judith Brown Osgood, Shoreline Unitarian Universalist Soceity, 
Madison, CT
    Rev. Christine Otan, First Chinese Baptist Church, San Francisco, 
CA
    Rev. Dr. Walter L. Owensby, Presbyterian Church (USA), Washington, 
DC
    Rev. Carolyn Owen-Towle, First Unitarian Universalist Church, San 
Diego, CA
    Rev. Tom Owen-Towle, First Unitarian Universalist Church, San 
Diego, CA
    Rabbi Sandy Roth Parian, Kehilat Ha Nahar, New Hope, PA
    Rev. Shawn Parker, Lakeview Baptist Church, New Orleans, LA
    Rabbi Jordan M. Parr, Congregation Children of Israel, Augusta, GA
    Rev. Rodney G. Parrish, Deacon Chair, First Baptist Church, Oak 
Ridge, TN
    Rev. Susan Burgess, Parrish, Interim Pastor Fellowship Baptist 
Church, Edison, GA
    Dr. Harry B. Parrott Jr., American Baptist Churches, U.S.A. St. 
Petersburg, FL
    Dr. Bob Parsley, First Baptist Church, Crofton, MD
    Rabbi Jack P. Paskoff, Congregation Shaarai Shomayim, Lancaster, PA
    Pandit Kusum C. Patel, Pres. Gayatari Pariwar Yugnirmanchicag, 
Niles, IL
    Rev. Dr. Roger Paynter, First Baptist Church, Austin, TX
    Rev. Aaron R. Payson, The UU Church of Worcester, Worcester, MA
    Rev. Larry Peacock, Malibu United Methodist Church, Malibu, CA
    Rev. Clarence Pemberton, New Hope Baptist Church, Philadelphia PA
    Rev. Linda R. Pendergrass, Unity Church of Austin, Austin, TX
    Rev. Julie Pennington Russell, Calvary Baptist Church, Waco, TX
    Rev. Elaine Beth Peresluhn, Unitarian Universalist Society of 
Bangor, Bangor, ME
    Rabbi Daniel Pernick, Beth Am Temple, Pearl River, NY
    Rabbi Shoshana M. Perry, Congregation Shalom, Chelmsford, MA
    Rev. Stewart Perry, Baptist Temple Church, Alexandria, VA
    Rev. Clare L. Petersberger, The Towson Unitarian Universalist 
Church, Lutherville, MD
    Rev. Gladys M. Peterson, University Baptist Church, Austin, TX
    Rev. Roy S. Petitt, Pentecostal, Los Angeles, CA
    Rev. Dixie Lea Petrey, Pastor/Chaplain, Shannondale Retirement 
Community, Knoxville, TN
    Rabbi Aaron M. Petuchowski, Temple Sholom of Chicago, Chicago, IL
    Rabbi Bruce J. Pfeffer, Jewish, Cincinnati, OH
    Dr. Joseph O. Phelps, Highland Baptist Church, Louisville, KY
    Rev. Dr. Kenneth W. Phifer, First Unitarian Universalist, Ann 
Arbor, MI
    Rev. Thomas J. Phillip, Presbyterian, Merrick, NY
    Rev. Larry Phillips, Emmanuel Baptist--Friends United Church of 
Christ, Schenectady, NY
    Rev. J.M. Phillips, PhD, St. Augustine Episcopal Church, Kingston, 
RI
    Rev. Randall R. Phillips, ST.D., Roman Catholic, Dearborn Heights, 
MI
    Rev. Patricia J. Pickett, D. Min., Nashville Cumberland Presbytery, 
Nashville, TN
    Rev. Rex E. Piercy, J.D., United Methodist, Waukee, IA
    Rev. James L. Pike, Olin T. Binkley Memorial Baptist Church, Chapel 
Hill, NC
    Rev. LeDayne McLeese Polaski, Baptist Peace Fellowship of North 
America, Charlotte, NC
    Rev. Willow Polson, House of Life, San Jose, CA
    Dr. Marcus C. Pomeroy, Central Baptist Church, Wayne, PA
    Rev. Deborah J. Pope-Lance, Interim Minister, First Parish of Stow 
and Acton, Stow, MA
    Rev. Lynn Potter, United Methodist Church, Estherville, IA
    Rev. James L. Pratt, Noank Baptist Church, Noank, CT
    Rev. Cynthia Prescott, Unitarian Universalist Fellowship of 
Clemson, Clemson, SC
    Dr. Bruce Prescott, Executive Director, Mainstream Oklahoma 
Baptists, Norman, OK
    Rev. Lisa Presley, Northwest Unitarian Universalist Church, 
Southfield, MI
    Charles B. Prewitt, D. Min., Amazing Grace Lutheran Church, San 
Antonio, TX
    Rev. Dr. Allen Price, Episcopal Church, Diocese of Alaska
    Rabbi Sally J. Priesand, Monmouth Reform Temple, Tinton Falls, NJ
    Dr. Michael L. Prince, Robertsville Baptist Church, Oak Ridge, TN
    Rabbi Deborah R. Prinz, Temple Adat Shalom, Poway, CA
    Rev. Frank Proffitt, First Baptist Church, Erwin, TN
    Sheri Prud'homme, Religious Educator, Unitarian Universalist 
Association Pacific Central District, Oakland, CA
    Dr. Rudy A. Pulido, Southwest Baptist Church, St. Louis, MO
    Dr. Kathy S. Quinn, Co-Chair, Lutherans Concerned, Columbia, SC
    Rev. Paul F. Rack, Presbyterian, Woodbridge, NJ
    Rev. Allen Rames, Everett Hills Baptist Church, Maryville, TN
    Rev. Carolee Ramsey, First Unitarian Universalist Church, Austin, 
TX
    Rev. Dr. James Madison Ramsey, First Baptist Church, Albany, GA
    Rev. Shirley Ranck, Ph.D., Unitarian Universalist Congregation, 
Olympia, WA
    Rev. R. Mitch Randall, First Baptist Church, Bedford, TX
    Pastor Emeritus J. Richard Randels, Lakeview Baptist Church, New 
Orleans, LA
    Rev. Dr. Ozark Range, Sr., Christian Church (Disciples of Christ), 
Greenwood, MS
    Rabbi Robert J. Ratner, Congregation Beth Hatephila, Asheville, NC
    Rev. Paul Ratzlaff, Morristown Unitarian Fellowship, Morristown, NJ
    Rev. Everett F. Reed, Lowville Baptist Church, Lowville, NY
    Rev. Dr. Kwame Osei Reed, Potomac Association United Church of 
Christ, Baltimore, MD
    Rev. David Reed-Brown, First Baptist Church, Essex, CT
    Dr. Frank G. Reeder, First Baptist Church, Pitman, NJ
    Rev. Mia Reeves, Interfaith Minister/ High Priestess Moonsong 
Coven, Jersey City, NJ
    Most Rev. John Reeves, Auxiliary Bishop, Catholic Church of the 
Americas, St. Petersburg, FL
    Rev. George Regas, Episcopalian, Pasadena, CA
    Rev. Karen Reynolds, Mud Pike Baptist Church, Moores Hill, IN
    Rev. Michael C. Reynolds, Freeway Manor Baptist Church, Houston, TX
    Rev. Thomas N. Rice, Baptist Temple, Rochester, NY
    Rev. George M. Ricker, United Methodist Clergy, Austin, TX
    Rev. Butch Riddle, First Baptist Church, Ashdown, AR
    Rev. Jim Rigby, St. Andrew's Presbyterian Church, Austin, TX
    Rev. Meg A. Riley, Unitarian Universalist Association, Washington, 
DC
    Rabbi Ted Riter, Temple Solel, Encinitas, CA
    Rabbi Daniel A. Roberts, Temple Emanu El, University Heights, OH
    Rabbi Alexis Roberts, Congregation Dor Hadash, San Diego, CA
    Rev. Wayne Robinson, UU Church of Greater Lansing, East Lansing, MI
    Rev. Dr. Wayne Robinson, Minister, All Faiths Unitarian 
Congregation, Ft. Meyers, FL
    Dr. Gerald E. Robinson, Starling Avenue Baptist Church, 
Martinsville, VA
    Dr. Floyd F. Roebuck, Garden Lakes Baptist Church, Rome, GA
    Rabbi Norman T. Roman, Temple Kol Ami, West Bloomfield, MI
    Rabbi Gaylia R. Rooks, The Temple, Adath Israel Brith Sholom, 
Louisville, KY
    Rev. Rita M. Root, UMC, Dekalb, IL
    Rev. Bonnie Rosborough, PhD, Broadway United Church of Christ, New 
York, NY
    Rabbi Herbert H. Rose, Temple Beth Shalom, Brandon, FL
    Rev. Richard Rose, First Baptist Church, Batavia, NY
    Rev. Dr. Tarris D. Rosell, American Baptist, Kansas City, KS
    Rabbi Kenneth D. Roseman, Temple Shalom, Dallas, TX
    Rev. Dr. Daniel Rosemergy, Brookmeade Congregational Church United 
Church of Christ, Nashville, TN
    Rabbi Sanford E. Rosen, Peninsula Temple Beth El, San Mateo, CA
    Rabbi Harry Rosenfeld, Temple Beth Zion, Buffalo, NY
    Rabbi Cheryl Rosenstein, Temple Beth El, Bakersfield, CA
    Rabbi Morton M. Rosenthal, Lawrenceville, NJ
    Rabbi Leonard Rosenthal, Tifereth Israel Synagogue, San Diego, CA
    Dr. William L. Ross, First Baptist Church, Athens, GA
    Rev. Jean M. Rowe, Minister, Neshoba Unitarian Universalist Church, 
Germantown, TN
    Sister Rosalie Rueseweld, St. Scholastica Monastery, Fort Smith, AR
    Rev. Susan Russell, St. Peter's Episcopal Church, San Pedro, CA
    Rabbi Richard B. Safran, Emeritus, Achduth Vesholom, Fort Wayne, IN
    Rabbi Douglas B. Sagal, K.A.M. Isaiah Israel, Chicago, IL
    Rabbi Robert Saks, Washington, DC
    Rabbi Jeffrey K. Salkin, The Community Synagogue, Port Washington, 
NY
    Rev. Dr. Bruce C. Salmon, Village Baptist Church, Bowie, MD
    Rev. Dr. David Sammons, Mt. Diablo Unitarian Universalist Church, 
Walnut Creek, CA
    Rev. Jason Samuel, Episcopal Church of the Transfiguration, St. 
Louis, MO
    Rabbi Neil Sandler, Tifereth Israel Congregation, Des Moines, IA
    Rev. Joan M. Saniuk, The Metropolitan Community Church of Boston, 
Roslindale, MA
    Rabbi David Saperstein, Director, Religious Action Center of Reform 
Judaism, Washington, DC
    Rabbi Marna Sapsowitz, Temple Beth Hatfiloh, Olympia, WA
    Rabbi Herman E. Schaalman, Rabbi Emeritus, Emanuel Congregation, 
Chicago, IL
    Rev. Edward W. Schadt, Mission Hills United Church of Christ, San 
Diego, CA
    Rev. Robert L. Schaibly, First Unitarian Church, Houston, TX
    Rev. Dr. Donna Schaper, Coral Gables Congregational Church, Miami, 
FL
    Rabbi Amy Scheinerman, Beth Shalom Congregation, Taylorsville, MD
    Rev. Richard A. Schempp, Presbyterian Church (USA), Lubbock, TX
    Rev. J. David Scheyer, Unitarian Universalist, Franklin, NC
    Cantor Neil Schnitzer, Society Hill Synagogue, Philadelphia, PA
    Rev. Kathryn Schreiber, United Church of Christ, Brookings, OR
    Rev. Mike Schuenemeyer, Pastor, Diamond Bar Congregational Church, 
Diamond Bar, CA
    Rev. Dr. Michael A. Schuler, Senior Minister, First Unitarian 
Society, Madison, WI
    Rev. Melvin Ray Schultz, Disciples of Christ, Baltimore, MD
    Rev. Larold Schulz, First Congrgational United Church of Christ, 
Alameda, CA
    Rabbi Gershom Schwartz, Beth Sholom Congregation, Elkins Park, PA
    Rabbi Amy Schwartzman, Temple Rodef Shalom, Falls Church, VA
    Rev. Louis V. Schwebius, The Community Church of New York, New 
York, NY
    Dr. Jeffery Warren Scott, Colonial Avenue Baptist Church, Roanoke, 
VA
    Rev. Gail S. Seavey, First Universalist Church of Salem, Salem, MA
    Rev. James A. Seddon, Shiloh Baptist Church, Columbus, IN
    Rev. Edward Seeger, Corpus Christi Metro Ministries, Corpus 
Christi, TX
    Rabbi Robert A. Seigel, Temple Beth Israel, Fresno, CA
    Rev. Alan D. Selig, First Baptist Church, Manhattan, KS
    Karen H. Senecal, Associate Minister, Judson Memorial Church, New 
York, NY
    Rev. Dr. Robert E. Senghas, Unitarian Universalist, Burlington, VT
    Dr. Fred Senter, First Baptist Church, Wadesboro, NC
    Rabbi Isaac Serotta, Lakeside Congregation for Reform Judaism, 
Highland Park, IL
    Rabbi Gerald Serotta, Temple Shalom, Chevy Chase, MD
    Rev. Arthur G. Severance, First Unitarian Church, San Antonio, TX
    Rabbi Howard Shapiro, Temple Israel, West Palm Beach, FL
    Dr. C. Scott Shaver, Coordinator, Mainstream Louisiana Baptists, 
Natchitoches, LA
    Rev. Jack A. Shaw, King Street Baptist Church, Cocoa, FL
    Rabbi Charles P. Sherman, Temple Israel, Tulsa, OK
    Rev. William D. Shiell, Southland Baptist Church, San Angelo, TX
    Rabbi Rebecca Pomerantz Shinder, Temple Sinai of Bergen County, 
Tenafly, NJ
    Assoc. in Ministry, Holly Shipley, Faith Lutheran Church, 
Lexington, KY
    Pastor Harold Shirlee, Pleasant Grove Baptist Church, Pine Bluff, 
AR
    Cantor Michael A. Shochet, Temple Rodef Shalom, Falls Church, VA
    Rev. Madison Shockley, United Church of Christ, Los Angeles, CA
    Rabbi Mark L. Shook, Congregation Temple Israel, St. Louis, MO
    Rev. Amy Short, E.D., Brethren/Mennonite Council for Lesbian and 
Gay Concerns, Minneapolis, MN
    Rev. Craig Showalter, Cross Creek Community Church, Dayton, OH
    Dr. Robert D. Shrum, Oakland Baptist Church, Rock Hill, SC
    Rev. Candace R. Shultis, Pastor, Metropolitan Community Church of 
Washington, Washington, DC
    Dr. Walter B. Shurden, Baptist, Macon, GA
    Wayne S. Siet, Cantor, Temple Shaari Emeth, Manalapan, NJ
    Rev. David L. Silke, First Baptist Church, Olympia, WA
    Rabbi Robert Silvers, Congregation B'nai Israel, Boca Raton, FL
    Rev. John G. Simmons, Lutheran, Burbank, CA
    Rev. Paul D. Simmons, Ph.D., Baptist, Louisville, KY
    Rabbi James L. Simon, Temple Sinai of North Dade, North Miami 
Beach, FL
    Bishop Bennet J. Sims, The Institute for Servant Leadership, 
Asheville, NC
    Rev. Katherine Sinclair, Coldspring United Methodist Church, 
Coldspring, TX
    Rev. Donald W. Sinclair, United Methodist Church, Texas Annual 
Conf., Coldspring, TX
    Rev. Richard B. Skidmore, Kairos-Milwaukie United Church of Christ, 
Milwaukie, OR
    Rev. Fred Small, First Church Unitarian, Littleton, MA
    Rev. E. Jo Smith, St. John's United Methodist Church, Austin, TX
    Rev. Wayne G. Smith, St. John's United Methodist Church, Austin, TX
    Rev. Paul L. Smith, First Baptist Church, Calhoun City, MS
    Dr. Stanley L. Smith, First Baptist Church, Boulder, CO
    Rev. Dr. Layne E. Smith, Viewmont Baptist Church, Hickory, NC
    Rev. Daniel E. Smith, Pastor, West Hollywood Presbyterian Church, 
Los Angeles, CA
    Rev. Brent A. Smith, PhD, Fountain Street Church, Grand Rapids, MI
    Rev. Dr. Dwight D. Snesrud, retired, United Church of Christ, 
Lincoln, NE
    Dr. Stanley D. Smith, Senior Pastor, First Christian Church 
(Disciples of Christ), Orange, CA
    Rev. Dr. Joshua A. Snyder, Second Unitarian Church at Omaha, Omaha, 
NE
    Rabbi Ronald B. Sobel, Temple Emanu-El, New York, NY
    Rabbi David M. Sofian, Emanuel Congregation, Chicago, IL
    Rev. Andrew L. Solice, Sr. New Life United Methodist Church, 
Baltimore, MD
    Rabbi Rav A. Soloff, Central Conference of American Rabbis, 
Lansdale, PA
    Rev. L.K. Solomon, Pastor, D. Min., Indiana Street Baptist Church, 
Pine Bluff, AR
    Rev. Dr. James G. Somerville, First Baptist Church, Washington, DC
    Rev. Kenneth T. South, United Church of Christ, Washington, DC
    Rev. Dr. Richard Speck, Unitarian Universalist, Wilmington, DE
    Rev. Lon Speer, United Methodist, Austin, TX
    Rev. Edward E. Spence, Presbyterian Church (USA), Chandler, AZ
    Rev. Mr. Jeffrey S. Spencer, Tolt Congregational United Church of 
Christ, Carnation, WA
    Rev. Lowell H. Spencer, United Methodist, Lynchburg, VA
    Rabbi Scott M. Sperling, Temple De Hirsch Sinai, Seattle, WA
    Rev. Ellen Rowse Spero, Assistant Minister, First Parish in 
Lexington, Lexington, MA
    Fr. Thomas J. Spiegel, Our Lady of Lourdes Church, Bettendorf, IA
    Rev. Douglas B. Stearns, Member, Grace Presbytery, DeSoto, TX
    Rabbi Adam Stock Spilker, Mount Zion Temple, St. Paul, MN
    Rev. Susan Sprague, Trinity United Methodist Church, Austin, TX
    Very Rev. E. Kyle, St. Clair Jr. Episcopal, New Hope, PA
    Rabbi Samuel M. Stahl, Temple Beth-El, San Antonio, TX
    Rabbi Mark Staitman, D.Min., Rodef Shalom Congregation, Pittsburgh, 
PA
    Rev. Dallas T. Stallings, Haymarket Baptist Church, Haymarket, VA
    Rev. F. Herb Stallknecht III, St. Mathews United Methodist Church, 
Houston,TX
    Rev. Susan L. Starr, First Unitarian Church of Oakland, Oakland, CA
    Rabbi Sonya Starr, Columbia Jewish Congregation, Columbia, MD
    Rev. Michael A. Stein, Christian Church (Disciples of Christ), 
Scottsbluff, NE
    Rabbi Lane Steinger, Union of American Hebrew Congregations, St. 
Louis, MO
    Rabbi David Steinhardt, B'nai Torah Congregation, Boca Raton, FL
    Rev. Charles J. Stephens, UU Church of Washington Crossing -
Pennington Rd, Titasville, NJ
    Rabbi George Stern, Jewish, Valley Cottage, NY
    Rabbi Ronald H. Stern, Stephen Wise Temple, Los Angeles, CA
    Rev. Connie Sternberg, Unitarian Universalist Society East, 
Manchester, CT
    Rev. Elizabeth B. Stevens, First Church in Dedham, Dedham, MA
    Rabbi Michael N. Stevens, Temple Beth El, Munster, IN
    Rabbi Jeffrey Stiffman, Congregation Shaare Emeth, St. Louis, MO
    Rev. David E. Stine, University Baptist Church, Austin, TX
    Rev. Jerald M. Stinson, Senior Minister, First Congregational 
Church (UCC), Long Beach, CA
    Rev. Dr. Nathan L. Stone, Unitarian Universalist Fellowship of 
Waco, Waco, TX
    Rev. Krishna Stone, Sanctuary of the Church, New York, NY
    Rabbi Warren Stone, Temple Emanuel, Kensington, MD
    Rev. Bebb Wheeler, Stone, PhD, Presbyterian Church (USA), 
Pittsburgh, PA
    Rabbi Andrew Straus, Temple Emanu-El of Tempe, Tempe, AZ
    Rabbi Mark Strauss-Cohn, Jewish, Tampa, FL
    Rev. Dr. Charles H. Straut, Jr., Kings Highway United Methodist 
Church, Brooklyn, NY
    Rev. Laura Lee Strawser, First Baptist Church, Birmingham, MI
    Rev. Victoria Streiff-Fraser, Unitarian Universalist Fellowship of 
Columbus, Columbus, IN
    Rabbi Elliot M. Strom, Shir Ami B.C.J.C. Newton, PA
    Rev. James D. Stuckey, Jr., Murray Hill Baptist Church, 
Jacksonville, FL
    Rev. Elwood R. Sturtevant, Thomas Jefferson Unitarian Church, 
Louisville, KY
    Rabbi Brooks R. Susman, Temple Shaari Emeth, Manalapan, NJ
    Dr. John A. Sylvester-Johnson, Grandin Court Baptist/Rescue Mission 
of Roanoke, Roanoke, VA
    Rabbi Barbara Symons, Temple Etz Chaim, Franklin, MA
    Rabbi Irwin A. Tanenbaum, D.D., Temple Sholom, Monticello, NY
    Rabbi Harvey M. Tattelbaum, Senior Rabbi Temple Shaaray Tefila, New 
York, NY
    Rabbi Joshua S. Taub, The Temple, Congregation B'Nai Jehudah, 
Kansas City, MO
    Rev. Thomas S. Taylor, United Methodist, Brecksville, OH
    Pastor Richard H. Taylor, Beneficient Congregational Church (UCC), 
Providence, RI
    Rev. George R. Taylor, First Presbyterian Church, Stroudsburg, PA
    Rabbi Dov Taylor, Congregation Solel, Highland Park, IL
    Rev. Daniel L. Taylor, American Baptist Churches of Ohio, 
Granville, OH
    Pastor Ralph Thomas Taylor, Pilgrim Congregational Church, New 
Haven, CT
    Rev. Alan C. Taylor, Minister, Woodinville Unitarian Universalist 
Church, Woodinville, WA
    Pastor Greg Templin, Ephesus Baptist Church, Raleigh, NC
    Dr. Eugene TeSelle, Presbyterian Church (U.S.A.), Nashville, TN
    Rev. Jane E. Thickstun, Unitarian Universalist, Midland, MI
    Rev. Carl Thitchener, Co-Minister, Unitarian Universalist Church of 
Amherst, Amherst, NY
    Rev. Maureen Thitchener, Co-Minister, Unitarian Universalist Church 
of Amherst, Amherst, NY
    Rev. Benjamin E. Thomas, Stuart Baptist Church, Stuart, VA
    Rev. Gregory Thomas, West Bowdoin Baptist Church, Bowdoin, ME
    Dr. James R. Thomason, First Baptist Church, Anderson, SC
    Rev. Robert V. Thompson, Lake Street Church of Evanston (American 
Baptist Churches of the U.S.A.), Evanston, IL
    Rev. Albert H. Thompson III, United Church of Christ, Mankato, MN
    Rev. L. Douglas Throckmorton, Minister Member, The Presbytery of 
the Twin Cities Area, White Bear Lake, MN
    Rev. Tony L. Thurston, College Avenue Christian Church, Des Moines, 
IA
    Rev. W.B. Tichenor, Baptist, Columbia, MO
    Fred Tilinski, Coordinator, Chistians for Justice Action, St. 
Peters, MO
    Willie Timmons, Preacher, Little Union Christian Church, 
Hayneville, AL
    Rev. James R. Tilton, Presbyterian Church (USA), Leawood, KS
    Rev. Doug Tipps, First Baptist Church, San Marcos, TX
    Dr. Hugh Tobias, Riverside Baptist Church, Jacksonville, FL
    Rev. Rebecca J. Tollefson, Ohio Council of Churches, Columbus, OH
    Dr. Darryl M. Trimiew, Zion Hill Baptist Church, Rochester,NY
    Rev. Marc Tripp, Chairman, The Spiritual Fire Foundation, Tulsa, OK
    Rabbi Leonard B. Troupp, Temple Beth David, Commacic, NY
    Rev. Randall Trumbo, Enon Baptist Church, Russellville, MO
    Rev. Lonni Turner, Baptist, Washington, DC
    Rev. Paul M. Turner, Gentle Spirit Christian Church, Atlanta,GA
    Dr. William L. Turner, South Main Baptist Church, Houston, TX
    Rev. Timothy B. Tutt, Briggs Memorial Baptist Church, Bethesda, MD
    Rev. Ann E. Tyndall, Unitarian Church of Evanston, Evanston, IL
    Rev. Charles L. Updike, First Baptist Church, Gaithersburg, MD
    Rev. Carl A. Urban, Roman Catholic Church of St. Adalbert, 
Schenectady, NY
    Rev. Michael S. Usey, College Park Baptist, Greensboro, NC
    Rev. Joan Van Becelaere, Community Minister, First Unitarian 
Society, Denver, CO
    Rev. Leslie Van Blarcom, United Methodist, Shawnee, KS
    A. Stephen Van Kuiken, Pastor, Mt. Auburn Presbyterian Church, 
Cincinnati, OH
    Rev. Don W. Vaughn-Foerster, Northwoods Unitarian Universalist 
Society, The Woodlands, TX
    Rev. Carlton W. Veazey, National Baptist Convention, Washington, DC
    Rev. Buddy D. Vess, Metropolitan Community Church of Northern 
Virginia, Fairfax, VA
    Rev. Philip Vestal, Harlem Baptist Church, Harlem, GA
    Dr. Daniel Vestal, Coordinator, Cooperative Baptist Fellowship, 
Atlanta, GA
    Dr. Ray Vickrey, Royal Lane Baptist Church, Dallas, TX
    Rev. C. Joshua Villines, Chaplain, The Alliance of Baptists, 
Snellville, GA
    Rev. Paul Reynolds Warren, St. Paul's United Church of Christ, 
Schulenborg, TX
    Rev. Dr. Audrey Wise Vincent, Unitarian Universalist Church of 
Savannah, Savannah, GA
    Rev. Dr. Richard E. Visser, First Baptist Church, Waynesburg, PA
    Rev. Sandra W. Vogel, Lead Pastor, Grantville United Methodist 
Church, Grantville, KS
    Rev. David Von Schlichten, Evangelical Lutheran Church of America, 
Youngstown, PA
    Rev. Kate Walker, Unitarian Universalist Church of Meadville, 
Meadville, PA
    Rev. J. Brent Walker, Baptist, Falls Church, VA
    Rev. G. Kent Walmsley, Hope Memorial Baptist Church, Camden, NJ
    Rev. Lisa Ward, Unitarian Universalist Minister, Churchville, MD
    Dr. Douglas Watterson, North Stuart Baptist Church, Stuart, FL
    Rev. Dr. J. David Waugh, Metro Baptist Church, New York, NY
    Rev. Gloria Weber, Lutheran, St. Louis, MO
    Rabbi Donald A. Weber, Temple Rodeph Torah, Marlboro, NJ
    Rabbi David Wechsler-Azen, Temple Har Shalom, Warren, NJ
    Rabbi Gerald Weider, Congregation Beth Elohim, Brooklyn, NY
    Rabbi Michael A. Weinberg, Temple Beth Israel, Skokie, IL
    Rabbi Jennifer C. Weiner, Temple Beth Am, Williamsville, NY
    Rabbi Stephen J. Weisman, Temple Solel, Bowie, MD
    Rabbi Richard A. Weiss, D.D., M.S.W., Farmington Hills, MI
    Rev. Dave Weissbard, Unitarian Universalist Church, Rockford, IL
    Rev. Sue Wells, Leader, United Methodist Church, Austin, TX
    Rev. Frances West, Minister, Unitarian Universalist Congregation, 
Marietta, GA
    Dr. Donald Wheeler, Emmanuel Baptist Church, Ridgewood, NJ
    Rev. L. Gail Wheelock, Church of the Ascension (Episcopal), 
Wakefield, RI
    Rev. Wade Wheelock, Co-Minister, Unitarian Universalist Church, 
Canton, NY
    Rev. Gayle Whittemore, South Congregational Church United Church of 
Christ, Concord, NH
    Rabbi David S. Widzer, Temple Shalom of Newton, Newton, PA
    Pastor Suanne Williams-Whorl, Ebenezer United Methodist Church, 
Middletown, PA
    Rev. Dr. Gary A. Wilburn, Presbyterian, New Canaan, CT
    Rev. Don Wilkey, Onalaska First Baptist, Onalaska, TX
    Dr. J. Michael Wilkins, Gloucester Point Baptist Church, 
Glouchester Point, VA
    Rev. Jeffrey C. Wilkinson, Emmanuel United Church, Mechanicville, 
NY
    Rev. Mary Kay Will, Campus Minister, United Methodist Church, Long 
Beach, CA
    Rev. Jennifer H. Williams, United Methodist, Harrisburg, PA
    Rev. John D. Williams, Presbyterian Church (USA), Sherman, TX
    Rev. San Williams, University Presbyterian Church, Austin, TX
    Rev. Mel Williams, Watts Street Baptist Church, Durham, NC
    Rev. George Williamson, Jr., First Baptist Church, Granville, OH
    Rev. Michael J. Wills, Northwest Christian Church, Arlington, TX
    Dr. G. Todd Wilson, First Baptist Church, Clemson, SC
    Rev. William G. Wilson, First Baptist Church, Waynesboro, VA
    Rabbi Jonathan S. Woll, Temple Avoda, Fair Lawn, NJ
    Rev. Rolen Womack, Baptist, Milwaukee, WI
    Rev. Tony O. Woodell, Arkansas Baptists Committed, Little Rock, AR
    Rev. Richard M. Woodman, Unitarian Universalist Association, Dover, 
NH
    Dr. Jody C. Wright, Lakeside Baptist Church, Rocky Mount, NC
    Dr. Rex Yancey, First Baptist Church, Pascagoula, MS
    Rev. Edwin Yates, Pastor, Good Samaritan Parish Metropolitan 
Community Church, Toledo, OH
    Rev. Maran Yaw, Calvary Baptist Church, Washington, DC
    Rev. John F. Yeaman, United Methodist, Austin, TX
    Rabbi Eric Yoffie, President, Union of American Hebrew 
Congregations, New York, NY
    Rabbi Herbert Yoskowitz, Farmington Hills, MI
    Rev. David E. Young, Chapel Lane Presbyterian Church, Midland, MI
    Rabbi Roderick Young, Congregation Beth Simchat Torah, New York, NY
    Rev. Mike Young, First Unitarian Church, Honolulu, HI
    Dr. Gerald L. Young, Boulevard Baptist Church, Falls Church, VA
    Dr. Brett Younger, Broadway Baptist Church, Fort Worth, TX
    Rabbi Gerald L. Zelizer, Congregation Neve Shalom, Metuchen, NJ
    Rabbi Daniel G. Zemel, Temple Micah, Washington, DC
    Pastor Nancy J. Zerban, United Church of Wayland, Wayland, MI
    Rev. Angela Zimmann, Evangelical Lutheran Church of America, 
Dundee, MI
    Rev. Marty Zimmann, Evangelical Lutheran Church of America, Dundee, 
MI
    Rev. Mary B. Zimmer, Church of the Savior, Austin, TX
    Rev. Judith Jon Zimmerman, Trinity Episcopal Church, Houghton, MI
    Rabbi Louis Zivic, Congregation Beth Israel, Lebanon, PA
    Rev. Amy Zucker, Unitarian Universalist Church of Rutland, Rutland, 
VT

    *House of Worship and Religious Affiliation included for 
identification purposes only.

                                

    [The prepared statement of Mr. Scott follows:]

  Statement of the Hon. Robert C. Scott, a Representative in Congress 
                       from the State of Virginia

    Chairman Herger, Chairman McCrery, Ranking Member Cardin, Ranking 
Member McNulty and Members of the Subcommittees, I am pleased to have 
the opportunity to appear before you today to share my concerns 
regarding the Charitable Choice portion of HR. 7, the ``Community 
Solutions Act of 2001''.
    Religiously affiliated organizations, including Catholic Charities, 
Lutheran Services, Jewish Federations and a vast array of smaller 
faith-based organizations now sponsor government programs. And contrary 
to President Bush's recent assertions, I am unaware of anyone who 
opposes these organizations operating public programs and providing 
services. They are funded like all other private organizations are 
funded: they are prohibited from using taxpayer money to advance their 
religious beliefs and they are subject to civil rights laws.
    The President visited a Habitat for Humanity site recently 
highlighting his faith initiative, yet even the Habitat's founder 
indicated that they are thriving under current provisions without 
Charitable Choice.
    One of the reasons supporters often cite a need for Charitable 
Choice is so that small religious providers will be able to participate 
in government grant programs. Contrary to these assertions, Charitable 
Choice does absolutely nothing to increase participation by small 
religious organizations in social service programs. They still have to 
navigate the grant process- writing and submitting a grant; setting up 
accounting procedures; administering the program, etc. Small religious 
organizations as well as small neighborhood organizations will continue 
to face difficulties without adequate technical assistance irrespective 
of Charitable Choice on the law books.
    In reality, Charitable Choice seeks to alter the long standing 
relationship between church and state by allowing the sponsors of 
federally funded programs to advance their religion during the programs 
and by allowing discrimination in employment paid for with federal 
dollars.
    The issue concerning the President's Faith-Based Initiative and 
H.R. 7 is not if religious organizations should participate or if we 
should expand community efforts to deal with serious social problems, 
we should and they do now. There is broad bipartisan agreement on this. 
Rather, the fundamental difference in what Charitable Choice does 
differently from current law is two things: allows proselytization 
during the program and employment discrimination with federal funds.
    Before we can intelligently discuss the pro's and con's of 
Charitable Choice, we must first get a straight answer to a fundamental 
question: are you funding the faith or not?
    At a Notre Dame commencement speech, the President recently said 
``[g]overnment should never fund the teaching of faith, but it should 
support the good works of the faithful.'' Furthermore, the legislation 
itself prohibits federal funds being used to pay for proselytization. 
But if government is not ``funding the faith'', then there is no need 
to discuss the preservation of the religious character of the 
sponsoring organization; there is no need to provide separate, secular 
services elsewhere; there is no need to discriminate in employment; in 
fact, there is no need for Charitable Choice. If the government is not 
funding the faith, organizations can receive funding just as Habitat 
for Humanity does now, without Charitable Choice.
    Unfortunately, the provision in Charitable Choice guaranteeing the 
right to retain the religious character of the sponsor also guarantees 
that the program will promote religious views. And the prohibition 
against using the federal funds for proselytization does not prevent 
volunteers from taking advantage of the captured audience and 
converting the federal program into a virtual worship service.
    Furthermore, many of the supporters of Charitable Choice 
acknowledge that the religious experience is exactly what is being 
funded. At a forum a few months ago, my friend Senator Santorum, the 
main Senate sponsor of Charitable Choice, criticized me for not 
recognizing that with some drug rehabilitation programs ``religion here 
is a methodology''. And John DiIulio indicated in an interview with the 
Associated Press in April that while ``it was `more appropriate' for 
pervasively religious programs to be paid for with vouchers but if they 
want to apply for direct grants, `fine' ''. Also, in April an ad hoc of 
35 different conservative organizations formed to support the 
President's Faith-Based Initiative issued a statement of principles 
that included the provision that ``. . . a faith-based organization 
that accomplishes socially beneficial purposes through a pervasively 
religious approach may receive funding for other purposes equivalent to 
what other faith-based or secular government grantees receive.'' \1\ At 
recent Congressional hearings, sponsors have explained that their 
programs are successful because of the religious nature of the program. 
And my House colleague, Congressman J.C. Watts, who has been one of the 
earliest supporters of Charitable Choice, has previously introduced 
versions of Charitable Choice for drug treatment programs where 
beneficiaries can be forced to participate in religious activities as a 
requirement for receiving publicly funded services. (See H.R. 3467, 
104th Congress) In addition, he and others have pointed that programs, 
like Victory Fellowship where religion is the course of treatment for 
substance abuse, as exactly the kinds of programs Charitable Choice is 
designed to fund.
---------------------------------------------------------------------------
    \1\ Free Congress Foundation, Press Release on ``FCF's Marshner 
Chairs New Coalition to Support Faith-Based Initiatives,'' April 12, 
2001
---------------------------------------------------------------------------
    Yet, how are we to fit these statements with the President's 
statement ``[g]overnment should never fund the teaching of faith, but 
it should support the good works of the faithful''? Or with Department 
of Justice testimony last week before the Subcommittee on the 
Constitution that absolutely no religious activity, funded privately or 
not, could occur during the government funded program?
    Chairman Herger and Chairman McCrery, you have to answer the 
question: are you funding the faith or not. If not, then you don't need 
Charitable Choice. If so, then we have to candidly address the 
Establishment Clause of the First Amendment implications of having 
government officials pick and choose between religions to see which 
faith will be advanced during a government sponsored program.
    There is another important policy question that has to be 
addressed: should we allow employment discrimination in a federally 
funded program?
    There was a time when some Americans, because of their religion, 
were not considered qualified for certain jobs. In fact, before 1960 it 
was thought that a Catholic could not be elected President. And before 
the civil rights laws of 1960s, people of certain religions routinely 
suffered invidious discrimination when they sought employment. Sixty 
years ago this month, President Roosevelt established the principal in 
an executive order that you cannot discriminate in government defense 
contracts on the basis of race, religion, color or national origin, and 
the civil rights laws of the 1960s outlawed schemes which allowed job 
applicants to be rejected solely because of their religious beliefs.
    Some of us are frankly shocked that we would even have to debate 
whether sponsors of a federal program can discriminate in hiring. But 
then we remember that passage of the civil rights laws in the 1960s was 
not unanimous, and it is clear that we now are using Charitable Choice 
to redebate the passage of basic anti-discrimination laws. I believe 
that publicly funded employment discrimination was wrong in the 1960's 
and it is still wrong.
    Some have suggested that organizations should be able to 
discriminate in employment to select employees who share their vision 
and philosophy. Under current civil rights law you can discriminate 
against a person based on their views on environment, views on abortion 
or gun control. You can also select staff based on their commitment to 
serve the poor or whether you think they can have compassion to help 
others kick drugs. But because of a sorry history of discrimination 
against certain Americans, we have had to establish ``protected 
classes'' and under present law you cannot discriminate against an 
individual based on race, sex, national origin, or religion.
    The current exemption under Title VII for religious organizations 
is a common sense provision which allows religious organizations to 
discriminate based on religion for hiring purposes. For example, when a 
Catholic church hires a priest, they can of course require that the job 
applicant be Catholic. This exemption, however, was intended to apply 
to the use of private funds of the religious organization, and it was 
never expected to apply to the use of federal funds.
    In addition to the insulting prospect that otherwise perfectly 
qualified job applicants in a federally sponsored program would be 
denied employment because of their religion, there are other civil 
rights considerations, in terms of gender and race, that should be 
considered. The courts have read a constitutionally based `ministerial 
exception' into Title VII that excludes some employment decisions by 
religious organizations from all of the provisions in Title VII--thus 
allowing discrimination on the basis of race, gender and national 
origin by religious organizations. It is unclear how the ``ministerial 
exception'' would effect the civil rights of an applicant for a job 
paid for with federal funds under Charitable Choice.
    Chairman Herger and McCrery, I would submit the testimony of Wade 
Henderson of the Leadership Conference on Civil Rights before the 
Senate Judiciary Committee as part of my testimony here. His testimony 
outlines the significant civil rights problems contained in HR 7 which 
I recommend for the Committee's review before proceeding further with 
this legislation.
    Some will suggest that Charitable Choice is no different than 
present law which allows religiously affiliated hospitals and colleges 
to receive public funds and discriminate in some of their high level 
positions. Siegel v. Truett-McConnell College, Inc., provides the 
distinction for us. The plaintiff argued that the college received 
substantial funds from federal and state sources, such as Pell grants, 
and therefore was not entitled to the Title VII exemption. The Court 
ruled in favor of the college noting that ``there was no `direct 
federal or state subsidy . . .' and that `[t]he government does not 
directly pay for any one teacher's salary, including Mr. Siegel's.''' 
The court went on to distinguish this case involving indirect benefit 
(where students choose their college) from a direct benefit (where 
government provides a direct contract for services). If Charitable 
Choice were a voucher program (where the drug addict selects which 
program to participate in), rather than a grant program (where the 
government selects the program), the analysis might be different. But 
there is no question that there should be no discrimination in programs 
selected by the government to provide services.
    There are other policy considerations that have received little 
debate or review but are nonetheless worthy of the Committee's 
attention as it relates to Charitable Choice proposals.

    Preemption of Local and State Nondiscrimination Employment Laws:

    Notwithstanding the Title VII problem in HR 7, there remains 
language in the bill that supporters of Charitable Choice have argued 
would override local and state nondiscrimination employment laws.
    ``Question 1: Do FBOs have to comply with state and local 
nondiscrimination laws?
    Yes, except where an employment practice is motivated by the FBO's 
sincerely held religious beliefs. States and municipalities often have 
nondiscrimination laws and procurement policies enacted pursuant to 
governmental spending power. When these spending-power laws do not 
permit FBOs to select staff on the basis of faith commitments, the laws 
are not enforceable against FBOs acting pursuant to charitable choice 
contracts or grants. This is because the federal statutory guarantees 
in Sec. 604a that promise to protect the `religious character' of FBOs 
preempt contrary provisions in state and local laws.'' \2\
---------------------------------------------------------------------------
    \2\ Esbeck, Carl H. ``Isn't Charitable Choice Government-Funded 
Employment Discrimination,'' Christian Legal Society.

---------------------------------------------------------------------------
    State Constitutional Preemption:

    H.R. 7 would preempt many state constitutional provisions and laws. 
The provisions of the Watts-Hall Bill mandating the granting of funds 
to religious organizations and allowing such organizations to 
discriminate in employment on the basis of religious tenets are in 
clear conflict with many state constitutional, statutory, and 
regulatory provisions which prohibit states from granting funds to or 
contracting with organizations that are sectarian in character or that 
discriminate in employment for religious reasons on the basis of 
religion or other characteristics. ``Even without an express provision 
for preemption . . . state law is naturally preempted to the extent of 
any conflict with a federal statute.'' Crosby v. National Foreign Trade 
Council, 530 U.S. 363, *373 (2000). The Supreme Court ``will find 
preemption where it is impossible for a private party to comply with 
both state and federal law.'' Id.

    Preemption of State/Local Contracting Requirements Reflecting 
Diversity:

    Proponents of Charitable Choice have also argued that its 
provisions, including those contained in HR 7, override state or local 
requirements for culturally diverse providers.
    ``Q. May a state or locality require that the governing board of a 
faith-based provider reflect the ethnic, gender, or cultural diversity 
of the community or beneficiaries?
    A. No. Such matters of internal governance are under the control of 
the faith-based organization.'' \3\
---------------------------------------------------------------------------
    \3\ ``The Rules of Section 104 of the 1996 Federal Welfare Law 
Governing State Cooperation with Faith-based Social-Service 
Providers,'' The Center for Public Justice, 1997.

---------------------------------------------------------------------------
    Privatization Issue:

    As we begin to implement existing programs containing Charitable 
Choice and contemplate adding this provision to other federal programs, 
we must contemplate the privatization issues that may arise as more and 
more government services are contracted out to private providers, 
including those who are religious. For example, efforts are usually 
made to place dislocated public workers with the private contract 
providers. With Charitable Choice, however, workers who are otherwise 
qualified may not be eligible for employment at the private religious 
provider due to differences in religion.

    Professional Licensing Standards:

    Licensing is generally the purview of states and localities. 
Previous versions of Charitable Choice have sought to override state 
educational and licensing requirements for drug counselors of religious 
providers. While those attempts have been largely rejected, there still 
remains the issue of licensing across the multitude of programs. 
Religious providers performing privately funded services have often 
been accorded exemptions from various state and local licensing 
requirements. A review should be undertaken to see what exemptions are 
in place at the state and local level and if those exemptions would 
remain in place when operating a public program.
    From these and other issues raised by the testimony you will hear 
today, Charitable Choice presents us with an array of difficult legal, 
ethical, and policy issues. More fundamentally though, Charitable 
Choice represents an historic reversal of decades of progress in civil 
rights enforcement. The President and supporters of Charitable Choice 
have promised to invest needed resources in our inner cities, but it is 
insulting to suggest that we cannot get those investments, unless we 
turn the clock back on our civil rights.
    Chairman Herger and McCrery, I thank you for holding this hearing 
and thank you for your courtesy in allowing me to participate.

Statement of Wade Henderson, Executive, Leadership Conference on Civil 
                                 Rights

    Mr. Chairman and Members of the Committee: My name is Wade 
Henderson and I am the Executive Director of the Leadership Conference 
on Civil Rights (LCCR). I also serve as Counsel to the Leadership 
Conference Education Fund (LCEF). I am pleased to appear before you 
today on behalf of the Leadership Conference to discuss the charitable 
choice provisions in the Bush Administration's ``faith-based 
initiative;'' and to discuss the potential harm to civil rights laws 
that could result from the failure to consider appropriate safeguards.
    The Leadership Conference on Civil Rights is the nation's oldest, 
largest, and most diverse coalition of organizations committed to the 
protection of civil and human rights in the United States. Since its 
establishment in 1950 by A. Philip Randolph, Arnold Aronson, and Roy 
Wilkins, three civil rights leaders who would eventually receive the 
Presidential Medal of Freedom, the Leadership Conference has promoted 
the passage, and monitored the implementation, of laws designed to 
achieve equality under law for all persons in the United States. LCEF 
was founded in 1969 as the education arm of the civil rights coalition 
and continues to fill that role today.
    Today, the Leadership Conference consists of over 180 organizations 
working in concert to advance the cause of equality. Our coalition 
includes groups representing persons of color, women, labor 
organizations, persons with disabilities, older Americans, gay men and 
lesbians, major religious groups, and civil liberties and human rights 
interests. It is a privilege to represent the civil and human rights 
community in addressing the Committee today.
    We would like to make clear at the outset of this testimony that 
the Leadership Conference approaches this issue with great respect for 
the many religiously-affiliated organizations, such as Catholic 
Charities USA, United Jewish Communities, and Lutheran Social Services, 
that have long received federal, state, and local funds to serve 
important needs in our communities. The charitable choice provisions 
under consideration today will have no effect on the important work of 
these well-known organizations. Moreover, to my knowledge, none of the 
Leadership Conference members that oppose charitable choice are seeking 
to change, in any way, the operations of the several religiously-
affiliated groups that already participate in federal programs.
    We also strongly support the fundamental principle that our 
nation's privately-funded religious organizations--our churches, 
synagogues, mosques, and other houses of worship--should always enjoy 
the constitutional freedom to pursue their religious missions through 
their ministries to our communities. The Leadership Conference and many 
of its members have supported religious freedom with our own long 
history of working toward laws that protect religious exercise, 
including the right of each person to be free from discrimination based 
on religion. Further, I would add that, as with the religiously-
affiliated groups, no one opposed to charitable choice is seeking to 
change the way any of these privately-funded religious groups operate.
    The Leadership Conference also would like to take this opportunity 
to offer its commitment to work with members of the Senate Judiciary 
Committee to find a better, non-discriminatory way to ensure that 
federal money goes to whichever organization can best serve a 
community's needs and is willing to abide by the laws that apply to 
federal contracts and grants. We understand the frustration of the many 
smaller privately-funded service providers, both religiously-affiliated 
and secular, who feel excluded from federal programs because the 
regulatory hurdles seem too high. We believe that we can find an 
appropriate way to bring these groups into federal programs, even as we 
remain committed to civil rights protections and other necessary 
safeguards. We believe that such a ``win-win'' solution is possible, 
and is well worth all of our efforts to find it.

CHARITABLE CHOICE: A NEW THREAT TO CIVIL RIGHTS
    The Leadership Conference believes that the employment provision of 
charitable choice threatens a cornerstone principle of our nation's 
civil rights laws, i.e., that federal funds generally will not go to 
persons who discriminate against others. It is hard to overstate the 
importance of our national commitment to this principle. Not only 
should all of us be free from discrimination by the government itself, 
but we also should have the assurance that our government is not 
providing federal dollars to programs that discriminate against others.
    Ironically, we are defending the principle that the government 
should not fund persons engaged in religious discrimination almost 
sixty years to the day it was first enunciated. On June 25, 1941, 
President Franklin D. Roosevelt signed the first Executive Order, No. 
8802, prohibiting federal defense contractors from discriminating based 
on race, religion, color, or national origin. Not only was the 
Roosevelt Executive Order the beginning of a long national commitment 
to barring federal funds to most persons who discriminate against 
others, it also was the first national victory of the modern civil 
rights movement.
    Sixty years ago, despite the increase in employment as the nation 
prepared for World War II and provided defense materials to the rest of 
the free world, minorities were largely excluded from the nation's 
economy. The use of federal funds as the source of all of the new 
economic activity compounded the injustice of discrimination. 
Recognizing the special harm of federal dollars going to persons who 
discriminate, President Roosevelt agreed to sign a landmark executive 
order prohibiting federal defense contractors from discriminating based 
on race, religion, color, or national origin.
    In subsequent executive orders, President Roosevelt covered all 
federal contracts, including non-defense contracts; and Presidents 
Truman, Eisenhower, Kennedy, and Johnson expanded the protections. The 
current executive order is Executive Order No. 11246, which has been in 
effect since 1965. The executive orders also spawned scores of 
nondiscrimination provisions that bar discrimination in specific 
federal programs, and influenced the development of agency rules that 
prohibit discrimination by federal contractors and grantees.
    It is this fundamental principle of non-discrimination, reflected 
first in these executive orders, and later, in the host of civil rights 
statutes that ban discrimination by recipients of federal funds, that 
we are committed to protecting here today. Based on our review of the 
development of charitable choice legislation, the Leadership Conference 
has concluded that charitable choice threatens to erode that 
fundamental principle by allowing federal funds to go to persons who 
discriminate in employment based on religion.
    The core of the charitable choice provisions of the faith-based 
initiative is its anti-civil rights employment provision. For example, 
the charitable choice provision in S. 304, the ``Drug Abuse Education, 
Prevention, and Treatment Act of 2001'' provides that the Title VII 
exemption for religious organizations--which permits religious 
employers to prefer members of their own religion--``shall not be 
affected by the religious organization's provision of assistance under, 
or receipt of funds from, a program'' described in the legislation. 
Allowing Title VII's religious exemption to be applied to staffing 
decisions by federally-funded religious organizations would result in a 
harmful exception to the longstanding principle that federal funds 
generally may not go to persons who discriminate.
    The objective of charitable choice is to push aside every other 
statutory and regulatory protection against religious discrimination. 
The sixty years of developed civil rights protections against federal 
funds going to persons who discriminate in employment based on religion 
will have no place in the newly authorized programs. Thus, federally-
funded religious organizations participating in these programs could 
fire, or refuse to hire, anyone who did not belong to the employer's 
religion.
    Charitable choice could further undermine the nation's civil rights 
protections by allowing federally-funded religious organizations to 
require employees to adhere to the religious practices of the 
federally-funded religious organization. For example, several courts 
have interpreted the religious organization exemption in Title VII to 
allow a religious employer to require employees to adhere to the 
teachings and tenets of the religion. The ``religious practices'' 
requirement could create a conflict with the enforcement of civil 
rights laws protecting persons against discrimination on the basis of 
characteristics such as race, gender, pregnancy status, sexual 
orientation, or marital status.
    These are conflicts that the country can and should avoid. Our 
nation already went through over a decade of litigation to determine 
whether Bob Jones University's claim that it had a religious right to 
discriminate against persons on the basis of race overrode the federal 
government's interest in denying preferred tax status to groups that 
discriminate based on race. Bob Jones Univ. v. United States, 461 U.S. 
574, 604 (1983). Although Bob Jones University lost that case, we know 
that other religious institutions have claimed a religious basis for 
discriminating against others based on gender and pregnancy status, see 
Boyd v. Harding Academy of Memphis, Inc., 88 F.3d 410 (6th Cir. 1996) 
(a religiously-affiliated school could dismiss an unmarried, pregnant 
teacher because premarital sex was against the church's teachings); 
marital status, see Little v. Wuerl, 929 F.2d 944, 951 (3rd Cir. 1991) 
(a religiously-affiliated school could fire a teacher who did not have 
her marriage annulled in accordance with the religion's practices); and 
sexual orientation, see Hall v. Baptist Memorial Health Care Corp., 215 
F.3d 618, 625 (6th Cir. 2000) (a religiously-affiliated school could 
fire a school counselor after she attained a leadership position in a 
church that accepted gay and lesbian members). In addition, the 
Leadership Conference does not want to risk reopening the possibility 
that groups that discriminate based on race, like Bob Jones University 
could now prevail under charitable choice.
    As bad as the problems are with the charitable choice provision in 
S. 304, they can get even worse. For example, some have suggested 
amending S. 304 to include the employment provision from H.R. 7, the 
``Community Solutions Act of 2001,'' which the Bush Administration 
endorsed as the legislative vehicle for its faith-based initiative. The 
employment provision in H.R. 7 is even more sweeping than the 
corresponding provision in S. 304. H.R. 7 provides that, for twelve 
federal program areas, ``[i]n order to aid in the preservation of its 
religious character, a religious organization that provides assistance 
under a program described in subsection (c)(4) may, notwithstanding any 
other provision of law, require that its employees adhere to the 
religious practices of the organization.'' H.R. 7, 107th Cong. Sec. 201 
at pp. 22-23 (2001). Thus, the employment provision in H.R. 7 squarely 
seeks to override all other civil rights laws that protect against 
religious discrimination.
    Supporters of H.R. 7 have pointed to a provision, not included in 
S. 304, that purportedly saves a short list of civil rights statutes 
from the effect of its otherwise sweeping employment provision. Thus, 
laws such as Title VI of the Civil Rights Act of 1964, the 
Rehabilitation Act, and Title IX of the Education Amendment of 1972 
would continue to apply to all providers under H.R. 7.
    However, that savings provision would not provide meaningful 
protection against employment discrimination. None of the cited laws 
provide any protection against employment discrimination based on 
religion, sex, pregnancy status, marital status, or sexual orientation. 
In addition, the Rehabilitation Act incorporates by reference the 
employment provisions of the Americans with Disabilities Act, which 
allows religious employers to prefer members of their own religion.
    Moreover, Title VI of the Civil Rights Act of 1964 provides only 
incomplete protection against employment discrimination based on race 
in federal programs and activities. Title VI's prohibition against 
discrimination based on race, color, and national origin in federal 
programs and activities includes employment discrimination only ``where 
a primary objective of the Federal financial assistance is to provide 
employment.'' 42 U.S.C. Sec. 2000d-3. As a result, a federally-funded 
religious organization could apply the H.R. 7 employment provision in 
firing a person who refused to adhere to the religious organization's 
racially discriminatory practices. Unless a primary objective of the 
federal program was to create employment, the fired employee would have 
no recourse under Title VI, Title VII, or any other federal civil 
rights law. Thus, not only could race discrimination occur with no 
federal remedy, but the person engaging in race discrimination could 
receive federal dollars.

CHARITABLE CHOICE GOES FAR BEYOND CURRENT LAW
    The Leadership Conference would also like to take this opportunity 
to address directly two arguments which have been offered to counter 
our position against charitable choice legislation. First, we do not 
seek to use this legislation to undo any of the exceptions to fair 
employment laws currently available to religious organizations. Second, 
the provision of federal funds to certain religiously-affiliated 
organizations, does not support allowing religious discrimination by 
providers of other federal services.
    On the first point, the Leadership Conference and its members have 
no intention of eliminating any of the statutory exemptions for 
religious organizations to prefer members of their own religion in 
employment. Moreover, many of those exemptions are constitutionally 
compelled as a means of ensuring free exercise of religion. Although 
individual members of the Leadership Conference may disagree on the 
scope of a few of the exemptions, we know of no current or planned 
efforts by anyone to seek legislation to reduce or eliminate these 
exemptions.
    On the second point, although many religiously-affiliated 
organizations receive federal funds, most of these organizations follow 
the same rules as every other federally-funded service provider, 
including an agreement not to discriminate based on religion. However, 
other organizations, such as certain universities and hospitals, 
receive federal funds in the form of student aid grants and Medicare 
payments that the courts view as aid to the beneficiary, rather than 
aid to the institution. Thus, some courts have held that many of those 
organizations do not have to comply with all of the requirements that 
apply to federal contractors and grantees. In addition, many 
religiously-affiliated universities, hospitals, and other service 
providers organize themselves in ways that partition religious 
activities from secular activities, and claim a religious organization 
exemption for some parts of the organization, but not others. These 
practices are not analogous to charitable choice.
    There certainly may be individual contractors or grantees or 
specific programs or administrators which authorize religious 
discrimination in a federal program or activity. However, even if such 
discrimination occurs, it is not necessarily constitutional, legal, or 
wise. Simply finding an instance of a federal contractor or grantee 
discriminating based on religion is not itself a reason to legislate 
more opportunities for new harms.

FINDING A BETTER WAY
    We believe that there are better ways to bring more groups into the 
important work of providing social services to communities in need. The 
Leadership Conference offers its cooperation and assistance in 
developing new legislation to assist smaller providers of social 
services--both religiously-affiliated and secular--in gaining easier 
access to federal programs. We appreciate how intimidating programmatic 
requirements, including civil rights safeguards, may appear to 
organizations that have never participated in federal programs. 
However, we believe that the successful participation of many 
religiously-affiliated organizations in federal programs--groups such 
as Catholic Charities, United Jewish Communities, and Lutheran Social 
Services--provides a good model for further legislation.
    New legislation could include provisions for: (1) technical 
assistance in setting up a service provider, locating grant and 
contract opportunities, and applying for grants and contracts; (2) 
clear statements of responsibilities and liabilities of federal 
contractors and grantees; (3) specific models for how federal 
contractors and grantees can comply with civil rights laws and other 
safeguards; and (4) waiver of any incorporation or application fees for 
small nonprofits.
    Of course, these suggestions are not exhaustive. However, we hope 
to work with members of the Committee in developing these and other 
ideas into new legislation that would meet many of the objectives of 
charitable choice, even as federal contractors and grantees would 
continue to comply with civil rights and other safeguards. Thank you 
again for the opportunity to testify before you.
    [The attachments are being retained in the Committee files.]

                                

    Chairman Herger. Without objection. And the gentleman's 
time has expired, and I thank you for your testimony, Mr. 
Scott.
    At this time, we will hear from the principal author of the 
legislation, the gentleman from Oklahoma, Mr. Watts.

  STATEMENT OF THE HON. J.C. WATTS, JR., A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF OKLAHOMA

    Mr. Watts. Thank you, Mr. Chairman. And to the Chairs and 
to the ranking members and other members on the Committees, 
thank you very much for holding these important hearings today 
on H.R. 7, the Community Solutions Act.
    It is a great privilege to be here with my friend and 
colleague Tony Hall, who has sponsored this bill with me. Tony 
has a long and respected history of reaching out to the 
underprivileged and seeking solutions to poverty and hunger in 
America and around the world, so I am delighted to work with 
him on this initiative.
    And I am also delighted to be here as well with six of my 
other colleagues in the House, some who support H.R. 7 and some 
who don't support H.R. 7.
    Ladies and gentlemen, last year the Congress passed the 
Community Renewal Act that I had cosponsored with Congressmen 
Danny Davis of Chicago and Jim Talent of St. Louis. We 
introduced that legislation and fought for its passage because 
after a decade of uninterrupted growth and prosperity across 
the Nation, there were still communities in America that had 
been bypassed by the so-called new economy.
    H.R. 7, the Community Solutions Act, moves another step 
forward to fulfilling the goals and incentives of the Community 
Renewal Act. This legislation is crafted to increase charitable 
giving, to create asset building, financial structures for the 
working poor, and to form new partnerships between the 
government and community and faith-based organizations in 
helping the poor.
    The Community Solutions Act will strengthen our ability to 
serve the poor and the homeless, the addicted and the hungry, 
the unemployed, victims of violence, and all those we are 
called to help.
    Our Nation is blessed with tens of thousands of devoted 
individuals who work with the poor on a daily basis, through 
community and faith-based organizations. They work in the 
neighborhoods, on the street corners, in the shelters, in the 
soup kitchens, shirtsleeves rolled up, literally extending a 
helping hand to those on their doorsteps who have lost so much 
hope.
    They operate thousands of centers throughout the country 
which provide services to the underprivileged. In many 
neighborhoods, these centers are centers of hope in an 
otherwise desolate landscape.
    We are proud to have the endorsement of such groups as has 
been mentioned: Habitat for Humanity, the Salvation Army, who 
are perhaps the most recognizable of the thousands of groups 
who provide these services.
    The Community Solutions Act invites these courageous and 
selfless men and women to partner with the government and help 
us to find those in need and deliver vital services to them.
    And as Congressman Hall mentioned, in many of the 
communities, your faith-based organizations are the only 
organizations that will go into these communities.
    This legislation also provides important tax incentives to 
increase charitable giving by allowing nonitemizers to deduct 
charitable contributions, a bipartisan proposal that originated 
with Congressman Phil Crane. A charitable deduction for 
taxpayers who do not itemize seems not only good public policy 
but also a matter of simple fairness for more moderate-income 
Americans who use the standard deduction but contribute to 
charities and receive no tax relief for doing so.
    The Community Solutions Act will give these individuals 
equal standing with wealthier taxpayers.
    Another important provision of H.R. 7 is the creation of 
individual development accounts that will help low-income 
families to accumulate assets. This is a critical stepping 
stone for the working poor to escape poverty. These individual 
development accounts will allow these individuals to build the 
funds they need to buy a first home, to start a business or 
maybe to expand a business, or to pay tuition expenses.
    Today's witness list is impressive. And better than I, they 
can tell you how this legislation will help them and help 
society fulfill its commitments and its duty to guarantee every 
American an equal opportunity to succeed.
    Mr. Chairman, I appreciate your holding these hearings 
today.
    And just, briefly, you know, I have heard a lot of concern 
about what the legislation does, what it does about 
proselytizing. There is language in the legislation that says 
that you can't proselytize.
    We talk a lot about discrimination, well, the bottom-line 
is, today we allow discrimination against people because they 
are people of faith. We say to them: You cannot compete for 
certain dollars when it comes to delivering community services 
because you wear a collar or because you are a person of faith.
    And I got to tell you, I think that is ridiculous. If we 
are concerned about discrimination, we ought to go through the 
whole gamut and say let's not discriminate against people just 
because of faith.
    If they can help, if they can assist, if they can do what 
we morally should be doing--helping the poor, helping the 
hungry, helping the homeless--why would we discriminate against 
them and say, ``You can't help because you're a person of 
faith.''
    We talk about mingling funds. There is language in the 
legislation that says you have to segregate the accounts. You 
know, there is no faith-based organization out there that wants 
the government to come in and look at their books that they use 
to operate their church, to have education programs in that 
church, outreach programs in the church. That is a totally 
separate account. That is a separate entity.
    That is not what we are talking about doing. These 
organizations should have an opportunity to compete and to 
assist.
    And, Mr. Chairman, I thank you again for holding this 
hearing today.
    [The prepared statement of Mr. Watts follows:]

  Statement of the Hon. J.C. Watts, Jr., a Representative in Congress 
                       from the State of Oklahoma

    Thank you for holding these important hearings today on H.R. 7, the 
Community Solutions Act. It is a great privilege to be here with my 
friend and colleague, Tony Hall, who has sponsored this bill with me. 
Tony has a long and respected history of reaching out to the 
underprivileged and seeking solutions to poverty and hunger in America 
and around the world, so I am delighted to work with him on this 
initiative.
    Ladies and Gentlemen, last year the Congress passed the Community 
Renewal Act that I had cosponsored with Congressmen Danny Davis of 
Chicago and Jim Talent of St. Louis. We introduced that legislation and 
fought for its passage because, after a decade of uninterrupted growth 
and prosperity across the nation, there were still communities in 
America that had been bypassed by the so-called New Economy.
    H.R. 7, the Community Solutions Act, moves another step forward to 
fulfilling the goals and incentives of the Community Renewal Act. This 
legislation is crafted to increase charitable giving, to create asset-
building financial structures for the working poor, and to form new 
partnerships between the government and community and faith-based 
organizations in helping the poor.
    The Community Solutions Act will strengthen our ability to serve 
the poor and the homeless, the addicted and the hungry, the unemployed, 
victims of violence and all those we are called upon to help.
    Our nation is blessed with tens of thousands of devoted individuals 
who work with the poor on a daily basis through community and faith-
based organizations. They work in the neighborhoods, on the street 
corners, in the shelters and the soup kitchens, shirtsleeves rolled up, 
literally extending a helping hand to those on their doorsteps who have 
lost hope.
    They operate thousands of centers throughout the country which 
provide services to the underprivileged. In many neighborhoods these 
centers are centers of hope in an otherwise desolate landscape. We are 
proud to have the endorsement of such groups as Habitat for Humanity 
and the Salvation Army who are perhaps the most recognizable of the 
thousands of groups who provide these services.
    The Community Solutions Act invites these courageous and selfless 
men and women to partner with the government and help us find those in 
need and deliver vital services to them.
    The legislation also provides important tax incentives to increase 
charitable giving by allowing non-itemizers to deduct charitable 
contributions--a bipartisan proposal that originated with Congressman 
Phil Crane.
    A charitable deduction for taxpayers who do not itemize seems not 
only good public policy but also a matter of simple fairness for more 
moderate income Americans who use the standard deduction but contribute 
to charities and receive no tax relief for doing so. The Community 
Solutions Act will give these individuals equal standing with wealthier 
taxpayers.
    Another important provision of H.R. 7 is the creation of Individual 
Development Accounts that will help low-income families accumulate 
assets. It is only by building assets that individuals can establish 
their economic independence and work toward a better future for 
themselves and for their children.
    This is a critical stepping stone for the working poor to escape 
poverty, and these IDAs will allow these individuals to build the funds 
they need to buy a first home, to start or expand a business or to pay 
tuition expenses.
    Today's witness list is impressive, and better than I, they can 
tell you how this legislation will help them and help society fulfill 
its commitments and its duty to guarantee every American an equal 
opportunity to succeed. Mr. Chairmen, thank you for holding these 
hearings today and thank you for your support.

                                

    Chairman Herger. Thank you, Mr. Watts. And I want to thank 
each of our colleagues for their very outstanding testimony.
    Are there any here who would like to inquire? Mr. McCrery?
    Chairman McCrery. I just have one question. Mr. Watts and 
Mr. Hall maybe could address this.
    There has been some remarks made about there is no extra 
funding for these programs. And while that may be true, I 
thought part of the purpose of the legislation was to utilize 
networks of organizations that are already out there in the 
community doing that work so that we don't have to rebuild that 
and that we might deliver these services in a more efficient 
way, which would actually allow the dollars we are currently 
spending to go further. Am I incorrect on that?
    Mr. Watts. Well, two things, Mr. Chairman. One, you are 
encouraging charitable giving, so you will have more dollars 
given to these organizations. And, two, even if there is no new 
funding, I think the essence of what we are saying is, allow 
charitable organizations, faith-based organizations, to compete 
for existing dollars.
    These charitable organizations, they are not beating our 
doors down, saying, go and take dollars from defense or take 
dollars from education. My plea is to allow them to compete for 
the existing dollars. Again, I think that makes sense.
    Mr. Hall. I would only add, Mr. Chairman, that this bill 
used to have a Compassionate Capital Fund in it. And it was a 
fund that would ask for not only extra moneys, but also have it 
matched by the private sector, to help with the kinds of things 
that Mr. Cardin was talking about, the technical aspects of a 
small group trying to receive a Federal grant, what they have 
to do. I think that is a very, very good point that Mr. Cardin 
made.
    Actually, in the budget, there is money in the budget that 
is extra money for what we used to call the Compassionate 
Capital Fund. That portion is actually in the Senate bill. It 
is not in the House bill. Maybe it could be added. I would like 
to see it added. There is like $89 million in the budget set 
aside for that.
    I think it would be great to use that money at first to 
help these small groups. And I think it would go a long way in 
especially some of the small groups to help them with the 
paperwork and the bureaucracy that they have to go through to 
take a lot of this burden away, because they are just doing 
their job. They want to do their job.
    Mr. Nadler. Mr. Chairman, let me comment on that, if I may.
    One of the key points of this bill is the contention that 
pervasively sectarian organizations--churches, synagogues, et 
cetera--are not presently permitted to compete for Federal 
funds for social programs. The fact of the matter is that, 
except in a narrow technical sense, that is not true.
    In fact, many churches do participate now. Go to anybody's 
district, and I am sure you will find religiously affiliated 
soup kitchens and homeless shelters receiving Federal money and 
operating out of Church basements.
    The only requirement under present law is that the church, 
if it wants to apply for a Federal grant under an existing 
program, has to form a 501(c)(3) corporation, a nonprofit 
subsidiary, in effect, of the church. Nothing says that the 
board of directors cannot be the deacons of the church and the 
president cannot be the minister and so forth. And we all know 
that this is done all the time.
    That is done really for the protection of the church, 
because a Federal program has to be properly audited and public 
funds accounted for to make sure that no one is wasting Federal 
funds. And I think the members of the Committee would be the 
first to say that we do not want Federal funds wasted and spent 
improvidently and so forth.
    And you want to segregate that from the religious aspects 
of the church, because the church should not want the Federal 
auditors and accountants saying, ``Well, maybe you should have 
paid the minister a little less money. His salary is a little 
high.'' And so the 501(c)(3) does that.
    Now, some people have said that setting up a 501(c)(3), 
which is a very simple thing to do, is a little complicated, 
and a small church cannot do that. Well, there is nothing 
wrong, from my point of view, with setting up some sort of aid 
program, as Mr. Hall was suggesting, to help the churches set 
up 501(c)(3)s if they want.
    But it is important, as a protective mechanism for the 
church and their religious autonomy and religious freedom, to 
have some organizational separation. The Federal auditors will 
look at federally funded activities; those funds, which are 
used for the church's religious purposes, the Federal auditors 
have no business looking at.
    And if you simply say that it is going to be a separate 
bank account, that is not a sufficient protection for the 
church.
    So, I frankly do not think that the issue that the churches 
are discriminated against is a real issue. They are not; and 
they should not be. As I said in my testimony, the Fifth Avenue 
Baptist Church should be permitted to apply for a drug rehab 
grant or a soup kitchen or whatever grant on the same basis as 
the Fifth Avenue Block Association. However, they have to have 
the Fifth Avenue Baptist Church Drug Rehab Committee, Inc., 
more as a protection for the church and religious protection of 
the church than anything else.
    And, again, if we want to help them with the paperwork to 
set up the 501(c)(3), the denominations can do that. I would 
see nothing wrong with the government setting up some sort of 
assistance to do that either.
    Chairman Herger. Thank you for your testimony, all of you. 
Mr. Cardin to inquire.
    Mr. Cardin. Thank you, Mr. Chairman.
    Let me thank all of our colleagues for their testimony.
    I must tell you, I don't disagree with pretty much 
everything that each of my colleagues have brought to our 
attention. I agree with your points.
    First, let me underscore the point that Mr. McNulty made a 
little bit earlier. And that is, I don't think it would 
difficult for us to reach and agreement on the tax provisions.
    Ms. Dunn, I am proud to be your cosponsor on the medical 
research provision.
    I think there is a lot we can do on the tax side, as long 
as we can find a way to fit it into the budget and pay for 
these particular provisions, to make sure they are cost-
effective.
    On the charitable choice provisions, and I think, Mr. 
Watts, I agree with you. We should read what is in the bill, 
and we should try to deal with the provisions and find out what 
we need.
    I had a chance to talk to Mr. Hall. I think we should 
provide additional resources. When you look at, particularly, 
the small faith-based groups, they need technical help in 
understanding the Federal grant process and to make sure that 
they don't fall into traps under our Constitution. And I think 
that would be a wise use public funds.
    But, if you look, we are not creating a level playingfield 
under charitable choice. We are giving faith-based groups 
certain rights that I am not sure are needed.
    Mr. Watts, if you want to respond to this, I would be 
happy.
    Mr. Hall, I would be happy to hear.
    But one of the things you are allowing them to do is bring 
civil actions pursuant to section 1979 against the official or 
government agency that has allegedly committed a violation 
under this act. And I must tell you, in my discussions with or 
neighborhood churches who want to get involved in this, I am 
not sure they want the opportunity to bring lawsuits.
    So, I would be curious as to why that is needed.
    The second is the point that Mr. Scott raised, and that is 
the employment discrimination.
    Again, in talking to my small, faith-based groups, they 
don't need employment discrimination protection. It is not the 
priest or the rabbi or the minister we are talking about; we 
are talking about the drug counselor or the social worker. And 
the groups want to hire the best people. I don't know why they 
need employment discrimination protection.
    So I guess my point is, on the charitable choice 
provisions, I think we could reach some common ground. But if 
somebody could explain to me why you need employment 
discrimination protection, or why you need the right to file 
lawsuits against government official? The faith-based groups 
have those additional provisions in the bill, but it does not 
apply to the secular groups.
    Mr. Watts. Mr. Cardin, on the liability issue, that is 
still a concern that we are trying to work through and trying 
to negotiate. We have the Justice Department and others taking 
a look at that.
    But, on the issue of discrimination, the 1964 Civil Rights 
Act gave religion a waiver. I am not trying to challenge that--
Congressman Hall nor myself are not trying to challenge that in 
this legislation.
    But concerning the issue of discrimination, we have many 
organizations out there today that receive Federal funds, 
secular organizations. And I think we have to use some common 
sense in this equation.
    Let's take Planned Parenthood. They receive Federal 
dollars. I am going to pick on my good friend Alan Keyes, and I 
don't think he would mind me picking on him. Alan Keyes is 
adamantly pro-life. I never hear anybody saying to Planned 
Parenthood that they should hire Alan Keyes to be their 
executive director. They would discriminate against Dr. Keyes 
because he is adamantly pro-life.
    So, therefore, we should not fund Planned Parenthood, or 
should not give them Federal dollars, because they would 
discriminate against Dr. Keyes because he is pro-life.
    Mr. Cardin. Mr. Watts, that is not a protected right. There 
are certain protected rights.
    Racial discrimination is a protected right. Discrimination 
based upon sex is a protected right.
    But you can discriminate against people because of their 
views. That is not a protected right under our system. You can 
do that.
    Mr. Watts. Mr. Cardin, I don't know of any organization--
and we are going to hear from people who will be testifying on 
other panels.
    I don't know of any church, any synagogue, any parish, I 
don't know of any faith organization that would call themselves 
an organization of faith that would discriminate.
    Mr. Cardin. I agree with you.
    Mr. Watts. I don't know of any organization that would be 
worth their salt that would deny people services because--and I 
am a Baptist, for what it is worth. For me to deny someone 
services because they disagree with my faith----
    Mr. Cardin. We are getting closer.
    Mr. Watts. So, you know, I personally believe that it is a 
red herring. This issue has been out there for 35-plus years. 
It has never been an issue until we are talking allowing faith 
organizations to compete for----
    Mr. Cardin. It is in your bill.
    Mr. Watts. Federal dollars.
    Mr. Cardin. The problem is, it is in the bill, the 
protection against employment discrimination.
    Mr. Watts. We reconfirm the civil rights laws, the 1964 
Civil Rights Act.
    Chairman Herger. The gentleman's time has expired. To 
inquire, the gentleman from Oklahoma, Mr. Watkins.
    Mr. Watkins. I have been listening to this with a great 
deal of interest. I associate with my own faith and my whole 
faith declares that I do not discriminate. If I take scripture 
correctly, they are all children, in my own faith.
    But let me say, as I look at this, an area that I think is 
discriminated against, a lot of my big city brethren don't 
understand it, and that is the rural and depressed areas of 
this country.
    We do not have the vehicles. We do not have the delivery 
system or the technical system to get out there. The only thing 
out there at the crossroad is a church. Most people don't 
understand that.
    And I hear people talking about discrimination. Out of 
sight, out of mind is a discrimination, as far as I am 
concerned. Some people don't understand that.
    As long as people don't hear the faint voice out there, of 
not having the assistance, and a lot of our people don't feel 
like that is a responsibility. It is not on their radar screen, 
so it is not their responsibility. But I think we are called on 
to do that.
    But I think we need to try to make sure we look at the 
legislation. My friend for Oklahoma, I want to say, he and Tony 
Hall, I have know them for a long time, and their deep 
commitment in trying to deliver more of the needs to those who 
are hurting out there. And I think they need to be applauded, 
to try to get opportunities for the faith-based agencies to do 
more, because we sure have failed, as the richest country in 
the world, to get a lot of these needs met.
    And so I think we need to look at how we can provide the 
technical assistance and the vehicle of being able to meet that 
need out there.
    Now, I don't understand New York City. I am sure that there 
is much--the poor, that I don't want to find myself trying to 
deal with because I got more problems in the economic, rural, 
depressed areas of Oklahoma and some other areas.
    But we need to try to find ways to reach them. And I think 
that is what the legislation has--past legislation I know my 
colleague from Oklahoma has passed and adding H.R. 7 to it.
    And we need to provide more avenues, as we talk about 
leveling the playing field. My good friend from Maryland used 
that term a while ago.
    Rural America is discriminated against, if we want to talk 
about discrimination, the rural poverty areas of this country.
    But that seems to be not in the vision of most people.
    I would like to ask, if I could, to look into one other 
thing. I wanted to ask, there are two or three tax provisions--
I know that most of these have been accepted. There was one 
that was not included, and that was to increase the limits on 
corporate charitable contributions, and be increased from, I 
think, 10 to 15 percent.
    I know that was proposed, I believe, earlier by the 
President. And I am hoping that maybe the end product might 
could have that increase so we may could get more charitable 
situations available.
    And let me say, I don't have any corporations in economic, 
depressed, rural America, either. I say that, kind of like 
financing campaigns. I don't have any of those. You have to go 
somewhere else to try to find, you know, find the revenue to 
finance things.
    But those are some of the things, I think, we need to 
think, how do we get that assistance out there to the people in 
the small town, rural America, in the rural areas?
    I just want to make this point, Mr. Chairman, 240 out of 
the top 250 poverty counties are in the rural areas in this 
country, and we need to figure out how we address that.
    Again, I just want to commend the panel, my colleagues, the 
members up here, and my chairman, Wally Herger, and also Jim 
McCrery, who is right down in Louisiana from us, just a little 
bit, for having these, and for all the hours and hours and 
hours of work that many of you have put in, bringing this to 
the table.
    So, thank you.
    Mr. Nadler. Mr. Chairman----
    Mr. Hall. Mr. Chairman, I think the gentleman, Mr. Watkins, 
makes a very, very good point. I mean, this bill is about all 
of America. It is not just money in urban areas, in the inner 
cities. It is help in the rural areas.
    And in my testimony, I talked a little bit about this 
project that was in the poorest county of my State, it is not 
in my district, it is Vinton County. And one out of 10 people 
in the county is hungry.
    And you go into the county, and there is not much there, 
from the standpoint of help. They have a video shop, I think, 
in the town, and 250 people applied for the job. I think it was 
a minimum wage job. There are no jobs. There are no programs.
    And the only thing going on, that I could see, in Vinton 
County, was this faith-based organization out of the Methodist 
Church. And it was like one man with a bunch of volunteers. And 
if it wasn't for him, there wouldn't be much going on there.
    And those are the kinds of people that we need to help. 
These organizations have been shut out a long time, not only in 
rural areas, but in inner cities. And these are the kinds of 
organizations we are talking about helping. And if they are 
doing the job, if they have a track record of doing the job, 
they ought to be in-line for the competition for the money as 
well.
    Mr. Nadler. Mr. Chairman----
    Chairman Herger. I thank the gentleman. His time has 
expired.
    Mr. Nadler. Mr. Chairman, can I answer----
    Chairman Herger. The gentleman from New York, Mr. McNulty, 
to inquire.
    Mr. McNulty. Thank you, Mr. Chairman.
    I just have one brief inquiry for the supporters of H.R. 7, 
and one for the opponents.
    I am one of the Democrats, who, from the time he landed in 
this town, has talked about the need for balanced budgets and 
paying down the huge national debt. And today, I am still 
talking about those issues, although some of my Republican 
friends are talking about them less these days.
    And I talk about them because I am concerned about my 
children and my four grandchildren, and the fact that despite 
the euphoria in Washington about the fact that we have had a 
surplus for a couple of years, we still have a $5.7 trillion 
national debt, upon which we paid interest payments of $329 
billion last year.
    So I have a question of the supporters about revenue. Have 
you come up with any revenue estimates for the tax provisions 
of the bill? By my count, there are at least five tax 
provisions. So my question is, have you come up with a revenue 
estimate for those tax provisions?
    And also, related to that, have you identified any revenue 
offsets? And if so, what are they?
    Mr. Watts. I am sorry, Mr. McNulty, your question, if I 
understand correctly, was the cost of the tax provisions?
    Mr. McNulty. Cost and any revenue offsets that you have 
identified in order to pay for those costs.
    Mr. Watts. I was just reconfirming with my staff. I was 
thinking it was about $52 billion over 10 years, and I 
understand it is about $52 to $55 over 10 years. We are still 
waiting on the Joint Tax Committee (JTC) to come up with some 
confirmations.
    Mr. McNulty. Any offsets that you have identified, J.C., on 
those?
    Mr. Watts. Well, the----
    Mr. McNulty. To pay for the revenue estimate?
    Mr. Watts. We have not. We are working with the respective 
Committees.
    Mr. McNulty. OK.
    Mr. Watts. On that--well, we are working with the 
respective Committees.
    Mr. McNulty. Fine.
    And to the opponents of the bill--and I will direct this to 
Bobby, and then, if I have a minute or so left, I want to give 
it to Jerry, because I know he wanted to make a point on the 
last issue.
    We have heard testimony this morning that employment 
discrimination is a longstanding right for religious 
organizations.
    Congressman Scott, would you again clarify how that 
standard is different in the context of Federally funded 
service, for the record?
    Mr. Scott. Sixty years ago this month, President Roosevelt 
signed an executive order prohibiting discrimination in Federal 
defense contracts. That executive order has been expanded to 
include other things. We passed the civil rights laws in the 
sixties.
    And you have never since, for 60 years, been able to accept 
a Federal contract and then turn around and discriminate in who 
you hire, based on religion.
    Now, the churches with the church money can do what they 
want. But if it is a Federal program paid for with taxpayers' 
money, then they can't.
    And I would like to make a couple other comments, if I 
could.
    We talked about efficiency. There is not efficiency in 
having two parallel programs in the same small county. But you 
have to first, before you get into that question, decide again 
whether you are funding the faith or not.
    If you are not funding the faith, then the only groups 
being discriminated against are those faith-based organizations 
that discriminate in hiring, because that is the only 
charitable choice will give you. If it is not giving you 
proselytization during the program, then the only thing it 
gives you is discrimination.
    The gentleman from Maryland went to great lengths to 
describe the difference between protective classes and other 
kinds of discrimination, but in the original Watts-Talent bill, 
there was discrimination against beneficiaries, that you could 
require, as a condition of participation, following the 
religious protocol. If you didn't want to do that, you couldn't 
participate.
    Mr. McNulty. Thank you, Bobby. I want to yield to Jerry for 
a moment.
    Mr. Nadler. Thank you. I would like to comment or rather 
answer, the question that Mr. Watkins raised. In rural 
America--indeed, in urban America, too; there is no 
difference--faith affiliated organizations are very often the 
best organizations, sometimes the only organizations, meeting 
certain social needs. And, yes, we want to fund social programs 
through the faith-based organizations as through other 
organizations. And we do, under the current law.
    The question, with respect to the proposals, are:
    One, should you remove the protection of the church, which 
requires the church to establish, a subsidiary, a 501(c)(3), so 
that you limit the government involvement in auditing the 
Federal funds to the charitable function that is being funded 
by the Federal government, and you protect the church from the 
Federal auditors intruding into other aspects of the church?
    Number two, right now, the church can discriminate in terms 
of who the cantor or the deacon or the priest or the minister 
is. They cannot discriminate in the 501(c)(3) in who is the 
janitor or who is ladling out the soup or who is running the 
soup program. If you do not have a 501(c)(3), then the question 
is, where can they discriminate? This bill would let them 
discriminate in all levels of employment using public money.
    And finally, and I think the real nub of the question 
ultimately is the following----
    Chairman Herger. The gentleman's time has expired.
    Mr. Nadler. May I have one additional half-minute? Thank 
you.
    The nub of the question is the following. There are people 
who say the following, and they are probably right, for some 
people: If you are running a drug detoxification program, with 
some people, some drug addicts, the most effective way to get 
them off the drug would be to tell them, in effect, through 
psychotherapy, you should stop using drugs because it is good 
for you, it is more healthful, it is against the law.
    For other people, it may be more effective to tell them, 
``You should get off drugs because God wants you to,'' or 
``Jesus wants you to.'' And there is nothing wrong with the 
church doing that. But a church should not be able to do that 
with Federal funds.
    And that is also the nub of this bill: Can they do that 
with Federal funds? If the answer is yes, then you have a real 
conflict, and you need this bill to enable them to do that. If 
the answer is no, you do not need this bill at all.
    Chairman Herger. The gentleman's time has expired.
    Mr. Nadler. Thank you.
    Chairman Herger. I thank the gentleman from New York. And 
now we will move to the gentleman from Michigan, Mr. Camp, to 
inquire.
    Mr. Camp. Thank you, Mr. Chairman. And thank you all for 
testifying here today.
    I guess my question is for Mr. Hall and Mr. Watts.
    What are some of the positive comments you have received? I 
know you have had listening sessions with members, and there 
obviously has been a lot of discussion about this legislation, 
that you have received from other quarters as this has been in 
the public domain--positive comments with respect to changes 
that might occur in the bill?
    Mr. Hall. Well, I think, first off, it is interesting, 
after we introduced the bill, there has been lots of 
controversy, lots of publicity. There have been lots of things 
that have been said that, frankly, I don't think are true.
    And I have had lots of people from around the country that 
are faith-based organizations that I didn't even know really 
existed, like from my own district.
    A good portion from the United Way campaign and the money 
that goes into the United Way campaign goes to faith-based 
organizations. I hadn't realized how many faith-based 
organizations around the country had received Federal money, 
State money, local money, government money. That surprised me.
    Second, we don't change anything in this bill from the 
standpoint of the waiver that was given relative to religious 
institutions in 1964. In 1964, there was a waiver in the Civil 
Rights Act that said you can hire, if you are a faith-based 
organization, who you want to hire. Methodists can hire 
Methodists. You don't have to hire a Muslim or a Catholic or a 
nonbeliever.
    That was about the only waiver that was given. And we put 
that in this bill to reemphasize the fact that we are not 
changing anything. We didn't have to put it in the bill. But 
because there was so much publicity of saying that we are 
discriminating, we felt that the people that were saying this 
were absolutely wrong.
    So if you look at this bill and you look at the current 
law, you will see there are no changes there.
    We say over and over and over again in this bill that you 
can't proselytize, you can't provide money for sectarian 
worship. And we believe that, because, in many ways, you don't 
have to do it.
    If you are a man of faith, you don't have to say it. Just 
do the works. People probably will come up to you after awhile, 
after they figure out, ``Well, why do you do this?'' Then tell 
them.
    But while you are doing the work, you don't have to tell 
them anything about faith at that particular time.
    This is an interesting question that Bobby Scott raises 
about--I think his question is: Are you funding the faith or 
not? It is an interesting question, because most of us would 
say, in this country, that we do things because of good works.
    Why do we feed people? Well, we do it because it is good 
works. It is a good thing to do. Why am I involved with hunger 
worldwide, in this country? I do it because of my faith.
    And I work in areas that people don't even know where I 
work. I don't get any votes for it. I do it because of my 
faith.
    Are you funding my salary? Yes. Should you deduct my 
salary, because you are funding my faith on certain things?
    You do it, you help people, because of good works. Secular 
groups do that. We do it for political reasons. We do it for a 
lot of different reasons.
    What we are saying here is, you can't be teaching, you 
can't be proselytizing, you can't be providing sectarian 
worship. That is what we are saying in the legislation.
    If you do that, you are in trouble. You are sanctioned. You 
are fined. Whatever the bill says relative to criminal 
activity. You can't do that.
    So, I have said this over and over and over again to some 
of my colleagues. And some of my colleagues, they say, ``Well, 
it doesn't do that.'' I say, ``Well, go read the bill.''
    But I am amazed. The most amazing thing, Mr. Camp, that I 
am amazed at is how many groups around this country get money 
from the Federal Government that are faith-based organizations. 
And they have been doing it for years.
    But they are mostly huge organizations, big organizations. 
Good organizations.
    You want to see discrimination, what we have today is 
discrimination, because groups in rural areas and in cities 
that are small groups, they can't get this money because it is 
cumbersome. There is a lot of red tape.
    Part of this bill is to break that, I think.
    Chairman Herger. I thank the gentleman. Now we will 
recognize the gentleman from Michigan, Mr. Levin, to inquire.
    Mr. Levin. Thank you. And this is a useful and important 
hearing.
    And Mr. McCrery said that with our colleagues here, it was 
an opportunity, in the absence of the administration, to talk 
about these issues. And I think that is a good idea, so that is 
why I want to participate.
    Mr. Watts, let me just cite the Joint Committee on Taxation 
estimate on the deduction for those who don't itemize. It is 
$84.363 billion. And that is for the Bush administration 
proposal.
    And I just raise it because I think it is important that we 
face the issue as to how we are going to pay for these 
provisions.
    Second, let me just say that I find it ironic that while we 
are talking faith-based charitable efforts, we also have been 
cutting programs like the social services block grant money, a 
substantial portion of which goes to faith-based organizations. 
And if we are serious about the role of these organizations, I 
think we better be serious about the programs that help to fund 
them.
    So let me, though, go back to what, Mr. Hall, you were 
raising this, and others have discussed it.
    I don't believe it is an issue--surely this isn't an issue 
of faith. And I am not sure it is an issue of the role of 
faith-based organizations.
    When I was the assistant administrator of AID, Agency for 
International Development, in the late seventies and early 
eighties, a substantial portion of our moneys went to faith-
based organizations. This was for programs overseas.
    But if you look at programs domestically--for example, in 
southeast Michigan, if you look at food programs and a lot of 
others--organizations that have their roots in faith are 
administering these programs. Focus: HOPE is an example. But 
they surely don't discriminate as to whom they employ.
    But also, they take care not to become essentially an 
proselytizing effort.
    So I want to ask Mr. Watts and Mr. Hall, specifically, if a 
drug treatment program has as part of its structure, let's say 
about half of its content, religious instruction, a statement 
of religious belief, should Federal moneys be used for that 
program, Mr. Watts?
    Mr. Watts. Mr. Levin, let me just share with you, because 
we have gotten this question, on the JCT question, this 
legislation can be written to comply with the $52, $55 billion 
figure. So that is why I shared that information.
    Mr. Levin. OK, but now the Joint Tax analysis is there. But 
let's go on to the other----
    Mr. Watts. But you raised that, so I wanted clarify that.
    Second, the Community Solutions Act protects exemption for 
religious organizations established in the Civil Rights Act 
1964. That exemption simply allows religious organizations to 
maintain their distinct character and mission by hiring staff 
who share their religious beliefs.
    That is the only exemption. Organizations must still comply 
with all Federal laws governing race, color, national origin, 
disability, and age.
    Mr. Levin. That wasn't really my question, even though when 
an organization is distributing food, it is a little hard to 
understand why they should be able to discriminate in terms of 
the religious affiliation of an employee.
    Mr. Watts. But I wouldn't----
    Mr. Levin. But if you would, answer the question about a 
drug treatment program, a substantial portion of it having a 
religious content, which may be the most effective way to 
approach drug treatment. I am not quarreling with that.
    Should Federal moneys be used to fund that drug treatment 
program?
    Mr. Watts. Well, Mr. Levin, again, that is their distinct 
character. And as I mentioned earlier, I could ask the same 
question: Why do we fund Planned Parenthood, who would 
discriminate against Alan Keyes because he is pro-life, because 
of his faith?
    Dr. Keyes, I think that is----
    Mr. Levin. But Mr. Cardin answered that. Organizations can 
hire people in policy positions who agree with the policy. And 
it has nothing to do with Planned Parenthood.
    Mr. Watts. I think it does.
    Mr. Levin. But answer the question about a drug treatment 
program, a substantial portion of which has a specific 
religious content. Should Federal funds be used to fund that 
program? Yes or no.
    Mr. Watts. I believe it should be.
    Mr. Levin. OK.
    Mr. Watts. If they are getting results, you bet.
    And let me add to that, Mr. Levin, I spoke with the 
Hispanic bishops from New York, about 150 of them about 3 weeks 
ago. And they shared with me that in one particular 
neighborhood they had a faith-based organization that did drug 
and alcohol rehabilitation. Next to them, on the same street, 
you had a secular organization that did drug and alcohol 
rehabilitation.
    The faith-based facility got $115 bucks a month per 
individual. The secular organization got $1,500 bucks per month 
per individual.
    So that is what I am getting at. Why would we not raise or 
have the same concern that your faith-based organization, in 
spite of the fact that they get the same results or better, why 
would we allow that discrimination to happen?
    Chairman Herger. The gentleman's time has expired. Thank 
you. We will now hear from the gentleman from Wisconsin, Mr. 
Ryan, to inquire.
    Mr. Ryan. Thank you, Mr. Chairman, for yielding.
    I am interested in this debate in that I worry that this 
debate is increasing the confusion surrounding this bill, not 
clearing the matters up.
    And it seems like some are trying to suggest that there is 
new found discrimination that is going to all of a sudden occur 
where it otherwise didn't occur.
    I think it is important to point out that charitable 
choice, which is already in law, extends Title VII of the 1964 
Civil Rights Act. Charitable choice preserves the established 
civil rights protection for religious organizations under the 
1964 act to maintain their distinct character and mission by 
hiring staff who share their religious beliefs.
    Now, this is a longstanding right of religious 
organizations, to hire on the basis of religion. It is a 
cornerstone of a civil rights safeguard for these religious 
institutions.
    Now, with respect to other issues of discrimination, 
regarding the employees of faith-based organizations, 
charitable choice and this proposal clearly requires that 
faith-based groups, like all other groups, cannot discriminate 
based on race, color, national origin, gender, age, and 
disability.
    So I think that just needs to be said, because all of this 
talk about new found discriminations, it needs to be cleared 
up, to some degree.
    Now, as for the idea that this will give us more 
competitors for a shrinking pool of Federal welfare spending or 
national social spending, we have increased social welfare 
spending 10 times, adjusted for inflation, since the war on 
poverty.
    So the growth--and I would like to ask unanimous consent to 
insert a study by Robert Rector, if I may, Mr. Chairman.
    Mr. Herger. Without objection.
    [The following was subsequently received:]

  Means-Tested Welfare Spending: Past and Future Growth Testimony by 
                             Robert Rector

Introduction
    The U.S. welfare system may be defined as the total set of 
government programs--federal and state--that are designed explicitly to 
assist poor and low-income Americans.
    Nearly all welfare programs are individually means-tested.\1\ 
Means-tested programs restrict eligibility for benefits to persons with 
non-welfare income below a certain level. Individuals with non-welfare 
income above a specified cutoff level may not receive aid. Thus, Food 
Stamp and Temporary Assistance to Needy Families (TANF) benefits are 
means tested and constitute welfare, but Social Security benefits are 
not.
---------------------------------------------------------------------------
    \1\ A very small number of the programs listed in Appendix B are 
targeted to low income communities rather than low income individuals. 
While such programs are not formally means-tested they should be 
considered part of the overall welfare system. Only a small fraction of 
aggregate welfare spending is provided through such programs.
---------------------------------------------------------------------------
    The current welfare system is highly complex, involving six 
departments: Health and Human Services (HHS), Agriculture, Housing and 
Urban Development (HUD), Labor, Treasury, and Education. It is not 
unusual for a single poor family to receive benefits from four 
different departments through as many as six or seven overlapping 
programs. For example, a family might simultaneously receive benefits 
from: TANF, Medicaid, food stamps, Public Housing, the Special 
Supplemental Nutrition Program for Women, Infants, and Children (WIC), 
Head Start, and the Social Service Block Grant. It is therefore 
important to examine welfare holistically. Examination of a single 
program or department in isolation is invariably misleading.

The Cost of the Welfare System
    The Federal government currently runs over 70 major interrelated, 
means-tested welfare programs, through the six departments mentioned 
above. State governments contribute to many Federal programs, and some 
states operate small independent programs as well. Most state welfare 
spending is actually required by the Federal government and thus should 
considered as an adjunct to the Federal system. Therefore, to 
understand the size of the welfare state, Federal and state spending 
must be considered together. (A list of individual welfare programs is 
provided in Appendix B.)
    Total Federal and state spending on welfare programs was $434 
billion in FY 2000. Of that total, $313 billion (72 percent) came from 
Federal funding and $121 billion (28 percent) came from state or local 
funds. (See Chart 1.)

[GRAPHIC] [TIFF OMITTED] T4524A.001

    Welfare spending is so large it is difficult to comprehend. On 
average, the annual cost of the welfare system amounts to around $5,600 
in taxes from each household that paid Federal income tax in 2000. 
Adjusting for inflation, the amount taxpayers now spend on welfare each 
year is greater than the value of the entire U.S. Gross National 
Product at the beginning of the 20th century.
    The combined Federal and state welfare system now includes cash 
aid, food, medical aid, housing aid, energy aid, jobs and training, 
targeted and means-tested education, social services, and urban and 
community development programs.2 As Table One shows, in 
FY2000:
     Medical assistance to low income persons cost $222 billion 
or 51 percent of total welfare spending.
     Cash, food and housing aid together cost $167 billion or 
38 percent of the total.
     Social Services, training, targeted education, and 
community development aid cost around $47 billion or 11 percent of the 
total.

[GRAPHIC] [TIFF OMITTED] T4524B.001

    Roughly half of total welfare spending goes to families with 
children, most of which are single parent households. The other half 
goes largely to the elderly and to disabled adults.
    The Growth of Welfare Spending
    As Chart 2 shows, throughout most of U.S. history welfare spending 
remained low. In 1965 when Lyndon Johnson launched the war on poverty, 
aggregate welfare spending was only $8.9 billion. (This would amount to 
around $42 billion if adjusted for inflation into today's dollars.)
    Since the beginning of the war on poverty in 1965 welfare spending 
has exploded. The rapid growth in welfare costs has continued to the 
present.
    In constant dollars, welfare spending has risen every year but four 
since the beginning of the War on Poverty in 1965;
    As a nation, we now spend ten times as much on welfare, after 
adjusting for inflation, as was spent when Lyndon Johnson launched the 
war on poverty. We spend twice as much as when Ronald Reagan was first 
elected.
    Cash, food, housing, and energy aid alone are nearly seven times 
greater today than in 1965, after adjusting for inflation;
    As a percentage of Gross Domestic Product, welfare spending has 
grown from 1.2 percent in 1965 to 4.4 percent today.

[GRAPHIC] [TIFF OMITTED] T4524C.001

    Some might think that this spending growth merely reflects an 
increase in the U.S. population. But, adjusting for inflation, welfare 
spending per person is now at the highest level in U.S. history. In 
constant dollars, it is seven times higher than at the start of the war 
on poverty in the 1960's.

Total Cost of the war on poverty
    The financial cost of the war on poverty has been enormous. Between 
1965 and 2000 welfare spending cost taxpayers $8.29 trillion (in 
constant 2000 dollars). By contrast, the cost to the United States of 
fighting World War II was $3.3 trillion (expressed in 2000 dollars). 
Thus, the cost of the war on poverty has been more than twice the price 
tag for defeating Germany and Japan in World War II, after adjusting 
for inflation.

Welfare Spending in the Nineties
    Welfare spending has continued its rapid growth during the last 
decade. In nominal dollars (unadjusted for inflation), combined Federal 
and state welfare spending doubled over the last 10 years. It rose from 
$215 billion in 1990 to $434 billion in 2000. The average rate of 
increase was 7.5% per year. Part of this spending increase was due to 
inflation. But, even after adjusting for inflation, total welfare 
spending grew by 61 percent over the decade.
    As Chart 2 shows medical spending (mainly in the Medicaid program) 
grew most rapidly during the 1990's, but welfare cash, food, and 
housing spending grew as well. Adjusting for inflation, cash, food and 
housing assistance is 37 percent higher today than in 1990. However, 
the growth in these programs has slowed since 1995, increasing no 
faster than the rate of inflation. This recent slowdown in spending is, 
in part, the effect of welfare reforms enacted in mid-nineties.

Future Welfare Spending Growth
    President George W. Bush's recent budget blueprint does not contain 
sufficient detail to permit projections of welfare spending program by 
program.\3\ However, the budget blueprint does provide spending 
projections for two major budget functions which are integral to the 
welfare system. These budget codes are Income Security (Function Code 
600) and Health (Function Code 500). Income Security contains cash 
welfare, food stamps and other food aid, and housing aid.\4\ Health 
(Code 500) contains Medicaid and a few smaller means tested health 
programs. Between them, these two budget categories contain about 90 
percent of the Federal welfare system as it is described in this 
testimony. (Note: neither category includes Social Security or 
Medicare.)
---------------------------------------------------------------------------
    \3\ The White House, A Blueprint for New Beginnings: A Responsible 
Budget for America's Priorities, (Washington, D.C.: U.S. Government 
Printing Office, 2001)
    \4\ Income Security (function code 600) contains some non-welfare 
expenditures, specifically outlays for retired Federal employees and 
other retirement spending. However, the rate of growth of this 
retirement spending changes little from 1 year to the next, therefore 
once the Code 600 outlay totals are known one can predict the means-
tested component with reasonable accuracy.
---------------------------------------------------------------------------
    President Bush's budget plan allows for spending in Income Security 
and Health to grow as rapidly or more rapidly than did former President 
Clinton's FY 20001 budget request. Income Security (Code 600) is 
scheduled to grow by 24 percent over the next 5 years. Health (Code 
500) is scheduled to grow by 62 percent over 5 years.\5\
---------------------------------------------------------------------------
    \5\ The White House, p. 196.
---------------------------------------------------------------------------
    Based on these figures it seems certain that means tested welfare 
spending will grow as rapidly under President Bush's first budget 
request as under Clinton's last. Projected welfare spending figures 
from Clinton's last budget (FY2001) are provided in Appendix A.\6\ 
These figures show a rapid of growth in welfare spending. (See Chart 
3.) \7\
---------------------------------------------------------------------------
    \6\ Projected outlay figures taken from Office of Management and 
Budget, Budget of the U.S. Government: Fiscal Year 2001, (Washington, 
D.C.: U.S. Government Printing Office, 2000). Table 32-2, pp.352-364.
    \7\ The outlay figures in Appendix A are less detailed than the 
past spending figures used in Table 1. This accounts for small 
discrepancies between the FY2000 figures in Table 1and Appendix A. 
These minor differences do not appreciably affect the overall analysis.
---------------------------------------------------------------------------
     Total Federal welfare spending is projected to grow from 
$315 billion in 2000 to $412 billion in 2005: an increase of 31 
percent. The annual rate of spending increase is projected at 5.5 
percent.
     Federal spending on cash, food, and housing aid is 
projected to grow from $141 billion to $174 billion: an increase of 23 
percent. The annual rate of spending increase would be 4.3 percent, 
nearly twice the anticipated rate of inflation.
     Together, Federal and state welfare spending would rise 
from around $434 billion in 2000 to $573 billion in 2005.

[GRAPHIC] [TIFF OMITTED] T4524D.001

    Again, although we do not yet have program by program spending 
projections from the Bush administration, the broad budget function 
figures we do have allow for the same rate of growth in cash, food, and 
housing as Clinton's plan. Moreover, the Bush figures would permit more 
rapid growth in health spending. Thus, clearly, President Bush's plan 
does not require cuts in welfare spending or even a slowdown in the 
rate of spending growth.

Welfare and Defense
    The rapid projected rate of growth of future welfare spending can 
be illustrated by comparing welfare to defense. The President has 
promised to make defense spending a priority. Under his budget plan, 
nominal defense outlays would increase for the first time in a half 
decade. Defense spending would rise by 17 percent over 5 years from 
$299 billion in FY2000 to $347 billion in FY2005. During the same 
period, however, welfare spending is scheduled to rise by 31 percent. 
As Chart 4 shows, the gap between welfare and defense spending will 
actually broaden during this period.

[GRAPHIC] [TIFF OMITTED] T4524E.001

The Effects of Welfare Reform
    In 1996, Congress enacted a limited welfare reform; The Aid to 
Families with Dependent Children (AFDC) program was replaced by the 
Temporary Assistance to Needy Families (TANF) program. Critically, a 
certain portion of AFDC/TANF recipients were required to engage in job 
search, on the job training, community service work, or other 
constructive behaviors as a condition for receiving aid. The effects of 
this reform have been dramatic.
     AFDC/TANF caseloads have been cut nearly in half.
     TANF outlays have fallen substantially. (See chart 5.)
     The decline in the TANF caseload has led to a concomitant 
decline in
     Food Stamp enrollments and spending.

    [GRAPHIC] [TIFF OMITTED] T4524F.001
    
    While critics predicted the reform would increase child poverty, 
the exact opposite has occurred. Once mothers were required to work or 
undertake constructive activities as a condition of receiving aid they 
left welfare rapidly. Employment of single mothers increased 
substantially and the child poverty rate fell sharply from 20.8 percent 
in 1995 to 16.3 percent in 2000. The black child poverty rate and the 
poverty rate for children living with single mothers are both at the 
lowest points in U.S. history.
    In the welfare reform 1996 all sides came out as winners: 
taxpayers, society and children. By requiring welfare mothers to work 
as a condition of receiving aid, welfare costs and dependence were 
reduced. Employment increased and poverty fell. Moreover, research 
shows that prolonged welfare dependence itself is harmful to children; 
reducing welfare use and having working adults in the home to serve as 
role models for children will improve those children's prospects for 
success later in life.
    The workfare principles of the 1996 reform should be intensified 
and expanded. Work requirements in TANF should be strengthened. Similar 
work requirements should be established in the Food Stamp and public 
housing programs. Finally, because the reform has clearly succeeded in 
cutting welfare use, TANF outlays should be reduced by 10 percent in 
future years.

Welfare Spending and the Collapse of Marriage
    As noted previously, about half of all means tested welfare 
spending is devoted to families with children. Of this spending on 
children, nearly all goes to single-parent families. Chart 6 shows the 
percent of aid to children in major welfare programs which flows to 
single-parent families. The single parent share is generally well above 
80 percent.

[GRAPHIC] [TIFF OMITTED] T4524G.001

    Clearly, the modern welfare state, as it relates to children is 
largely a support system for single parenthood. Indeed, without the 
collapse of marriage which began in the mid-1960's, the part of the 
welfare state serving children would be almost non-existent.
    The growth of single-parent families, fostered by welfare, has had 
a devastating effect on our society. Today nearly one third of all 
American children are born outside marriage. That's one out-of-wedlock 
birth every 35 seconds. Of those born inside marriage, a great many 
will experience their parents' divorce before they reach age 18. Over 
half of children will spend all or part of their childhood in never-
formed or broken families.
    This collapse of marriage is the principal cause of child poverty 
and a host of other social ills. A child raised by a never-married 
mother is seven times more likely to live in poverty than a child 
raised by his biological parents in an intact marriage. Overall, some 
80 percent of child poverty in the U.S. occurs to children from broken 
or never-formed families. In addition, children in these families are 
more likely to become involved in crime, to have emotional and 
behavioral problems, to be physically abused, to fail in school, to 
abuse drugs, and to end up on welfare as adults.
    Since the collapse of marriage is the predominant cause of child-
related welfare spending, it follows that it will be very difficult to 
shrink the future welfare state unless marriage is revitalized. 
Policies to reduce illegitimacy, reduce divorce and expand and 
strengthen marriage will prove to be by far the most effective means 
to:
     reduce dependence;
     cut future welfare costs;
     eradicate child poverty; and,
     improve child well-being.
    Tragically, current government policy deliberately ignores or 
neglects marriage. For every $1,000 which government currently spends 
subsidizing single parents, only one dollar is spent attempting to 
reduce illegitimacy and strengthen marriage.
    Fortunately, President's Bush's budget plan does propose a new 
program to ``promote responsible fatherhood.'' This proposed program 
could become the seedbed for a broad array of new initiatives to 
strengthen marriage. Still, the money requested is pitifully small: 
only $64 million per year. This amounts to roughly one penny for each 
one hundred dollars in projected welfare spending. The budget 
allocation to the new fatherhood program in FY 2002 should be increased 
fivefold with the funds diverted from TANF outlays. Beyond FY 2000 some 
5 to 10 percent of Federal TANF funding should be devoted to pro-
marriage activities.

Conclusion
    When Lyndon Johnson launched the war on poverty he did not envision 
an endless growth of welfare spending and dependence. If Johnson 
returned today to see the size of the current welfare state he would be 
deeply shocked.
    President Johnson's focus was on giving the poor a ``hand up'' not 
a ``handout.'' In his first speech announcing the war on poverty, 
Johnson stated, ``the war on poverty is not a struggle simply to 
support people, to make them dependent on the generosity of others.'' 
Instead, the plan was to give the poor the behavioral skills and values 
necessary to escape from both poverty and dependence. Johnson sought to 
address the ``the causes, not just the consequences of poverty.''
    Today, President Johnson's original vision has been all but 
abandoned. We now have a clear expectation that the number of persons 
receiving welfare aid should be enlarged each year, and that the 
benefits they receive should be expanded. This expectation is clearly 
reflected in the future spending projections in Appendix A. Any failure 
to increase the numbers of individuals dependent on government and the 
benefits they get is regarded as mean spirited.
    Yet the expansion of the conventional welfare system is 
destructive. More than twenty years ago, then President Jimmy Carter 
stated, ``the welfare system is anti-work, anti-family, inequitable in 
its treatment of the poor and wasteful of the taxpayers' dollars.'' 
President Carter was correct, yet today little has changed except that 
the welfare system has become vastly larger and more expensive.
    This expansion of welfare spending has harmed rather than helped 
the poor. Instead of serving as a short-term ladder to help individuals 
climb out of the culture of poverty, welfare has broadened and deepened 
the culture of self-destruction and trapped untold millions in it.
    Rather than increasing conventional welfare spending year after 
year, we should change the foundations of the welfare system. Policy 
makers should embrace three basic goals.
    1. We should seek to limit the future growth of aggregate means-
tested welfare spending to the rate of inflation or slower.
    2. We should require welfare recipients to perform community 
service work as a condition of receiving aid along the lines of the 
TANF program operating in Wisconsin.
    3. We should support programs which foster and sustain marriage 
rather than subsidizing single parenthood. In addition, we should 
reduce the anti-marriage penalties implicit in the welfare system.
    These three goals are synergistic. They will operate in harmony and 
reinforce each other. In the long run, it will be difficult to control 
welfare spending merely by cutting funding. Rather, if we change the 
behaviors of potential recipients we will reduce the need for future 
aid. As the need for aid diminishes, spending growth will slow and then 
decline, and the well-being of the poor and society as a whole will 
rise.

                                

    Mr. Ryan. So the growth of spending is increasing.
    Could we do better in social service block grants? 
Absolutely.
    But the point is, this bill is really about the big guy 
versus the little guy. Many Catholic charities, many religious 
charities already get Federal funds. You see tenets, such as in 
Catholic hospitals, whereby their religious beliefs are 
practiced in their hospitals, and yet they still get Medicaid 
and Medicare dollars.
    You have this going on all of the time. They have the 1964 
exemption for the hiring discrimination point.
    So what happens about getting into the inner city, getting 
into the rural areas? What about the little guy, such as the 
Baptist churches in Racine, Wisconsin, who have some ideas, who 
have relationships, who know the problems and know the people 
and how to help them?
    Giving them the ability to compete for these funds fairly 
is what this is all about. It is not bringing new 
discrimination into the land. It is simply evening that 
playingfield and removing some of the barriers, some of the 
obstacles that exist in Federal statutes today, where they 
exist, because a lot of these barriers have already been 
removed.
    The charitable choice law on the books right now is an 
excellent example. Do you see widespread discrimination? I 
don't think so.
    I think what you look at here is the big churches, the big 
religious organizations, they can get around this. They can 
form that (c)(3) organization, they can pay for the lawyers, 
they can pay for the regulators to fix their statutes, fix 
their books, and get them going.
    But what about the little guy, the small religious 
institution, who is in the middle of the battle on the war on 
poverty, who is already putting together an army of fighting 
these kinds of problems in our inner cities, in our rural 
areas? That is kind of what this is all about.
    And when you take a look at it, at the end of the day, I 
think you are going to see more attention paid to our social 
pathologies. I think you are going to see that--you are going 
to match the religious expenditures of people donating their 
time and money with what we are doing at the Federal, State, 
and local government, and you are going to see an accumulation 
of more dollars, more people, and more resources dedicated to 
fighting the poverty and problems that are facing us in our 
inner cities.
    So to think that this is going to take away from those 
efforts, I think that just misses the point. I think it quite 
the opposite.
    Mr. Nadler. Mr. Ryan.
    Mr. Ryan. Please.
    Mr. Nadler. Mr. Ryan, a couple points.
    Number one, the little church in Racine, Wisconsin, is 
perfectly allowed under current law to compete for Federal 
grants. Having to form a 501(c)(3), I agree, could be a 
barrier. Even though it is not very difficult to do.
    And if you wanted to say that we ought to have some ability 
to help that church to do that, that makes sense, as far as I 
am concerned.
    However, Title VII enables the church to discriminate for 
the church's purposes. But, they cannot today, on the basis of 
religion, discriminate in who ladles out the soup, if they 
receive Federal funds, nor should they be able to, as they 
would be able to under this bill.
    So that is a very new provision, which expands it to the 
direct provision of social services.
    The other point you make is with regards to the 
availability of funds. The only point that this bill has with 
the respect to the availability of funds is the guarantee that, 
in every single case, there should be an alternative secular 
provider of services, which will necessitate, assuming you are 
going to have a dual system everywhere, a vast amount of new 
money. And if you want to fund that, it is going to require a 
lot of new money.
    And the final point is the nub of this bill which was, to 
me, the astonishing statement--or admission, perhaps--by Mr. 
Watts that, yes, a drug rehab methodology that uses religious 
doctrine, paid for by Federal funds in its activity, is 
constitutional.
    It has always been clear is that the government cannot 
directly pay for religious activity. And if the religious 
activity is saying, ``You should get off drugs because God 
wants you to,'' ``because Jesus wants you to,'' ``because the 
Devil wants you to''--and this is the Wiccan church--for 
whoever it is, that clearly is not a proper use of Federal 
funds.
    They can do it on their own funds. And you want to have a 
501(c)(3) to separate the two and protect the church, as I said 
before.
    Chairman Herger. The gentleman's time has expired.
    Mr. Nadler. Thank you, Mr. Chairman.
    Chairman Herger. Thank you. The gentleman from Texas, Mr. 
Doggett, to inquire.
    Mr. Doggett. Thank you very much, Mr. Chairman.
    Mr. Watts, I gather from the comments you made to Mr. 
McNulty's question earlier that you are working with the 
Committees, that while you may not know the specific offset, 
you certainly feel like any tax loss from this bill should be 
offset, so that we are not in a position of raiding Social 
Security or Medicare?
    Mr. Watts. You bet.
    Mr. Doggett. Thank you.
    Mr. Nadler, I have a query for you because of where you are 
sitting, because it seems to me it was just a few weeks ago 
that we had Treasury Secretary O'Neill here to testify about 
the relationship of tax policy and charitable donations. And I 
note--and I think it is noteworthy--that there is no one from 
the administration here today to testify in support of this 
proposal.
    Secretary O'Neill testified to the effect that the 
tremendous loss that some charitable institutions and religious 
institutions felt they would suffer as a result of what was 
presented as a repeal of the estate tax--and you know that it 
of course didn't turn out to be, really, a repeal of the estate 
tax; just a postponement of it--that there would not be any 
damage to charitable institutions because tax policy has no 
significant impact. It is a person's faith and their interest 
in doing good and not tax policy that causes them to make these 
contributions, according to Secretary O'Neill.
    And my question to you, Mr. Nadler, is whether or not you 
believe it would be placing themselves in this total 
contradiction of having said tax policy wasn't important to 
charitable contributions and now apparently claiming that it 
is, whether it is that contradiction that causes them not to 
come today? Or is it the same lack of priority for this 
proposal that caused them to totally exclude it from the big 
tax bill that they just had and to place it very much in second 
place or third or fourth or tenth or twelfth, as the case may 
be, to not include anything about this issue in their tax 
package?
    Which of the two do you think is most likely to explain 
their failure to come and support this proposal today?
    Mr. Nadler. What you are asking me, is if the 
administration being neglectful of its own priority legislation 
or does it have an ulterior motive, and I do not know the 
answer to that specific question.
    I can say this: Two things are obvious. One, as Mr. Hall 
said, many people are motivated in charitable contributions and 
charitable endeavors and good works by their religious faith, 
by the consciences, and many church activities are so 
motivated. That is obvious.
    It is also obvious that many charitable contributions are 
motivated by tax considerations. That is why we have half of 
our Tax Code. A lot of our tax provisions, tax incentives, are 
specifically incentives to get someone to do something: build a 
low-income housing project; do research in medicine; give a 
charitable contribution that we view as socially useful and 
productive, improving the state of life in the country.
    And there is a whole estate planning bar that exists just 
to promote how you can use charitable contributions and other 
provisions of the Tax Code to lessen the tax bite on your 
income or on your estate.
    It is obvious that repealing the estate tax will cause a 
diminution in charitable contributions. Perhaps not by the low-
income person, maybe not the middle-income person, but 
certainly by the wealthy people who are engaging in tax 
planning.
    Mr. Doggett. Mr. Scott, you have already referenced the 
problems that could develop by some religious group that viewed 
racism as a part of their religion with reference to 
discrimination in employment. I want to ask you about another 
discrimination issue in this that has not been discussed so 
far.
    There are a variety of groups across the county, some 
considered more mainstream than others, but certainly with very 
strong adherents who have great faith in their point of view, 
the Branch Davidians, the Church of Scientology, Reverend 
Farrakhan's group. We have a group there in Texas called the 
Wiccans that have formed kind of a religion around witchcraft.
    What is there in this legislation that will permit and 
justify the government discriminating among religious groups as 
it decides to provide them more dollars to proselytize in their 
faith at the time that they deliver social services?
    Mr. Scott. There is a provision in the bill that provides 
for a right of action by groups. It is a little unclear; I read 
it to say that if your group didn't get picked, you have a 
right of action against the county to say that you were 
discriminated against because of your religion. So if any of 
these groups that you mentioned didn't get the contract, they 
would have a right of action to sue to show that their 
religious beliefs caused them not to get the contract.
    Once they get the contract, they are free to exercise their 
religious beliefs.
    You know, this whole thing about discrimination, I think 
there is a fundamental question that we have to answer, and 
that is: If you are a drug counselor certified by the State, do 
you have an absolute right to apply to the county drug program 
without regard of your religion or not?
    We have heard Planned Parenthood, where you ask the 
question, what is wrong with hiring your own? I thought we had 
settled that when President Roosevelt signed the executive 
order in the forties and when we passed the sixties Civil 
Rights Acts. I thought we had answered the question. But 
apparently not. And apparently it ought not be a protected 
class.
    Maybe we ought to discuss whether you ought to go back to 
where you could hire anybody you want and discriminate against 
them based on religious----
    Chairman Herger. The gentleman's time has expired.
    Mr. Doggett. Thank you.
    Chairman Herger. Thank you very much. The gentleman from 
Louisiana to inquire. Mr. Jefferson.
    Mr. Jefferson. Thank you, Mr. Chairman. I am not sure what 
I am going to inquire about anymore.
    [Laughter.]
    Mr. Jefferson. The most difficult subject always to discuss 
is religion, in whatever context you discuss it. And I am 
confounded about the whole subject, because it seems what you 
are doing with the bill is extending from the Temporary 
Assistance for Needy Families (TANF) rules now to some other 
Federal program, saying you can have charitable choice in other 
programs, it seems to me.
    And, of course, what it does is create a bigger set of 
opportunities for these organizations to get involved in 
applying for Federal grants.
    There is some notion here abounding that religious groups, 
for whatever reason, bring a special expertise or a special 
benefit to those people who need their services that the other 
organizations don't bring. And, therefore, we ought to be 
involved in this to make sure that this group of people can get 
this done, I suppose because of a spirit of volunteerism or 
zeal or benevolence or whatever; I don't know.
    And it disregards the idea of whether people ought to have 
just basic qualifications to counsel people in drug situations 
or whatever the maladies might be that we are trying address.
    And so I wonder about the whole premise of it, to start out 
with.
    I think a church group is duty-bound to proselytize. I 
think people ought have to proselytize their faith. I think 
that is part of the exercise of one's faith, to try and explain 
to others why you believe as you do and to proselytize for 
converts. That is what happens here.
    And if you say that is an essential part of the treatment 
regimen, but you can't do it under this bill, and that 
distinguishes it from these other secular groups, then you have 
to ask yourself, what's the point of it all?
    So I am expressing my confusion about this legislation to 
you now because I believe that religious groups ought to get 
involved in social healing, and in helping the poor, as J.C. 
has said and other have said here. I am trying to figure, 
though, why we need to do something in this bill to make sure 
that that happens.
    We are not setting up, are we--I don't see it here--any new 
pots of money which segregated for religious groups to apply 
for, that they wouldn't otherwise wouldn't be able to apply 
for?
    That is not happening, is it?
    Mr. Hall. No.
    Mr. Jefferson. So they are going to apply for and compete 
with nonprofits of secular or other bents, right?
    Mr. Hall. Right.
    Mr. Jefferson. So I am trying to figure, what are we doing 
here, Tony? I can't really see--we are having a big discussion, 
taking up a lot of time, but I don't know what we are going to 
accomplish if we pass this that we can't already do.
    And on the discrimination issue, all the civil rights law 
says is, look, we don't want to make it a civil rights cause of 
action, because a group doesn't have folks that have other 
religions other than the ones that make up a part of a church 
organization. Well, that is understandable.
    But that is all it does. It doesn't get into these other 
issues.
    And J.C. is talking discrimination from another point of 
view. He is saying that some groups out here can't get what 
other groups can get, therefore, it looks as if we are 
discriminating against them. Well, that is another whole set of 
issues.
    But the bill doesn't seem to address that either. I don't 
see anything here that says, well--or even with the big ones 
and the little ones. I don't see anything that says you have to 
favor little groups over big ones.
    So I don't know how we are addressing all these things we 
raised today, and wish somebody would help clear this thing up 
for me.
    Mr. Scott. Mr. Jefferson, I think one of your problems in 
trying to figure this out is we haven't gotten a straight 
answer to the question, can you or can you not advance your 
religion during the government-funded program?
    The gentleman from Michigan asked the question. And once 
you get an answer to that, then things start falling into 
place.
    The present law, I agree with the gentleman from Wisconsin, 
you are not doing much change. I disagreed with the law in 
TANF. So did the Clinton administration. They ruled it was 
unconstitutional and it hadn't been implemented. So that is the 
position I am taking. We shouldn't expand it.
    But you also mention the question of hospitals. That is a 
different situation, because in that situation the beneficiary 
decides to go to Mary Immaculate hospital rather than another 
hospital. The State doesn't designate a religious hospital as 
the State hospital. It doesn't designate Notre Dame or Catholic 
University as the State university. You can take your Pell 
grant to those colleges.
    If we had a situation where we are funding this where the 
drug addict can choose which organization he is going to do, 
you have a different analysis. But here, government decides 
this religion gets to advance its religion, and we are going to 
pay for it directly. That is a significant difference.
    And as the gentleman from Louisiana said, there is no help 
for small organizations, religious or otherwise. They need the 
technical assistance on how to deal the a government grant. 
There is nothing in charitable choice that helps that.
    Mr. Watts. Mr. Chairman, can I respond as well?
    Mr. Jefferson. Go ahead.
    Chairman Herger. The time of the gentleman has expired, 
but, yes, just briefly.
    Mr. Watts. I would work with my friend from Virginia to 
create vouchers, scholarship program, and I have no problem 
with letting the individual determine if they want to use the 
faith-based organization or the secular organization. That 
would not hurt my feelings at all.
    But let me go more specifically to what Bill said, 
concerning being duty bound to proselytize and also the 
religious character of the organization.
    I don't want to lead anybody astray; yes, I do want to 
protect the religious character of the organization, just like, 
you know, we, as I mention--and I just mention Planned 
Parenthood; we can point to many organizations--just like 
Planned Parenthood, their secular character or whatever 
character they lay out, nobody questions their character, the 
character of their program, to receive Federal dollars.
    Now, am I saying we shouldn't question these things? I am 
not saying that. I am saying we will have a process in place, 
obviously, through Housing and Urban Development Department 
(HUD) or whatever organization to determine how these dollars 
are distributed.
    Now, let me also address the duty bound question to 
proselytize. I don't think we are duty bound in our faith to 
proselytize. I think we are duty bound in our faith to love 
people, to help people, to feed the hungry, to help the 
homeless, to try and go in and take people who need help--I 
think our faith should bind us to the duty off helping and 
assisting and doing the things that I think we are called to do 
in this Nation.
    As Americans, I think we have a moral obligation to help 
those that cannot help themselves. But I don't think that I am 
duty bound. I am a Baptist. I don't think that I am duty bound 
to try to make you a Baptist or to make someone a Catholic or 
Methodist or Jewish or whatever the denomination might be.
    Chairman Herger. I thank the gentleman and all of our 
colleagues for their testimony.
    I would like to recognize the gentleman from Louisiana, Mr. 
McCrery, for a clarification.
    Chairman McCrery. Mr. Scott, I just want to clarify your 
point about the Clinton Justice Department saying that the 
charitable choice provisions of TANF were unconstitutional.
    I think you will find that they declared that with respect 
to the Community Services Block Grant charitable choice 
provisions and not TANF. And in fact, there are numerous 
examples of TANF funds being used under the charitable choice 
provisions of TANF.
    Mr. Scott. Well, when the President signed all of those 
bills, he specifically raised questions about the wording of 
charitable choice and that they would be implemented in such a 
way--as we started out, you give a straight answer to the 
question, ``Can you proselytize during the program?'' and then 
you can have a discussion.
    I don't believe that you should. Based on the language, it 
is obvious you are going to do. Then you get into the----
    Chairman McCrery. Excuse me. But in the TANF charitable 
choice provision, of course, there is an opt-out for the 
participant, so----
    Mr. Scott. OK, then fine. You will fund the pervasively 
sectarian organization. You will proselytize. You will convert 
people during the program with Federal money, so long as it is 
not unwanted proselytization.
    My view is, you can't run a religious program and provide 
wanted proselytization. You can't do that either.
    And if that is what you are paying for, if you are paying 
for religion as the methodology, if you just convert----
    Chairman McCrery. We don't need to debate this. I just 
wanted to point out that what you said is inaccurate with 
respect to TANF. It is accurate with respect to Community 
Services Block Grant, but not with TANF. There are numerous 
programs under TANF where the funds are being spent by 
religious organizations under the exception that was provided 
in TANF. That is all I wanted to point out.
    Mr. Scott. If I could present information----
    Chairman McCrery. The constitutional question----
    Mr. Scott. After the Committee----
    Chairman McCrery. We are not going to solve here today. You 
will have to sue.
    Mr. Scott. I would like to----
    Chairman McCrery. Thank you, Mr. Chairman.
    Mr. Cardin. Mr. Chairman, just to clarify this with Mr. 
McCrery, my understanding, though, is, except for one example, 
none of the recipients of Federal funds under TANF have sought 
the protection of employment discrimination.
    In the one case where they had employment discrimination, 
it is currently pending in the courts in Texas. I could be 
wrong on that, but I believe there has not been the use of the 
protection for employment discrimination.
    Chairman Herger. Again, I want to thank each of our 
panelists for outstanding testimony.
    And with that, I am going to turn the gavel over to 
Chairman McCrery for the second panel. Thank you.
    Chairman McCrery. [Presiding.] Thank you, Chairman Herger. 
I would like to call the next panel to the front.
    Mr. Yopp, Mr. Reighard, Ms. Melendez, Mr. Boshara, Ms. 
Aviv, and Ms. Meiklejohn.
    If I could ask members in the audience to please take a 
seat and cease their conversations, we can get started with the 
second panel.
    This panel of witnesses was asked to testify today on the 
tax provisions in the legislation that we are considering, as 
well as tax provisions offered by the President in his budget.
    And I would ask witnesses to try to make their remarks with 
respect to those provisions, and not belabor the things that we 
have been going on for the last two and a-half hours.
    [Laughter.]
    Chairman McCrery. However, I know that some of you are 
anxious to talk about those things, and you are here anyway, so 
go ahead. You only have 5 minutes.
    But, I would ask the members of the Subcommittee to please 
restrict their questions to matters of jurisdiction within the 
Select Revenue Measures Subcommittee; that is, the tax 
measures. That is what this panel is designed to flesh out and 
explore.
    Having said that, now I will welcome all of our panelists, 
particularly I want to welcome Mr. Yopp, who is from my 
hometown of Shreveport, Louisiana. He is a businessman in 
Shreveport. But on the side, he works with the Shriners 
organization and has been the chairman of the board of 
Governors for the Shreveport Shriners Hospital for Children.
    Back in 1922, the Shriners established their very first 
hospital for children in the United States, and they 
established it in Shreveport, Louisiana. So we have a long 
history in north Louisiana of recognizing the value of 
charitable organizations. And certainly, the Shriners have been 
a shining example of the good things we do in this country for 
those who are less fortunate than ourselves.
    And with that, I want to turn it over to Mr. Lewis, who 
also has a witness that he would like to introduce.
    Mr. Lewis. Thank you, Mr. Chairman.
    I am pleased that Bill Reighard, president of the Food 
Donation Connection (FDC), is today to testify.
    Bill and his organization work with Tricon Global 
Restaurants, the parent company of Kentucky Fried Chicken, 
Pizza Hut, and Taco Bell.
    Tricon, which is headquartered in Kentucky, operates one, 
if not the largest, prepared food donation program in America, 
and Food Donation Connection is their primary partner.
    Bill's organization assists restaurants like Kentucky Fried 
Chicken (KFC) and Pizza Hut by linking them to food programs 
and agencies that help the hungry. Overall, FDC manages the 
food donations of over 4,500 restaurants, matching them with 
over 1,500 hunger agencies.
    Bill has 26 years of experience with the food service 
industry and working with the needy. He is here today to 
discuss the hunger relief provisions in H.R. 7.
    And I am very interested in hearing what you have to say, 
Bill. Thanks for coming.
    Chairman McCrery. Thank you, Mr. Lewis.
    We also have on the panel today Dr. Sara Melendez, 
president and chief executive officer of Independent Sector; 
Ray Boshara, policy director, Corp. for Enterprise Development; 
Diana Aviv, vice president for public policy, United Jewish 
Communities; and Nanine Meiklejohn, with the American 
Federation of State, County and Municipal Employees.
    Welcome, everybody. We will begin with the Shreveporter, 
Mr. Yopp.
     And your written testimony, by the way, will be included 
in the record, without objection. And we ask you to summarize 
that in 5 minutes. Thank you.

  STATEMENT OF TROY BRYANT YOPP, JR., FORMER CHAIRMAN OF THE 
 BOARD OF GOVERNORS, SHREVEPORT HOSPITAL OF SHRINERS HOSPITALS 
  FOR CHILDREN, SHREVEPORT, LOUISIANA, ON BEHALF OF SHRINERS 
             HOSPITALS FOR CHILDREN, TAMPA, FLORIDA

    Mr. Yopp. Thank you, Mr. Chairman. Having been fully 
introduced, I will skip my introduction and go right to the 
chase.
    Shriners Hospitals for Children is the largest charity 
hospital system in the United States. Our first hospital, as 
you stated, was built in Shreveport, Louisiana, our hometown. 
Today the 22 Shriners hospitals provide excellent medical care 
to children without regard to race, religion, or relationship 
to a Shriner. In fact, several members of this Subcommittee 
have Shriners hospitals in their States, and we serve children 
in all 50 States.
    All care at Shriners hospitals is provided totally without 
charge. We have treated hundreds of thousands of children free 
of charge, accepting no government funds and no insurance, nor 
parental reimbursement for the care provided.
    We have provided care to over 625,000 kids since 1922. We 
are very proud of this achievement.
    It would not have been possible without the many charitable 
contributions we have been so fortunate to receive over the 
years. Voluntary private philanthropy enables us to continue 
this record of service.
    It is for this reason that I am here today before you to 
encourage Congress to enact legislation that would make it 
possible for donors to contribute funds from their IRAs without 
tax penalty to Shriners hospitals.
    Any development officer at a hospital, university, or 
church will tell you that life-income gifts are an extremely 
important part of philanthropy. Life-income gifts allow the 
donor to have his cake and eat it too.
    The donor retains an income interest while giving capital 
to a qualified 501(c)(3) organization. The charitable remainder 
trust, pooled income fund, and charitable gift annuity are 
called life-income gifts because they combine a retained income 
stream with a gift of capital or remainder to charity. These 
well-established gift formats have been used for over three 
decades.
    Individual retirement accounts are a great potential source 
of support for charities. According to the Joint Committee on 
Taxation, it is estimated that there are more than $1 trillion 
in IRA accounts.
    Although incomes and wealth have increased sharply over the 
past decade, charitable giving has not kept pace. The rate of 
growth, 3.2 percent in charitable giving in 2000, was the 
lowest in the past 5 years.
    Tax incentives encourage contributions to IRAs. However, 
tax penalties discourage contributions from IRAs to charities, 
even though many persons, including thousands of self-employed 
professionals, have IRA assets well in excess of what is needed 
for a secure retirement.
    I would like to explain what these penalties are and how 
they can be removed.
    The taxpayer may withdraw funds from an IRA after age 59 
and a-half but most commence withdrawal when he or she attains 
70 and a-half. Under the current law, an IRA withdrawal is 
taxable as ordinary income, even if the funds are used to make 
a charitable contribution. We have found this to be quite 
discouraging to individuals who want to make a gift of IRA 
assets to Shriners hospitals.
    Under the best of circumstances, the tax may be offset by a 
charitable donation. The net results can be a tax liability, 
even though a charitable contribution is made. This is a 
serious obstacle to even the most generous potential donor.
    The legislation we support would remove those obstacles. 
The legislation would enable the donor, commencing at age 59 
and a-half, without penalty, to roll over IRA assets, either as 
an outright gift or to a qualified life-income vehicle.
    If the donor has saved in an IRA more than what is needed 
for secure retirement, he or she would have the opportunity, 
without incurring a tax penalty, to make a charitable 
contribution from IRA assets. If this option were available, we 
believe many persons would take advantage of this opportunity 
instead of deferring IRA withdrawals until age 70 and a-half 
and then taking out only the annual minimum required by law. 
This is what many upper-income taxpayers now do.
    Permitting tax-free rollovers, commencing at age 59 and a-
half, to life-income charitable gifts will encourage earlier 
distributions, which also means earlier taxation.
    The best way to encourage charitable giving is to provide 
individuals with as many options as possible. Direct gifts to 
charity are an appealing option, but indirect giving through 
income gifts is equally if not more so. This is because life-
income gifts more explicitly accommodate charitable giving with 
the need to ensure an income stream for life to the donor.
    They let the donor have the joy of giving to one's favorite 
charity in a way that gifts at death cannot.
    Permitting tax-free rollovers to life-income gifts provides 
taxpayers will a well-regulated option that reconciles 
retirement security with charitable giving. We believe that the 
proposed legislation will provide much needed support for major 
gifts to charities at a modest cost to the Treasury.
    In actuality, there likely would be no cost. The enhanced 
ability of charities funded by IRA rollover gifts will relieve 
the Federal government of expenditures which overwise would be 
needed to provide health care and similar service.
    The present opportunity is truly a win-win situation for 
charities, the Treasury, and the American people. This is why 
we so strongly support this legislation.
    [The prepared statement of Mr. Yopp follows:]

  Statement of Troy Bryant Yopp, Jr., Former Chairman of the Board of 
  Governors, Shreveport Hospital of Shriners Hospitals for Children, 
 Shreveport, Louisiana, on behalf of Shriners Hospitals for Children, 
                             Tampa, Florida

    Good morning. Thank you for the opportunity to be here today.
    My name is Troy Bryant Yopp, Jr. I'm the former Chairman of the 
Board of Governors of the Shreveport Hospital of Shriners Hospitals for 
Children. It is a privilege and an honor to appear before you today on 
behalf of Shriners Hospitals for Children.
    Shriners Hospitals for Children is the largest charity hospital 
system in the United States and one of the largest charities in the 
United States. Our first hospital was opened in 1922 in our hometown, 
Mr. Chairman, of Shreveport, Louisiana. Today, the twenty-two (22) 
Shriners hospitals provide excellent medical care to children without 
regard to race, religion, or relationship to a Shriner. All care at 
Shriners Hospitals is provided totally without charge. Shriners 
Hospitals have treated hundreds of thousands of children free of 
charge, accepting no government funds, and no insurance nor parental 
reimbursement for the care provided.
    Combining quality medical care, progressive research and innovative 
teaching programs, Shriners Hospitals are at the forefront of 
orthopaedic and burn care. Since 1922, Shriners Hospitals have provided 
care to over 625,000 children.
    We're very proud of this achievement. It would not have been 
possible without the many charitable contributions we have been so 
fortunate to receive over the years. Voluntary private philanthropy 
enables us to continue this record of service. It is for this reason 
that I am here before you today to encourage Congress to enact 
legislation that would make it possible for donors to contribute funds 
from their IRAs without tax penalty to Shriners Hospitals.
    Any development officer at a hospital, university, or church will 
tell you that life-income gifts are an extremely important part of 
philanthropy. Life-income gifts make major gifts possible because these 
kinds of gifts allow the donor to ``have his cake and eat it, too.'' 
The donor retains an income interest while giving capital to a 
qualified Internal Revenue Code Sec. 501(c)(3) organization.
    I'd like to take a few minutes to give you an overview of how life-
income gifts work.
    The charitable remainder trust (``CRT''), pooled income fund 
(``PIF''), and charitable gift annuity (``CGA'') are called ``life-
income'' or ``split interest'' gifts because they combine a retained 
income stream with a gift of capital or ``remainder'' to charity.
    The CRT was authorized by the Tax Reform Act of 1969. It is 
governed by Internal Revenue Code Sec. 664 and well-established 
Treasury Regulations. These trusts for over three decades have been 
widely used to provide secure retirement incomes for many thousands of 
philanthropically minded taxpayers. The donor can be the trustee of the 
CRT as well as the income beneficiary.
    A CRT can be either a charitable remainder annuity trust (``CRAT'') 
or charitable remainder unitrust (CRUT). As the name implies, the CRAT 
pays the donor (or the donor and spouse) an annuity. The donor 
establishes both the amount and frequency of payments, in accordance 
with Treasury regulations. If net income is insufficient to pay the 
predetermined amount, the trustee will invade corpus to make up any 
shortfall. Only after the expiration of the life income interest are 
the assets in the trust disbursed to the charity selected by the donor.
    The CRUT operates in the same manner as the CRAT, with one 
important difference: when the donor creates a CRUT, he or she sets a 
pay-out rate which is a fraction of the annual value of the trust 
assets. The pay-out will vary depending on the value of the assets 
(determined annually). This makes the CRUT a hedge against inflation. 
There are several planning options unique to the CRUT. For example, the 
donor may direct that principal is to be invaded to make up any 
deficiency in income or may elect an ``income only with make up'' 
format. As with the CRAT, only upon the expiration of the beneficiary's 
(or beneficiaries') interest will the remaining assets be distributed 
to the charity selected by the donor.
    The pooled income fund is authorized by Internal Revenue Code 
Sec. 442. It functions as a ``common fund'' CRT. It is administered by 
the charity (or its designee, usually a bank). The donor contributes 
money or qualified securities to the PIF, which pays the donor (and his 
or her spouse) income which depends on the ratio of contribution to the 
total of assets in the fund and its investment performance. As the term 
``pooled'' implies, many donors contribute to one PIF, which pays to 
each a secure income. An advantage of the PIF is diversification 
combined with professional asset management. Our pooled income fund 
pays approximately 6.46%.
    The charitable gift annuity is not a trust. It is a contract 
between the charity and donor. In return for a contribution (which 
exceeds the cost of a comparable commercial annuity), the charity 
promises to pay an annuity at a preset rate. The gift element consists 
of an amount which is actuarially determined to be in excess of what is 
needed to fund the payments to the donor. Joint and survivor (husband 
and wife) charitable gift annuities are often used in retirement income 
planning. Virtually every major charity in the United States issues 
charitable gift annuities.
    Individual Retirement Accounts are a great potential source of 
support for charities. According to the Joint Committee on Taxation, it 
is estimated there are more than $1 trillion in IRA accounts.
    Although incomes and wealth have increased sharply over the past 
decade, charitable giving has not kept pace. The rate of growth (3.2%) 
in charitable giving in 2000 was the lowest in the past five years, 
according to Giving USA, which is published by the American Association 
of Fund Raising Counsel.
    Tax incentives encourage contributions to IRAs. However, tax 
disincentives discourage contributions from IRAs to charities, even 
though many persons, including thousands of self-employed 
professionals, have IRA assets well in excess of what is needed for a 
secure retirement.
    I'd like to explain what these disincentives are and how they can 
be removed.
    The taxpayer may withdraw funds from an IRA without penalty after 
age 59\1/2\, but must commence withdrawal in the April following the 
year in which he or she attains age 70\1/2\.
    Under current law, an IRA withdrawal is taxable as ordinary 
income--even if the funds are used to make a charitable contribution. 
We have found this to be quite discouraging to individuals who want to 
make a gift of IRA assets to Shriners Hospitals. Under the best of 
circumstances, the tax may be offset by the charitable deduction, but 
not always--because of ``percentage limits'' and ``itemized deductions 
reduction''.
    For donations of cash or ``ordinary income property'', the 
charitable contribution deduction may not exceed 50% of an individual's 
adjusted gross income (``AGI''). To the extent a taxpayer has not 
exceeded the 50% limit, contributions of capital gain property 
generally may be deducted up to 30% of AGI. If a contribution exceeds 
these ``percentage limits'', the ``excess'' may be carried forward and 
deducted during the next five years. The result is there often will not 
be a complete ``offset'', which means the taxpayer will owe tax, 
despite having made a significant charitable contribution of IRA 
assets.
    In addition to these ``percentage limits'', Internal Revenue Code 
Sec. 68 requires the taxpayer to reduce most itemized deductions 
(including charitable contribution deductions) if he or she has 
adjusted gross income in excess of a threshold amount (indexed for 
inflation). For the taxpayer in this situation, the total of itemized 
deductions is reduced by 3% of AGI over the threshold, but not by more 
than 80% of itemized deductions subject to the limit. This reduction 
may prevent the taxpayer from fully utilizing the charitable 
contribution deduction arising from his or her gift of IRA assets.
    The net result can be a tax liability, even though a charitable 
contribution is made. This is a serious obstacle to even the most 
generous potential donor.
    The legislation we support would remove these disincentives to 
philanthropy. The legislation would enable the donor, commencing at age 
59\1/2\, without penalty to ``roll over'' IRA assets, either as an 
outright gift or to a qualified life-income gift vehicle. The donor 
would not be subject to tax at the time of withdrawal and transfer, but 
also would receive no tax deduction. No charitable contribution 
deduction would be allowed. All income from the life-income gift would 
be subject to tax at ordinary income tax rates.
    If the donor has saved in an IRA more than what is needed for a 
secure retirement, he or she would have the opportunity without 
incurring a tax penalty to make a charitable contribution from IRA 
assets. If this option were available, we believe many persons would 
take advantage of this opportunity, instead of deferring IRA 
distributions until age 70\1/2\ and then taking out only the annual 
minimum required by law. This is what many upper-income taxpayers now 
do.
    Permitting tax-free roll-overs, commencing at age 59\1/2\, to life-
income charitable gifts will encourage earlier distributions, which 
also means earlier taxation. It is because of this earlier taxation 
that the revenue loss estimated by the JCT is small.
    The JCT, by letter dated April 12, 2001 to Representative Jennifer 
Dunn, provided an estimate of the revenue effect of the legislation. 
The JCT concluded that allowing tax-free withdrawals from IRAs for 
charitable purposes would result in a total revenue loss of $3.3 
billion for fiscal years 2002 through 2011.
    We are aware there are certain differences between IRA-to-charity 
rollover legislation. The ``narrower'' version of the IRA-to-charity 
rollover legislation provides for a direct ``roll over'' to charity 
(but not to a life-income gift vehicle) at age 70\1/2\. The ``broader'' 
version of the legislation, which we support, provides for the rollover 
either to the charity directly or to life-income charitable gifts 
beginning at age 59\1/2\.
    According to revenue loss studies by the JCT the difference in 
revenue loss between the two versions is only approximately $700 
million over ten years.
    The best way to encourage charitable giving is to provide the 
philanthropically inclined individual with as many options as possible. 
Direct gifts to charity are an appealing option, but indirect giving 
through split-interest gifts is equally, if not more so. This is 
because the use of split-interest gifts more explicitly accommodates 
charitable giving with the need to ensure an income stream for life to 
the donor. It also enables the donor to capture the psychological 
aspects of giving to one's favorite charity in a way gifts at death 
cannot. Permitting tax-free rollovers to split-interest gifts provides 
taxpayers with a tested and well-regulated option that reconciles 
retirement security and charitable giving to the benefit of the donor 
and the taxpayer.
    Shriners Hospitals believes that the proposed legislation will 
provide much needed support for major gifts to charities at a modest 
cost to the Treasury. In actuality, there likely would be no cost. The 
enhanced ability of charities, funded by IRA rollover gifts, will 
relieve the federal government of expenditures which otherwise would be 
needed to provide health care and similar services.
    The present opportunity is truly a ``win-win'' situation for 
charities, the Treasury, and the American people. This is why we so 
strongly support this legislation.

                                

    Chairman McCrery. Thank you, Mr. Yopp. Mr. Reighard.

     STATEMENT OF BILL REIGHARD, PRESIDENT, FOOD DONATION 
                 CONNECTION, NEWPORT, VIRGINIA

    Mr. Reighard. Thank you for the opportunity to talk today.
    Food Donation Connection assists restaurants in providing 
an alternative to discarding excess wholesome, unsold food by 
linking those restaurants to food rescue programs that help the 
hungry.
    Our mission statement is from John 6:12, which reads, 
``When they had all had enough to eat, Jesus said to his 
disciples, `Gather the pieces that are left over. Let nothing 
be wasted.' ''
    I am here to talk about the donated food provisions in H.R. 
7. These provisions would eliminate the uncertainty that exists 
concerning the tax deduction a company can take when it donates 
its wholesome excess food to nonprofit organizations that serve 
those in need.
    Doing so will encourage food service companies to make the 
effort needed to save their excess food, which otherwise would 
go to waste. These provisions have the support of nonprofit 
organizations that serve those in need, as well as the National 
Restaurant Association and the National Council of Chain 
Restaurants.
    Mr. Chairman, make no mistake, hunger remains a pressing 
social issue in this country. Despite our economic prosperity, 
36 million Americans, including 14 million children, don't get 
enough to eat.
    A report by the Conference of Mayors shows demand for 
emergency food increasing. As individuals leave welfare and 
enter the workplace, they often turn to nonprofit, private 
sector groups for food to help make ends meet.
    Ironically, in spite of this need, millions of tons of 
good, wholesome excess food are discarded every day in this 
country. Why? Because it costs business money to properly save 
this food.
    Recognizing this, Congress included legislation in the tax 
reform act of 1976, designed to encourage donations of excess 
food to 501(c)(3) organizations that serve infants, ill or the 
needy.
    Section 170 of the IRS Code allows a deduction equal to the 
donated food basis cost plus one-half of appreciated value, not 
to exceed twice the basis cost. This last limitation, as well 
as strict receipting requirements, ensures that company cannot 
earn a profit by producing food specifically for donation.
    Two issues with the existing law discourage food service 
companies from donating.
    First, the IRS challenges, as an industry-coordinated 
issue, any appreciated value placed on the donated food. Many 
companies are not willing to take on the IRS to gain a 
deduction to offset the additional cost of preparation, 
packing, and storage of donated food. Rather, they find it 
easier and actually cheaper to simply throw the food away and 
take the standard deduction.
    Second, current law makes this deduction available only 
through regular C corporations. Most restaurant companies are 
set up as limited liability or Subchapter S corporations or 
sole proprietors and, therefore, are not eligible for the 
deduction.
    An example of this impact was felt by hunger relief 
agencies in the Albany, New York, area. The Albany Pizza Huts 
donated food when they were company-owned. In April 1999, they 
were sold to a franchisee that is not eligible for the 
deduction. Only two of the 16 Pizza Huts continue to donate.
    The donated food provisions in H.R. 7 codify fair market 
value and make all business entities eligible for the 
deduction.
    The programs we manage have been successful because they 
use the tax savings to provide an economic incentive to the 
restaurant managers for donating. When this incentive is lost, 
donations drop significantly or stop altogether.
    As in the Albany example, we see this repeatedly when 
restaurants are sold to franchisees who are not eligible for 
the deduction under current law.
    We know that food service donations of wholesome excess 
food to private sector nonprofit hunger agencies works. These 
donations provide needed food, as well as a great source of 
protein, for these agencies.
    To increase these food donations, Congressman Hall has been 
introducing legislation in Congress for number of years. In the 
106th session, Congressman Amo Houghton joined him in 
introducing H.R. 1325, the Good Samaritan Tax Act, and 82 House 
members signed on as cosponsors. This is an idea whose time has 
come.
    I believe that these provisions will encourage more 
restaurants to donate food, which will contribute to solving 
the hunger problem in America today.
    Mr. Chairman, I am hopeful that you and the Subcommittees 
will do everything in your power to enact these donated food 
provisions this year. Thank you.
    [The prepared statement of Mr. Reighard follows:]

   Statement of Bill Reighard, President, Food Donation Connection, 
                           Newport, Virginia

DONATED FOOD PROVISIONS WITHIN HR 7
    Good Afternoon. I would like to thank Chairman McCrery, Chairman 
Herger, ranking member McNulty, ranking member Cardin, and other 
members of the Subcommittees for this opportunity to speak on the 
donated food provisions included in HR 7.
    These provisions, if enacted, will go a long way toward solving the 
issue of hunger in America. By allowing companies to offset the costs 
associated with donating surplus wholesome food to hungry Americans, 
these provisions will encourage more food service companies to make the 
effort needed to set up food recovery and donation programs. These 
provisions have the support of the National Restaurant Association, the 
National Council of Chain Restaurants, and those non-profit 
organizations that serve those in need.

MY BACKGROUND:
    Since 1992, I have been President of Food Donation Connection 
(FDC). FDC assists restaurants in providing an alternative to 
discarding excess wholesome unsold food by linking those restaurants to 
food rescue programs and agencies that help the hungry. FDC manages the 
donations of over 4500 restaurants to 1500+ hunger agencies.
    Our Mission Statement is from John 6:12, which reads: ``When they 
had all had enough to eat, Jesus said to his disciples, `Gather the 
pieces that are left over. Let nothing be wasted.' ''
    We accomplish this by handling coordination and administration for 
our client restaurants. This includes determining recipient food rescue 
programs and handling paperwork, maintaining an 800 number for use by 
donor restaurants and hunger agencies, tracking and reporting all 
excess food donations, tax savings calculation and reporting and 
providing the ongoing follow-up and monitoring necessary for successful 
implementation and growth.
    Prior to establishing Food Donation Connection, I worked for 17 
years in the food service industry, holding management positions in 
operations, quality assurance, product development and technical 
services.

HUNGER EXISTS IN AMERICA
    Despite our country's economic prosperity, hunger is a pressing 
social issue in America. According to a report by Tufts University, 36 
million Americans, including 14 million children, live in food insecure 
households. A United States Conference of Mayors report shows demand 
for emergency food increasing, and that over 20% of this demand goes 
unmet. As individuals leave welfare and enter the work place, they 
often turn to food banks and other non-profit private sector groups for 
food to help make ends meet. Layoffs also remain widespread as 
companies reconstitute themselves to compete in the changing economy.

WHOLESOME EXCESS FOOD IS GOING TO WASTE
    At the same time that many Americans go hungry, good wholesome food 
is going to waste. One of the major reasons this food is not getting to 
the hungry is because businesses cannot offset the costs of donating 
it.

    The agency receiving the donation must complete and sign the bottom 
of this log before it is mailed.
    Mail the signed top (white) copy to: (Name & Address of restaurant)
    OR You may fax it to 1-000-000-0000 (Toll Free). Questions? Please 
call 1-000-000-0000 (Toll Free).
    The agency receiving the donated food product from the above 
restaurant confirms that it was used in compliance with the following 
requirements.

    The donated product was used in a use related to our tax-exempt 
purposes and solely for the care of the ill, needy or infants. The 
donated product was not transferred in exchange for money, other 
property or services. We are a Section 501(c)(3) tax exempt, U.S. 
nonprofit public charity qualified to receive tax-deductible 
contributions. We are not a private foundation.
    We will maintain adequate books and records to show the disposition 
or use of the donated product, which will be made available to the 
Internal Revenue Service upon request.
    No goods or services were provided by us in exchange for this 
charitable donation.
    Agency Name: --------
    Address: ---------
    City, State, Zip Code: -------
    Agency Contact: Name: -------- Signature: --------
    White Copy: Forward to Restaurant Office  Yellow Copy: Keep in Unit

    It takes management commitment and money to properly save excess 
food for donation to hunger agencies. Prepared food must be properly 
saved, packaged, labeled and kept refrigerated or frozen until it is 
picked up by the agency. Operating procedures and food safety standards 
must be developed and implemented. Hunger agencies need to be selected 
and approved, and ongoing pick-up schedules established. A system for 
donation reporting and tracking must be in place. Tax regulations 
require strict receipting procedures and limit the type of non-profit 
organizations that can receive the donation. An example of these 
requirements as they appear on one of our client's food donation log 
appear below:
    The agency receiving the donation must complete and sign the bottom 
of this log before it is mailed.
    Mail the signed top (white) copy to: (Name & Address of restaurant)
    OR You may fax it to 1-000-000-0000 (Toll Free). Questions? Please 
call 1-000-000-0000 (Toll Free).
    The agency receiving the donated food product from the above 
restaurant confirms that it was used in compliance with the following 
requirements.
    The donated product was used in a use related to our tax-exempt 
purposes and solely for the care of the ill, needy or infants. The 
donated product was not transferred in exchange for money, other 
property or services.
    We are a Section 501(c)(3) tax exempt, U.S. nonprofit public 
charity qualified to receive tax-deductible contributions. We are not a 
private foundation.
    We will maintain adequate books and records to show the disposition 
or use of the donated product, which will be made available to the 
Internal Revenue Service upon request.
    No goods or services were provided by us in exchange for this 
charitable donation.
    Agency Name: --------
    Address: --------
    City, State, Zip Code: --------Agency Contact: Name: -------- 
Signature: --------
    White Copy: Forward to Restaurant Office  Yellow Copy: Keep in Unit

    A number of expenses are incurred when a restaurant donates its 
excess food. Based on our experience, provided below is an example of 
the typical cost associated with food donation programs. Note that 
costs will vary from company to company based on type and value of food 
donated, the type of storage containers needed, storage method and 
other factors. This example assumes the value of the donated food to be 
two times cost. Costs represent a percentage of tax savings. Since the 
tax incentive is a deduction (as opposed to a credit) a company must be 
profitable to realize any tax savings. Two tax rates are used in this 
example.

------------------------------------------------------------------------
                                                 Cost: % of   Cost: % of
                                                tax savings  tax savings
               Program Cost Item                 at 35% Tax   at 15% Tax
                                                    Rate         Rate
------------------------------------------------------------------------
Storage & Transport Containers................           4%           9%
Restaurant Manager Bonus Costs................          10%          10%
Employee Labor to Save Food...................          10%          23%
Management oversight..........................           3%           7%
Program Management............................          15%          25%
Company Incentive After Costs.................          58%          26%
------------------------------------------------------------------------

     TO INCREASE DONATIONS, COMPANIES MUST BE ABLE TO OFFSET COSTS
    Obviously, if we are to encourage food service companies to donate 
rather than discard usable surplus food, we need to allow them to 
offset the costs of doing so. In fact, Congress did include legislation 
in the Tax Reform Act of 1976 designed to help companies offset the 
costs of donating food to 501(c)(3) organizations that serve infants, 
ill or needy. Section 170 of the IRS Code allows a deduction equal to 
the donated food basis cost plus = of the appreciated value, not to 
exceed twice the basis cost. This last limitation, as well as strict 
receipting requirements, insures that a company cannot earn a profit by 
producing food specifically for donation.

  Example Calculation of Incentive Provided by Tax Reform Act of 1976

    The Tax Reform Act of 1976 allows regular `c' corporations that 
donate excess food to certain specified 501 (3) non-profit 
organizations that serve the ill, infants or needy to take an 
incremental deduction for donated food. Strict receipting requirements 
must be met to take the incremental deduction
    Example of potential tax benefit--

----------------------------------------------------------------------------------------------------------------
                                                                                             Surplus
                                                                                 Product       Not      Surplus
                                                                                  Sold       Donated    Donated
----------------------------------------------------------------------------------------------------------------
Sales revenue...................................................                   $1.00        $.00        $.00
Base cost (food & direct labor).................................                     .35         .35         .35
Gross margin/(loss).............................................                     .65        (.35)      (.35)
Incremental tax deduction.......................................                      --         ---        .33*
Total income/(deduction) for tax................................                     .65        (.35)      (.68)
Tax (assumes 35% rate)..........................................                    (.23)        .12         .24
Gross margin/(loss) after tax...................................                    $.42       $(.23)     $(.11)
----------------------------------------------------------------------------------------------------------------

    In this example, donating reduces the after tax cost of surplus by 
52%. The company still loses money on the donated food. The amount of 
the loss is reduced.
    * Incremental deduction is one-half of the foods' appreciated value 
(FMV less base cost) however base cost plus the incremental deduction 
cannot exceed twice base cost.

PROBLEMS WITH THE CURRENT LAW EXIST
    While the food donation provisions of the 1976 act were well 
intended and designed to encourage companies to donate food, two 
problems exist today that actually discourage food service companies 
from doing so.
    First, the IRS challenges, as an industry coordinated issue, any 
appreciated value placed on the donated food. The uncertainty of the 
value of their deduction prevents many companies from investing in and 
incurring the costs of food donation programs. In fact, under current 
IRS interpretation, it actually makes more financial sense for a 
company to throw away excess food rather than donate it.
    Second, this deduction is only available to regular `c' 
corporations. Many restaurant companies are set up as limited liability 
or sub-chapter s corporations or sole proprietors and are not eligible 
for the deduction.

THE DONATED FOOD PROVISIONS IN HR 7 ADDRESS THESE PROBLEMS
    These provisions restore some common sense to our tax code by 
addressing these two issues.
    First, the provisions clarify the determination of fair market 
value when internal company policies relating to the treatment of food 
are also involved, ensuring that restaurants that donate food to non-
profit hunger relief agencies will be allowed to take the full 
deduction available to them under current law. Free of the risk of 
having to defend themselves against an IRS challenge, more businesses 
will be encouraged to donate food.
    Second, the provisions extend the deduction to all business 
entities, providing the incentive to thousands of restaurants that are 
not organized as ``c'' corporations.

FOOD DONATION PROGRAMS MEET LOCAL COMMUNITY NEEDS
    Despite strong economic growth, hunger remains a problem in every 
state. Hunger exists in rural areas as well as in urban areas. A major 
strength of food donation programs is that restaurants operate in every 
part of the country. The result is a largely untapped source of excess 
food in each of our communities.
    A strong network of non-profit agencies that serve those who are 
hungry exists across the country. America's Second Harvest affiliate 
food banks, independent food rescue programs and other national 
organizations provide food to these agencies. However, increased demand 
at these agencies has resulted in the need for additional food. At the 
same time, food-manufacturing companies, a traditional source of excess 
food, have become more efficient in their operations. In addition, a 
secondary market for excess manufactured goods, i.e. Big Lots, Odd 
Lots, Internet surplus food sales etc., has developed. This has reduced 
the food available at a time when need is increasing. These agencies 
have a need for food now. The donated food provisions in HR 7 would 
increase the supply of available wholesome food by encouraging 
additional restaurants to donate their excess food.
    Mr. Chairmen, I appreciate the opportunity to testify here today. I 
encourage you and your committees to do everything in your power to 
enact these donated food provisions this year.
Testimonials
    We know that food donation programs work. The unsolicited 
testimonials on the next four pages give an insight into the heart of 
Pizza Hut's Harvest program.

[GRAPHIC] [TIFF OMITTED] T4524H.001

[GRAPHIC] [TIFF OMITTED] T4524I.001

[GRAPHIC] [TIFF OMITTED] T4524J.001

                                

    Mr. McNulty. Thank you, Mr. Reighard.
    Actually, Dr. Melendez is next on the list, Mr. Boshara. If 
you will just be patient, we will get to you. Dr. Melendez.

    STATEMENT OF SARA MELENDEZ, PH.D., PRESIDENT AND CHIEF 
             EXECUTIVE OFFICER, INDEPENDENT SECTOR

    Dr. Melendez. Good morning. I am Sara Melendez, president 
and CEO of Independent Sector, a coalition of more than 700 
national nonprofit organizations that collectively represent 
tens of thousands of community-based nonprofit service 
providers, as well as foundations and companies that share a 
strong commitment to community involvement, volunteering, and 
philanthropy.
    Our network represents the vast diversity of the nonprofit 
sector and the field of philanthropy. And together, we 
represent millions of volunteers, donors, and people served in 
communities throughout the nation and, indeed, throughout the 
world.
    I am delighted to testify today in support of the 
charitable incentives package, Title I of the Community 
Solutions Act. Independent Sector commends President Bush and 
the sponsors of this bill for their efforts to encourage 
charitable giving by all Americans.
    America's charitable nonprofits, both secular and faith-
based organizations, are vital to our democracy and our quality 
of life. They depend on a strong base of charitable giving to 
sustain programs and services that benefit all citizens, 
particularly our most vulnerable individuals and families.
    Americans have a long tradition of giving and volunteering 
that stands as a model and inspiration for nations around the 
world. But we all know that more must be done if our charitable 
nonprofits are to meet the challenges facing our communities.
    Every year at tax time, those taxpayers who itemize their 
deductions receive a powerful, tangible message that their 
charitable gifts don't just benefit the causes and services 
they choose to support; those gifts also provide them with a 
clear tax benefit.
    But today that message goes out only to the 30 percent of 
taxpayers who itemize their deductions. The other 84 million 
hardworking, primarily low and middle income Americans, who 
claim the standard deduction, do not receive any recognition or 
encouragement through the Tax Code for their charitable giving.
    Intended or not, the message to those taxpayers is that 
their charitable contributions are not worth counting.
    Research has shown conclusively that while people do not 
choose to give simply because of tax policy, tax policy does 
affect their decisions about how much to give, how to give, and 
when to give. At every income level, taxpayers who itemize 
their deductions at tax time are more likely to make charitable 
contributions, and to make significantly larger contributions 
than those who do not itemize deductions.
    Enacting the President's proposal to extend the charitable 
contribution deduction to all taxpayers, not just those who 
itemize, will clearly result in a substantial increase in the 
amount that Americans give to charity. Perhaps even more 
importantly, it will encourage millions of Americans to begin 
making charitable contributions. And once they discover how 
good it feels to give back to the community, they are far more 
likely to get involved and make it a lifelong habit.
    You have heard about the study conducted by 
PricewaterhouseCoopers for Independent Sector that showed that 
if President Bush's proposal to extend the charitable 
contribution deduction to nonitemizing taxpayers were enacted, 
it would increase charitable giving by as much as $14.6 billion 
annually.
    Just think of the new services and programs these dollars 
could produce: more quality childcare programs, more health and 
wellness programs for our elderly citizens, more research and 
services to prevent and cure disease, more arts and culture 
programs to nourish and sustain our spirit, more opportunities 
for people to celebrate and express their religious faith. The 
list is endless.
    The nonitemizer deduction will provide a substantial return 
on investment by fueling the engine of charitable giving so 
vital to sustaining and improving services provided by 
charitable organizations to our communities. The new community 
wealth that will be generated goes far beyond the direct 
contributions that nonitemizer deductions would foster.
    Title I of the Community Solutions Act also includes 
another important incentive to increase charitable giving, and 
that is allowing individuals to make contributions directly to 
charity from their IRAs without incurring additional tax 
liabilities.
    Due to the strong economy and the stock market increases 
over the last several decades, many individuals have more than 
sufficient funds to retire comfortably, and they would like to 
be able to contribute some of those funds to the causes and 
charitable programs they care about while they are still 
living.
    Unfortunately, under current law, they must include those 
contributions in their taxable income, and the amount they 
contribute could be affected by other restrictions, such as the 
adjusted gross income (AGI) percentage limitations on 
contributions. So as a result, very few individuals now donate 
IRA funds to charity during their lifetimes.
    Section 102 of Title I would remove those barriers to 
giving and enable many middle-income Americans to have 
accumulated funds in their IRAs contributed to charity while 
they are alive.
    Congress has just passed its first major tax bill, and, 
unfortunately, the President's proposal to encourage increased 
charitable giving was not included. We strongly urge you to 
correct that now.
    Enacting the charitable deduction for taxpayers who do not 
itemize their deductions is the only real way for Congress to 
send the message that charitable giving is an important value 
for all Americans. This is one tax investment that will yield 
tremendous benefits for everyone.
    Thank you.
    [The prepared statement of Dr. Melendez follows:]

   Statement of Sara Melendez, Ph.D., President and Chief Executive 
                      Officer, Independent Sector

    Mr. Chairmen and Members of the Committee:
    Thank you for the opportunity to testify on the Charitable Giving 
Incentives Package presented in Title I of H.R. 7, the Community 
Solutions Act, sponsored by Representative J.C. Watts, Representative 
Tony Hall, and the Speaker of the House, Representative Dennis Hastert.
    I am Sara Melendez, President and CEO of Independent Sector, a 
coalition of more than 700 national organizations and companies 
representing the vast diversity of the nonprofit sector and the field 
of philanthropy. Our members include many of the nation's most 
prominent nonprofit organizations, leading foundations, and Fortune 500 
corporations with strong commitments to community involvement, as well 
as a vast array of networks of community and faith-based organizations 
working to improve the quality of life throughout the nation. Our 
network represents millions of volunteers, donors, and people served in 
communities around the world. Independent Sector members work globally 
and locally in human services, education, religion, the arts, research, 
youth development, health care, advocacy, democracy, and many other 
areas. No other organization represents such a broad range of 
charitable organizations and activities.
    Independent Sector strongly commends President Bush, Speaker 
Hastert, Representative Watts, and Representative Hall for their 
efforts to encourage charitable giving by all Americans. America's 
charitable nonprofits, both secular and faith-based organizations, are 
vital to our democracy and our quality of life. We depend on a strong 
base of charitable giving to sustain programs and services that benefit 
all citizens, particularly our most vulnerable individuals and 
families. There are two provisions outlined in Title I of H.R. 7 that 
would have a tremendous impact on the ability of America's charitable 
nonprofits to raise private funds to support the vital services they 
provide to communities throughout our country--the first would extend 
the tax deduction for charitable contributions to all taxpayers, not 
just the 30% who itemize deductions on their annual returns, and the 
second would waive the income inclusion for charitable contributions 
from individual retirement accounts, thus providing incentives for more 
individuals to make contributions while they are living rather than 
solely through bequests.
    Our tax code has been and remains the most powerful tool available 
to send the message that we as Americans highly value and strongly 
support charitable giving. But today, that message goes out only to the 
30% of taxpayers who itemize their deductions. The tens of millions of 
hard-working, primarily low- and middle-income Americans who claim the 
standard deduction do not receive any recognition or encouragement 
through the tax code for their charitable giving. Intended or not, the 
message those taxpayers receive is that their charitable contributions 
are not worth counting.
    Tax policy should strongly encourage giving by all Americans--not 
just those taxpayers who itemize deductions. President Bush's proposal 
to extend the charitable contributions deduction to all taxpayers would 
provide that strong incentive and encouragement. This proposal has been 
set forth in Title I, Section 101, of H.R. 7, and has also been 
included separately in bills introduced by Representative Phil Crane 
(H.R. 777) and Representative Jennifer Dunn (H.R. 824). Enacting the 
charitable deduction for taxpayers who do not itemize their deductions 
is the only real way for Congress to send the message that charitable 
giving is an important value for all Americans.
    Every year at tax time, taxpayers who itemize their deductions 
receive a tangible reminder that their charitable giving provides a 
clear tax benefit and if they continue to give--or better yet, increase 
the amount they contribute--they will continue to receive that tax 
benefit. Our most recent analysis of giving patterns using data drawn 
from the IRS Statistics of Income Bulletin for Spring 2000 and 
Independent Sector's biennial survey of Giving and Volunteering shows 
clearly that at every income level, taxpayers who itemize their 
deductions contribute significantly more to charity than those who do 
not itemize deductions.
    Beyond its powerful symbolic importance, the non-itemizer deduction 
would provide a strong stimulus for increased giving and new givers. A 
recent report by the National Economic Consulting Division of 
PricewaterhouseCoopers concluded that had the non-itemizer deduction as 
proposed by President Bush been in effect in 2000, total charitable 
giving would have increased by $14.6 billion--an increase of 11.2%. 
Perhaps even more important, PricewaterhouseCoopers concluded that the 
non-itemizer deduction would have stimulated charitable gifts by 11 
million Americans who would otherwise have given nothing. The long-term 
importance of encouraging these millions of Americans to develop the 
habit of giving will be invaluable to the ability of charitable 
nonprofits to carry out the programs and services so imperative to the 
continued health and vitality of communities throughout America.
    There is further clear and compelling evidence that providing a 
non-itemizer deduction would dramatically increase charitable 
contributions. In 1981, Congress enacted the non-itemizer deduction on 
a 5-year trial basis from 1982 to 1986. The deduction was phased in 
gradually and was in full effect only in 1986. Significantly, between 
1985, when non-itemizers were allowed to deduct only 50% of their 
contributions, and 1986, when non-itemizer gifts were fully deductible, 
total giving by non-itemizers increased by 40%, according to IRS data. 
Sadly, that legislation was permitted to sunset in 1986, and there was, 
in fact, a significant drop in giving as reported in Giving USA the 
following year.
    The increased charitable contributions that will result from the 
non-itemizer deduction will provide much needed funding to thousands of 
community-based and religious organizations that are addressing 
America's most urgent social concerns. Well over half of the 
contributions made by non-itemizers go to religious and human service 
organizations. A tax deduction for charitable contributions will 
provide additional funds to those non-itemizers who already give to 
increase their donations, and it will provide the needed incentive to 
new givers to make contributions to the agencies that serve their 
community.
    We have received substantial documentation from our member 
organizations that the vast majority of their contributors are low- and 
middle-income taxpayers whose modest contributions of $10, $50 and $100 
provide core support for the services they provide. If the non-itemizer 
deduction were enacted, many of these agencies could realize an 11% 
increase in charitable contributions and they would put those dollars 
to work in expanded and improved services. The American Heart 
Association has estimated that this provision would enable them to fund 
an additional $13.95 million in research projects that would lead to 
stronger prevention, treatment, and cure for heart disease and strokes.
    In just one community served by The American Cancer Society, 
Austin, Texas, these additional dollars would mean 44 more cancer 
patients who do not have family or friends available to help would 
receive transportation to and from cancer-related treatments, more 
children who have or have had cancer would be able to enjoy horseback 
riding and swimming at Camp Discovery, and 29 more women diagnosed with 
breast cancer would be able to participate in the Reach to Recovery 
program. Multiply that by the thousands of communities where the 
American Cancer Society works to prevent cancer, save lives, and 
diminish suffering from cancer through research, education, advocacy 
and service.
    Then multiply those results by the thousands of community and 
faith-based organizations across the country who are working hard to 
help young people find productive after-school activities that enrich 
their lives and enable them to gain critical life and job skills, to 
help older Americans participate in health and wellness programs, or to 
provide quality child care for working parents. It is clear that 
extending the tax deduction for charitable contributions to the 70% of 
American taxpayers who do not currently itemize deductions--84 million 
Americans--would produce significant benefits to our communities far 
beyond the direct benefits to taxpayers themselves.
    The second provision in Title I of H.R. 7, while impacting a 
smaller number of taxpayers directly, would remove a significant tax 
barrier that discourages people from giving back to the community from 
their accumulated retirement earnings in Individual Retirement Accounts 
(IRAs). Due to the strong economy and the stock market boom over the 
last several decades, many individuals have more than sufficient funds 
to retire comfortably, and they would often like to make contributions 
to their favorite charitable nonprofit organization while they are 
still living rather than through their estate. Under current law, those 
individuals must include any withdrawals from their IRA in their 
taxable income which may then be offset in part by a charitable 
deduction. In addition, the size of the deductible portion of their 
charitable gift would be limited by such restrictions as the percentage 
of Adjusted Gross Income (AGI) limitation on charitable deductions and 
the 3% floor on all itemized deductions. As a result, very few 
individuals donate IRA funds to charity during their lifetimes.
    Section 102 of Title I in the Community Solutions Act (H.R. 7) 
would remove the tax barriers to such donations by allowing a donor who 
had reached age 59\1/2\ to exclude any IRA funds withdrawn and 
transferred to a charity from his or her income when filing a tax 
return for that year. The donor would be eligible to claim a charitable 
deduction only to the extent that the IRA was funded with after-tax 
dollars. This proposal is widely supported in the nonprofit sector, and 
would, if enacted, unlock substantial new resources for the support of 
charitable organizations and their public-service missions. Although 
charitable organizations frequently receive inquiries from potential 
donors about giving regular IRA funds during their lifetimes, when 
donors realize that they may have to pay a significant amount of tax to 
make the contribution, these types of gifts rarely get made.
    These two provisions in Title I of H.R. 7 are good public policy. 
They would unlock substantial new resources for the support of 
charitable organizations and their public-service missions. Research 
conducted by Independent Sector and others has shown conclusively that 
while the decision whether to give is not fundamentally affected by tax 
policy, the decision about how much to give, how to give, and when to 
give, is.
    The work of our secular and faith-based charitable nonprofits is 
integral to strengthening communities throughout our country and 
addressing the pressing issues and concerns they face today. The non-
itemizer charitable deduction will provide significant help in 
recognizing and encouraging charitable giving by all Americans to 
support these important efforts. Moreover, it will provide the needed 
incentive to spur more Americans to get involved in community-based 
organizations and begin a life-long habit of making charitable 
contributions.
    Similarly the provision to allow tax-free distributions from 
individual retirement accounts for charitable purposes would enable the 
many middle-income Americans who have accumulated funds in their IRAs 
that now exceed their needs and expectations to contribute some of 
those funds to charity without incurring detrimental tax consequences.
    Congress has just passed its major tax bill without including this 
major component of President Bush's initiative. The non-itemizer 
deduction would bring significant new resources to the thousands of 
community and faith-based organizations throughout the country that are 
on the front lines of serving our most vulnerable people. We have heard 
how other tax breaks will bring a strong return on our tax investment 
through economic growth. The non-itemizer deduction will result in an 
equally important--or perhaps even more important--return on investment 
by creating a new stream of community wealth that will help to feed the 
hungry, provide job training and skills for those entering the work 
force, care for our children and those who are suffering from illness, 
and nourish the health and spirits of all our citizens. The return on 
our investment will be much greater than the direct contributions this 
proposal will foster or the additional tax relief it will provide for 
the primarily low- and middle-income taxpayers who do not itemize 
deductions.
    Independent Sector will continue to work for the President's 
initiative to increase charitable giving and we expect to see passage 
of the non-itemizer contribution in this session of Congress. We 
therefore strongly urge your support for Title I of H.R. 7. I would be 
pleased to answer any questions that you may have.

                           Independent Sector
   A Charitable Tax Deduction for Nonitemizers Should Be Enacted by 
                                Congress

    Since Congress permitted the charitable tax deduction for 
nonitemizers to sunset in 1986, seven of ten taxpayers, the 
nonitemizers, can no longer deduct their charitable contributions and 
the resulting loss in charitable giving has been substantial. This 
becomes obvious when a comparison is made of the amount contributed by 
itemizers and nonitemizers who are in the same income groups.

----------------------------------------------------------------------------------------------------------------
                                                               Amount       Amount     % of Income   % of Income
                                                            Contributed   Contributed  Contributed   Contributed
                       Income Group                              by           by            by           by
                                                             Itemizers   Nonitemizers   Itemizers   Nonitemizers
----------------------------------------------------------------------------------------------------------------
$1 

    Chairman McCrery. Thank you, Dr. Melendez. Diana Aviv?
    I am sorry. Mr. Boshara was next. Mr. Boshara, please 
proceed.

  STATEMENT OF RAY BOSHARA, POLICY DIRECTOR, CORPORATION FOR 
                     ENTERPRISE DEVELOPMENT

    Mr. Boshara. Mr. Chairman, members of the Subcommittees, 
thank you very much for the opportunity to be here today.
    I also want to express my gratitude to Congressman Watts 
and to Congressman Tony Hall.
    Tony Hall is my former boss, and I commend Tony for 
bringing individual development accounts (IDAs) to the 
attention of Congress 10 years ago when he was the chairman of 
the House Select Committee on Hunger.
    I also want to thank the many members of the Ways and Means 
Committee who have supported IDAs and asset building. Thirty-
five House members joined Congressmen Pitts and Stenholm 
yesterday in introducing H.R. 2160, the Savings for Working 
Families Act of 2001, which is Title III of H.R. 7.
    I also want to thank Speaker Hastert for his support of 
IDAs and finally, President Bush for including an IDA tax 
credit in his budget this year.
    I would like to start with just a couple of stories. Monica 
Grant of Shreveport, Louisiana, was homeless and on drugs. Mary 
Hasino of Yreka, California, described her life as a financial 
mess. Debra Howell of Albany, New York, was living paycheck to 
paycheck and had no provision for her future. And Mike and Dawn 
Ferrill of Tulsa, Oklahoma, couldn't even afford to buy shoes 
for their kids.
    All of these people were working hard and getting by, but 
they were never getting ahead. They owed, but they never owned. 
They were spectators to a spectacular economy, but they were 
never players in that economy.
    Thanks to individual development accounts, or IDAs, they 
are now homeowners, small-businessowners, pursuing 
postsecondary education, saving for their retirement, and 
opening savings accounts for their kids. They are five of 
10,000 people across the United States who are saving in an 
IDA.
    And IDA is a matched savings account restricted to first 
home purchase, post-secondary education, and small-business 
development. If you will, it is a thrift savings plan or 401(k) 
for low-income people.
    IDAs include financial education, and are administered by a 
wide range of nonprofit organizations in partnership with 
financial institutions.
    When we talk about IDAs, we are really talking about 
assets. Not what you earn, but what you own, your piece of the 
American dream.
    Assets matter. That is the bottom-line here. Assets make 
financial stability possible. They make investments in your 
future feasible. And they make hope real. I ask all of you to 
imagine your life, what it would be like if you didn't have 
assets.
    Hundreds of researchers and statistics all tell the same 
three stories: low-income people have few, if any, assets; the 
wealth gap dwarfs the income gap; and the asset poverty rate 
exceeds the income poverty rate in the U.S.
    Unfortunately, government policy has been part of the 
problem here. Basically, there have been two policies. There 
has been an asset development policy: $300 billion a year in 
tax benefits are provided to help folks like us get homes, 
retirement accounts, savings accounts, education and business. 
And that is good policy; it is the foundation of the middle 
class.
    However, if you are poor, you have an asset denial policy. 
There are actually three strikes against you. You cannot take 
advantage of the income-tax breaks, you face asset limits in 
public assistance programs and you are more likely to be among 
the 10 to 20 percent of Americans who are unbanked.
    The real question is this: It is not who is willing to work 
and save. It is whose labor leads to assets and whose labor 
leads to getting by but never getting ahead. That is the 
question.
    And this is where the Savings for Working Families Act of 
2001 comes in. Through a limited tax credit to financial 
institutions, we can move IDAs from pockets of success to more 
universal access.
    The Savings for Working Families Act addresses the main 
problem with IDAs: there aren't enough of them. But it does 
three things in addition to that.
    First, it is the next step for welfare reform and community 
renewal. We have succeeded in moving families from welfare to 
work. The challenge now is to get them some savings and assets 
so that they stay out of poverty. It also completes the 
community renewal process that Congress started last year.
    Second, it expands the asset-building system that is 
already in place. IDAs are not a new poverty program. They are 
an expansion of the existing asset-building program for people 
who are willing to work and save.
    And third, IDAs lead to greater retirement savings. IDAs 
help people prepare for retirement in the same way that you and 
I are--buying a home, going to college, investing in a small 
business. And we have learned that when low-income people have 
an IDA, they then buy life insurance, they then open up IRAs, 
they then start savings accounts for their kids.
    To conclude, we were told, when we started talking about 
this idea 10 years ago, that poor people can't save. Well, we 
have shown through the 2,400 people in our privately funded 
demonstration that they can save, and that IDAs work.
    I believe that we will always need a stronger safety net, 
and I hope that it gets strong. But the people who move forward 
in this economy are the ones who are connected to it, and that 
connection can come through IDAs.
    Thank you.
    [The prepared statement of Mr. Boshara follows:]

 Statement of Ray Boshara, Policy Director, Corporation for Enterprise 
                              Development

    Mr. Chairmen, Members of the Subcommittees:
    Thank you very much for inviting me to appear before you today. I 
am honored to be here.
    The Corporation for Enterprise Development (CFED) is a non-profit, 
non-partisan firm committed to widely shared and sustainable economic 
growth, in particular for low-income families and communities. In our 
20 years of existence, CFED has pioneered many innovative and promising 
strategies, including the creation and expansion of the microenterprise 
and asset development fields. Through our work, we have enabled 
families nationwide to participate in the mainstream economy, and to 
realize their dreams of obtaining good jobs, opening small businesses, 
going to college, owning a home, and bequeathing a better future for 
their children. Further information on CFED can be found at our website 
at www.cfed.org.
    I am here today to testify in support of Title III of the Community 
Solutions Act. Title III is the Savings for Working Families Act of 
2001, which proposes a national expansion of Individual Development 
Accounts, or IDAs, through a tax credit to financial institutions that 
set-up, match and support IDAs. CFED greatly appreciates your 
consideration of this important legislation.
    I'm pleased that the bi-partisan Savings for Working Families Act 
of 2001 is included in the Community Solutions Act, and to report that, 
yesterday, Congressmen Joseph Pitts and Charles Stenholm and Senators 
Joseph Lieberman and Rick Santorum introduced the Savings for Working 
Families Act of 2001 as a stand-alone bill. I would also like to 
recognize and commend my former boss, Congressman Tony Hall, for first 
bringing the concept of IDAs to Congress back in 1991 as the Chairman 
of the House Select Committee on Hunger. Finally, I thank Congressman 
J.C. Watts, as well as many members of the Ways and Means Committee, 
for their long-standing support of asset building for the poor and 
IDAs.
    As many of you may know, IDAs are emerging as one of the most 
promising tools to enable low-income American families save, build 
assets and enter the financial mainstream. IDAs reward the monthly 
savings of working-poor families who are trying to buy their first 
home, pay for post-secondary education, or start a small business. This 
reward or incentive is provided through the use of matching funds that 
typically come from a variety of private and public sources. Similar to 
401(k)s, IDAs make it easier for low-income families to build the 
financial assets that they need to achieve the American Dream. To 
further help them move into the economic mainstream, accountholders 
receive financial education and counseling. Further information on IDAs 
can be found at www.idanetwork.org.
    In this testimony, I shall address three questions:
    1. What do we know about assets?
    2. What do we know about IDAs?
    3. Why should Congress support the Savings for Working Families Act 
of 2001?
  I. What do we know about assets?
    We know four things about assets--assets matter; low- and moderate-
income people have relatively few assets; public policy plays an 
important role in determining who gets assets and who doesn't; and 
asset subsidies are delivered through the tax code via individual asset 
accounts, which works well for better-off families but not so well to 
lower-income families.
    1. Assets matter. Assets not only provide an economic cushion and 
enable people to make investments in their futures; assets also provide 
a psychological orientation--toward the future, about one's children, 
about having a stake in America--which income alone cannot provide. 
Michael Sherraden--author of Assets and the Poor--observes that, ``Few 
people have ever spent their way out of poverty. Those who escape do so 
through saving and investing for long-term goals.'' Melvin Oliver and 
Thomas Shapiro, authors of Black Wealth/White Wealth, state that 
``Wealth is a particularly important indicator of individual and family 
access to life chances. . . . It is used to create opportunities, 
secure a desired stature and standard of living, or pass class status 
along to one's children.'' And this is not just theory: Edward Scanlon 
and Deborah Page-Adams find that there is increasing evidence that 
assets do in fact have a range of important positive effects on 
children, families, and neighborhoods.
    2. Assets are distributed more unevenly than income in the U.S. 
Researchers Robert Haveman and Edward Wolff constructed, for the first 
time, a measure of ``asset poverty'' and conclude that asset poverty 
(using a range of definitions) greatly exceeds income poverty. Even 
using their most ``liberal'' definition of asset poverty--net worth 
needed to get by for three months at the poverty level--the asset 
poverty rate of 25.5 percent is twice that of the income poverty rate 
of 12.7 percent. Stacie Carney and Bill Gale, in a thorough review of 
previous research on saving and wealth accumulation among the poor, 
conclude: ``Although researchers are uncertain as to why low-income and 
disadvantaged households accumulate low levels of assets and what can 
be done about it, the basic fact of low accumulation cannot be disputed 
. . . The available data present a unified picture: low-income 
households accumulate almost nothing.'' Finally, low levels of assets 
are a particular problem for African-Americans, Latinos, and children. 
For example, forty percent of all white children, and 73 percent of all 
African-American children, grow up in households with zero or negative 
net financial assets. Their prospects for achieving the good life are, 
in my view, quite slim.
    3. Public policy encourages asset accumulation for some and 
discourages it for others. In my view, public policy can structure 
opportunity, or lack thereof. This is true both historically and 
currently. In fact, using the assets framework, one can discern two 
distinct social policies in America, and these two policies (combined 
with lack of institutional arrangements to support asset building among 
lower-income persons) account for most of the gap in wealth between 
lower- and higher-income households:
    Asset development. For the non-poor, we have an asset development 
policy. From the Homestead Act and GI Bill of previous years, to $288 
billion in annual tax subsidies for individuals to accumulate assets 
today (especially homes, retirement accounts, small businesses, and 
higher education) this country has widely--and wisely--supported asset 
accumulation by households. But these benefits are highly regressive: 
for example, according to the Joint Committee on Taxation, households 
with incomes over $50,000 received 91 percent of homeownership tax 
expenditures and 93 percent of retirement tax expenditures in FY1998.
    Asset denial. Low-income and poor families face three barriers in 
trying to accumulate assets. One, lacking an income tax liability, they 
cannot take advantage of tax-based opportunities such as mortgage and 
pension deductions. Two, low-income families seeking public assistance 
must--as a matter of law--spend down their assets to receive such 
assistance, and face severe asset limits once on assistance. And three, 
low-income persons are much more likely than others to be among the 10 
to 20 percent of ``unbanked'' households, thus preventing them from 
accessing the mainstream financial services that make asset 
accumulation possible.
    4. Increasingly, domestic policies in the U.S. and worldwide use 
individual asset accounts to allocate asset subsidies and achieve 
social and economic policy goals. Michael Sherraden observes that 
social policy is moving away from large programs and towards individual 
assets accounts, most of them provided through the income tax system. 
Examples include IRAs, Roth IRAs, 401(k)s, 403(b)s, Super IRAs, Medical 
Savings Accounts, Individual Training Accounts, and proposals for 
Children's Savings Accounts. Increasingly, this is how government will 
deliver benefits to its citizens, since such accounts provide control 
and flexibility for families in a global economy. However, lacking an 
income tax liability, low-income families cannot access most of these 
benefits. IDAs let low-income families participate in this social 
policy transformation, allowing them to earn public and private matches 
(provided they have worked and saved first) and then enabling them to 
make the social policy choice--e.g., financing a home, a business, an 
education--that best suits them.
  II. What do we know about IDAs?
    To summarize, IDAs work. The Center for Social Development (CSD) at 
Washington University in St. Louis--the primary evaluators of IDAs--
reported in January that ``Data from the American Dream Demonstration 
suggests that the poor can save and accumulate assets in IDAs.''
    IDAs were first proposed in 1990 by Michael Sherraden, but the 
first IDA programs didn't come into being until 1995 in Illinois, 
Wisconsin, and Indiana. Since then, IDAs have expanded to nearly every 
state in the country (only North Dakota, Wyoming and Alaska have, to 
the best of our knowledge, no IDA activity). Most of the IDA programs 
are supported by private funding, although state and federal support is 
increasing.
    IDA practice, policy, and demonstrations can be summarized as 
follows:
    IDA Practice: About 10,000 low-income families are saving in IDAs 
today, all of them through the support of about 300 community-based 
organizations. IDAs reach a diverse range of disadvantaged people and 
are implemented by a broad range of non-profits, including churches, 
credit unions, housing agencies, welfare agencies, workforce 
development programs, United Ways, and community development 
corporations. Financial education is provided by these organizations, 
as well as by others.
    IDA Policy: At the federal level, IDAs have been included in 
existing economic development and safety programs (such as TANF and the 
Community Reinvestment Act), and two small federal IDA programs have 
been funded, both at the U.S. Department of Health and Human Services 
(one in the Office of Community Services, the other at the Office of 
Refuge Resettlement). IDAs have also been embraced by states: 32 have 
included IDAs in their TANF plans (although only about half of those 
actually use TANF funds for IDAs) and 31 states have passed IDA 
legislation. States are also using CSBG and CDBG funds, as well as tax 
credits, to expand IDAs.
    IDA Demonstration: The most significant source of hard data about 
IDAs is the Downpayments on the American Dream Policy Demonstration, or 
``ADD.'' ADD is a 14-site, privately-funded, 4-year demonstration 
organized by CFED and CSD. As of June 30, 2000, nearly 2,400 people 
were participating in ADD, saving for an average of about 13 months in 
the program. In ADD, 88 percent of the participants had incomes below 
200 percent of the federal poverty line.
    A full copy of the evaluation report published by CSD can be 
obtained at http://gwbweb.wustl.edu/Users/csd/, and a copy of the 
Executive Summary has been included as an appendix to my testimony. 
Some of the highlights from the report are as follows:
     Average monthly net deposits per participant were $25.42, 
and average monthly gross deposits were $41.43.
     On average, accountholders saved 2.2 percent of monthly 
income. Interestingly, the savings rate decreased as income increased: 
the lowest-income families saved 5.6 percent of their income, while 
those with the highest incomes saved 1.2 percent of their income.
     The average participant saved about two-thirds of what 
they could have saved and matched, and made a deposit in 7 of 12 
months.
     With an average match rate of 2:1, participants 
accumulated about $900 per year in IDAs. Matches attract people to IDAs 
and keep people in IDAs, but higher matches do not seem to lead to 
greater deposits.
     13 percent of participants had a matched withdrawal. About 
24 percent made a home purchase, 24 percent invested in 
microenterprise, and 21 percent pursued post-secondary education. The 
rest used their matched withdrawals for home repair, retirement, or job 
training.
     The average participant attended 10.5 hours of general 
financial education. Each hour up to 12 was linked with large monthly 
deposits, but hours after that had little effect.
    Good questions have been raised about how accountholders are 
saving--what are they giving up to save in an IDA?
    While we don't have conclusive evidence yet, we can say that thus 
far it's primarily through more efficient consumption that 
accountholders can save: they're eating out less, spending less money 
on alcohol and tobacco, shopping more carefully for food, and working 
harder. Also, it has been asked if savings in an IDA represent new 
savings--is this money that would have been saved anyway? Again, we 
don't have conclusive evidence yet, but anecdotal evidence is 
compelling that IDA savings are, in fact, new savings.
    When we started doing this work, everyone said ``The poor cannot 
save.'' Well, our data have shown that they can. We believe this 
reflects the ``institutional'' nature of IDAs--that people of any 
income will save if properly structured and supported. A good example 
here is the federal Thrift Savings Plan: one could wonder how much 
federal employees would save if it weren't set-up for them: the match, 
the information, the automatic payroll deductions, the education about 
the plan all make it easy and attractive to save in the TSP. It's the 
same for IDAs.
    Finally, let me remark that, to our surprise, the ``asset effects'' 
of IDAs (that is, the psychological, civic, and social effects of IDAs) 
appear to be both sooner and stronger than anticipated. While we will, 
of course, properly evaluate the accountholders in our demonstration 
(including comparing them to a control group), we have been struck by 
the stories of the accountholders themselves--how much they say IDAs 
have changed their lives, their childrens' lives, their attitudes about 
their future. Michael Sherraden has always said, ``Income may feed 
peoples' stomachs, but assets change their heads.'' Listening to our 
accountholders, this is turning out to be quite true.
  III. Why Should Congress Support the Savings for Working Families Act 
        of 2001?
    The Savings for Working Families Act (the ``Savings Act'') was 
first introduced in April 1999, then again in early 2000 and, as I 
mentioned at the beginning of my testimony, was introduced again 
yesterday as a stand-alone bill. The legislation was passed by the 
Senate in 1999 as part of the its $792 billion tax bill, but was 
dropped in conference (the bill was subsequently vetoed by President 
Clinton). The Savings Act came very close to being enacted in late 2000 
as part of the ``New Markets Initiative,'' but was dropped at the very 
last minute. I am pleased to report that President Bush has included an 
IDA tax credit in his budget (modeled on the Savings for Working 
Families Act), following a campaign event he did on IDAs in Dayton, 
Ohio last year.
    Here's how the Savings Act would work. Financial institutions (in 
partnership with community based organizations) would set-up and 
support the accounts for qualified individuals, and provide matching 
funds and financial education. At the end of the year (or quarter), a 
tax credit could be claimed by the financial institution for matching 
funds provided (up to $500 per accountholder per year), as well as a 
couple of smaller tax credits for maintaining and supporting the 
accounts. I have attached a detailed summary of the legislation in the 
appendix.
    Specifically:
     IDAs would be available to citizens or legal residents of 
the U.S. between the ages of 18 and 60, and whose federal AGI does not 
exceed $20,000 (single), $25,000 (head of household), or $40,000 
(married). Eligible individuals may use their IDA for the benefit of a 
spouse or dependent.
     All IDAs must be held at a qualified financial 
institution, which is any financial institution eligible to hold an 
IRA. Qualified financial institutions, qualified non-profits 
(501(c)(3)s, CDFIs, and credit unions), and Tribes are eligible to run 
a qualified IDA program.
     Savings from any source will be matched on a 1-1 basis, up 
to $500 per person per year. Individual contributions into an IDA are 
not limited. Accountholders do not have access to the matching funds--
they're in a separate parallel account that is paid directly to the 
asset provider when it's time to purchase an approved asset. Both 
private sector and non-federal public funds could also be contributed 
to the accounts and matched in accordance with ratios set by the 
providers.
     Financial institutions (or their contractual affiliates) 
would be reimbursed for all matching funds provided plus a limited 
amount of the program and administrative costs incurred (whether 
directly or through collaborations with other entities). The IDA tax 
credits are as follows:
           The aggregate amount of all dollar-for-dollar 
        matches provided (up to $500 per person per year), plus
           A one-time $100 per account credit for financial 
        education, recruiting, marketing, administration, withdrawals, 
        etc., plus
           An annual $30 per account credit for the 
        administrative cost of maintaining the account.
     The tax credits are available between the years 2002-2008 
for all accounts opened by the end of 2006.
     Individual deposits are after-tax dollars, interest earned 
on those deposits is taxable, but all matching funds and earnings 
thereon would be tax-free. Individual deposits, matching funds, and all 
accrued interest would be disregarded in determining eligibility for 
other means-tested federal programs.
    There are five reasons why, I think, Congress should support the 
Savings for Working Families Act of 2001:
    1. IDAs are the next step for welfare reform and community renewal. 
Assets are the one piece of the poverty puzzle that has never really 
been addressed before. Welfare reform has succeeded in moving people 
from welfare to work, but without savings and assets it will be hard, 
in my view, for these families to stabilize their lives and make good 
investments in their children and futures. IDAs also help complete the 
community renewal process which began last year.
    2. Asset building has a long tradition in the U.S., and reinforces 
basic American values of work, saving, and responsibility. We're not 
asking Congress do something for the working poor that's not already 
being done for the middle class. Keep in mind that not one federal 
dollar is spent until low-income people work and save, and some private 
sector dollars are leveraged. IDAs are not a government hand-out, nor 
are they a new poverty program, but rather a true public-private-
citizen partnership, one that expands our successful asset-building 
system to people willing to work and save.
    3. IDAs have strong, bi-partisan support and have been endorsed by 
a broad range of organizations. Both President Bush and former 
President Clinton support IDAs, as do a very wide range of Members of 
Congress. In addition, the Savings Act has been endorsed by the 
Financial Services Roundtable, United Way of America, Credit Union 
National Association, National Conference of State Legislatures, 
National Association of Home Builders, National Congress for Community 
Economic Development, National Council of La Raza, National Center for 
Neighborhood Enterprise, and many others.
    4. IDAs lead to stronger retirement savings and complement the 
recently-passed retirement savings credit. For many if not most low-
income families, retirement savings is important, but the larger issue 
is getting to retirement. While the vast majority of IDAs do not offer 
retirement as a use, IDAs nonetheless help low-income people prepare 
for their retirement the same way many of us in this room prepare for 
our retirement: by investing in a home, an education, or a small 
business. We have compelling anecdotal evidence that once people begin 
to save in an IDA, they then open up IRAs, buy life insurance, and 
think more seriously about their children's futures. CFED commends this 
Congress for including a retirement savings credit in the recently-
passed tax bill, but we believe that coupled with IDAs this savings 
credit will be better utilized.
    5. IDAs have been tested and shown to work, but they don't reach 
enough working poor families. Our Congressional sponsors have said, 
``Why are we limiting this great idea to demonstration projects?'' The 
main problem with IDAs, they say, is that there aren't enough of them. 
While nearly 19 million persons are potentially likely to open an IDA 
under the Savings Act, only 10,000 are presently using them. We will 
never overcome wealth and opportunity gaps through demonstration 
projects, and private sector funding needs to be leveraged by public 
sector funds in order for it to expand. Keep in mind, too, that the 
credit would be authorized for only five years: at that point, we hope 
we have made the case that IDAs work, and that this credit is worthy of 
expansion.
  Conclusion
    Without assets, poor families are likely to remain poor. And 
without asset development policies, only very few poor families will 
have the opportunity, incentive, and institutional supports necessary 
to save for and acquire productive assets.
    Ever since the New Deal, America's public and private sectors have 
spent billions on the poor in the form of income support, safety nets, 
rental assistance and transitional aid, but these sectors have rarely 
invested adequately in the poor, empowered them with assets, enabled 
them to own a piece of their neighborhoods, or encouraged them to build 
wealth. Thus, while the U.S. has succeeded in preventing the vast 
majority of poor families from falling through the bottom, it has 
failed in offering the asset-building tools necessary to let those 
families move from the bottom to the middle or top.
    IDAs represent a new vision for America's working-poor families: 
enable them to build assets, not just income; empower them to own, not 
just owe; view them as savers, producers, and entrepreneurs, not just 
recipients, borrowers, and trainees. In other words, through 
opportunities to save and acquire assets, invite low-income working 
Americans to be participants in the American economy, rather than 
recipients of its excesses.
    In closing, it is important to observe that the entire process of 
family development, community building, and neighborhood revitalization 
begins with low-income people themselves--it is their investments in 
themselves that trigger all the other investments. Nothing happens if 
nothing is saved; America will realize no returns on its investment in 
IDAs if poor people will not or cannot first invest in themselves.
    With your favorable consideration of Title III of the Community 
Solutions Act, IDAs can move from reaching a few thousand hard-working 
families to millions. Mr. Chairmen, members of the subcommittees, thank 
you for your time. I am pleased to answer any questions you may have.
   Savings and Asset Accumulation in Individual Development Accounts
        Downpayments on the American Dream Policy Demonstration
      A National Demonstration of Individual Development Accounts
  [Mark Schreiner, Michael Sherraden, Margaret Clancy, Lissa Johnson, 
     Jami Curley, Michal Grinstein-Weiss, Min Zhan, Sondra Beverly
  Center for Social Development, George Warren Brown School of Social 
   Work, Washington University in St. Louis, http://gwbweb.wustl.edu/
                       users/csd/ (314) 935-7433

                           Executive Summary

    Long-term improvement in well-being requires asset accumulation. 
While saving is not easy for anyone, it is more difficult for the poor 
because they have few resources relative to subsistence requirements, 
because they lack access to some public-policy mechanisms that 
subsidize saving, and because scarce resources and restricted access 
may push saving out of their world view.
    Individual Development Accounts (IDAs) are a new policy proposal 
designed to address these constraints and to improve access to savings 
institutions for the poor. Withdrawals of deposits by the poor in IDAs 
are matched if used for home ownership, post-secondary education, or 
microenterprise. Participants also receive financial education and 
support from IDA staff.
    Do IDAs work? Data from the American Dream Demonstration (ADD) 
suggests that the poor can save and accumulate assets in IDAs:
     Average monthly net deposits per participant were $25.42.
     The average participant saved 67 percent of the monthly 
savings target.
     The average participant made a deposit in 7 of 12 months.
     With an average match rate of 2:1, participants 
accumulated about $900 per year in IDAs.
The American Dream Demonstration
    ADD is a demonstration of IDAs in 14 programs across the United 
States. It is scheduled to run for four years (1997-2001), with two 
more years of evaluation through 2003.
    The Corporation for Enterprise Development (CFED) in Washington, 
D.C., designed ADD and guides it. The Center for Social Development 
(CSD) at Washington University in St. Louis designed the evaluation.
    The evaluation of ADD is the first major study of IDAs. The Startup 
Evaluation Report (Sherraden et al., 1999), monitored the start-up 
period through June 30, 1998. Saving Patterns in IDA Programs 
(Sherraden et al., 2000) covered programs, participants, and saving 
patterns through June 30, 1999. This report discusses savings and asset 
accumulation through June 30, 2000. A final monitoring report will 
cover ADD through December 31, 2001.
    Data come from the Management Information System for Individual 
Development Accounts (MIS IDA), a software package created and 
supported by CSD. MIS IDA offers tools for program management and 
evaluation (Johnson, Hinterlong, and Sherraden, 2000). Data in MIS IDA 
were collected by program staff and may be the best ever assembled on 
high-frequency saving by the poor. In particular, records of cash flows 
in IDAs come from bank statements and are very accurate. The report 
notes carefully possible effects of weaknesses in the data.
A Theory of ``Asset Effects''
    IDAs aim to do more than just transfer resources to the poor. Of 
course, resources are good to have, if only because they can be 
converted into consumption. IDAs, however, expect that its transfers 
will be saved rather than consumed. But standard welfare transfers can 
also be saved. How are IDAs different? This report develops Sherraden's 
(1991) proposed answer in terms of institutional theory. IDAs are 
packaged in an institutional structure that explicitly asks and expects 
participants to save their transfers in forms (such as homes, human 
capital, or business assets) unlikely to be quickly consumed. In 
contrast, standard welfare is designed to support consumption.
    The institutional package matters because people are not the 
rational, omniscient beings assumed in economic theory. People are 
subject to suggestion, and they respond to patterns of choices worn 
smooth by public policy because that takes less effort than to imagine 
choices and then to weigh possible chances of consequences. 
Institutional theory suggests that the structure of IDAs encourages the 
poor to see saving as an option with positive consequences:
     The existence of IDAs forges a social pattern as it sends 
the message that the poor can save.
     Matches increase the return on savings, increase asset 
accumulation from given savings, and attract people to the program.
     IDAs are linked to financial education that provides 
knowledge of how to save.
     The match cap becomes a goal in the minds of participants.
     Monthly statements give feedback and show progress toward 
goals. Furthermore, program staff and peers provide informal 
encouragement. The focus on success makes saving easier.
     IDA programs ask for monthly deposits. This encourages 
saving to become a habit.
     IDAs give poor people access to a way to commit to save.
     Through budgets, goals, and plans, IDAs focus on the 
future and increase future orientation.
     IDAs point out goals (such as home ownership or post-
secondary education) that people might not see (or see as worthwhile) 
on their own.
     Informal discouragement of unmatched withdrawals helps to 
curb dissaving.
    Sherraden (1991) introduced the concept of asset effects, defined 
as the impacts of ownership. Humans are forward-looking, and current 
well-being depends in part on expected future well-being. People with 
more assets in the present expect to have more resources in the future. 
Thus--for purely economic reasons--they expect to be happier. ``Asset 
effects'' occur when ownership improves expected future well-being and 
thus, for psychological reasons, improves current well-being. Not only 
do owners think differently, but others also treat them differently. 
The social and political effects of ownership may matter even more than 
the individual effects.
Participation in ADD
    Enrollment. A participant is defined as someone who enrolled in ADD 
and who had an account statement in MIS IDA. As of June 30, 2000, ADD 
had 2,378 participants in 14 IDA programs.
    Graduation. About 13 percent of participants had taken a matched 
withdrawal. A fourth of these ``graduated'' and left the program, and 
three-fourths are still active.
    Exit. About 16 percent of participants had exited without a matched 
withdrawal. The cumulative risk of exit in the first 12 months was 11 
percent, and it was 16 percent for the first 24 months. As of June 30, 
2000, 81 percent of participants were active. These and other outcomes 
will change with time.

Savings Outcomes in ADD
    Gross deposits. The average participant had participated for 13.3 
months and had gross deposits of $41.43 per month ($552 total).
    Unmatched withdrawals. The size and frequency of unmatched 
withdrawals has been one of the biggest surprises in ADD. About 37 
percent of participants made unmatched withdrawals from matchable 
balances, removing 25 percent of all matchable deposits. For 
participants who made unmatched withdrawals, the average number was 
2.9, and the amount removed was $320. With an average match rate of 
2:1, this implies a loss of potential matches for people who make 
unmatched withdrawals from matchable balances of about $640. The high 
opportunity cost of unmatched withdrawals, coupled with their size and 
frequency, highlights the difficulty of asset accumulation for the 
poor, even in the supportive institutional context of IDAs.
    Net deposits. Net deposits are defined as gross deposits minus 
unmatched withdrawals minus balances in excess of the match cap. 
Aggregate net deposits in ADD were $838,443. Net deposits per 
participant were $353 ($420 for non-exits). The average monthly net 
deposit (AMND)--defined as net deposits divided by months of 
participation--was $25.42 (for non-exits, $30.30). Median AMND was 
$17.96 ($23.35 for non-exits). With an average match rate of 2:1, the 
average participant in ADD had accumulated about $75 per month.
    The average match rate per dollar of net deposits was 1.96:1, and 
the match that corresponded to net deposits was $1,644,508. If all net 
deposits were used in matched withdrawals, total asset accumulation in 
IDAs would be $2,482,951. With exits included, this is $1,044 per 
participant; with exits excluded, it is $1,245 per participant. These 
figures will change as ADD progresses.
    Matched withdrawals. Aggregate matched withdrawals in ADD through 
June 30, 2000 were $191,601. The average match rate per dollar of 
matched withdrawals was 1.82:1, and matches disbursed were $348,373. 
The average participant with a matched withdrawal had 2.0 withdrawals 
for a total of $603. Their total asset accumulation averaged $1,698.
    Matched withdrawals became more common as balances were built 
through time; 9 percent of participants had a matched withdrawal by 
their 12th month, and 27 percent had one by their 24th month.
    Matched uses. As of June 30, 2000, 13 percent of participants had a 
matched withdrawal. About 24 percent made a home purchase, 24 percent 
invested in microenterprise, and 21 percent pursued post-secondary 
education. The rest used their matched withdrawals for home repair, 
retirement, or job training.
    About 87 percent of participants had no matched withdrawals. Of 
these, 57 percent intended to buy a home, 18 percent intended to spend 
on microenterprise, and 15 percent planned for post-secondary 
education. About 10 percent planned for home repair, retirement, or job 
training.
    Net deposits as a percentage of the pro-rated match cap. On 
average, participants had net deposits of 67 percent of the monthly 
savings target (median 49 percent). At this pace, they will use two-
thirds of their total match eligibility.
    Deposit frequency. On average and at the median, participants made 
a deposit in 7.0 months per year. Non-exits made a deposit in 7.6 
months per year. Some evidence suggests that frequent depositors 
accumulate more than infrequent depositors.
    Savings rate. On average, AMND was 2.2 percent of monthly income 
(median 1.3 percent). The savings rate decreased as income increased. 
Perhaps the institutional effects of IDAs are stronger than the 
economic effects of greater income, and perhaps these institutional 
effects are somehow stronger for poorer people.
    IDAs and EITC. Net deposits increased markedly in tax season. IDA 
participants save some chunk of tax refunds or payments from the Earned 
Income Tax Credit.

Costs
    Policy choices require data on both outputs and costs. Cost data in 
MIS IDA are measured with error and are probably overstated for many 
reasons (for example, due to start-up costs, provision of technical 
assistance to other IDA programs, and data collection for the 
evaluation of ADD). Average program expenses (without matches) were 
$70.38 per participant-month, or $2.77 per $1 of net deposits. A study 
of the first 14 months of the experimental-design program in ADD also 
found costs in this range (Schreiner, 2000a). Costs in ADD did decrease 
with time. Average program expenses per participant-month through June 
30, 1999, were $117.58; in the next 12 months, they averaged $43.06.
    With a 2:1 match, total outlays in IDAs were thus roughly $6 per $1 
of net deposits ($1 savings, $2 match, and $3 program expenses). This 
is about $2 of total outlay per $1 of asset accumulation.
    Are these costs high or low? The answer depends on the as-yet-
unmeasured benefits of IDAs. A standard financial benefit-cost analysis 
is planned for the site of the experimental design (Schreiner, 2000b). 
Even without precise knowledge of benefits, however, measurement of 
costs highlights trade-offs and sets a benchmark that encourages 
efficiency.
    Qualitative evidence from the evaluation of ADD suggests that 
participants believe that intensive service is a key element of program 
design. A key challenge for IDA programs is then to provide such 
services in such a way that benefits can exceed costs. The tension 
between intensive service and cost structures that would allow broad 
access to IDAs may lead to two tiers of IDA designs, one with fewer 
services, lower costs, and broader outreach, and another with greater 
services, higher costs, and narrower targets (Sherraden, 2000).

New Savings versus Shifted Assets
    IDA deposits can come from new savings or from assets converted 
from other forms. Even if the poor (or the non-poor) do not explicitly 
shift liquid assets, they can implicitly shift illiquid assets if IDAs 
lead to reduced investment and maintenance in non-IDA assets. High 
returns on IDAs may also lead savers to borrow or to repay debts slower 
than otherwise.
    Qualitative evidence from the evaluation of ADD (Moore et al., 2001 
and 2000) suggests that IDA deposits came in some unknown measure from 
both new savings and from shifted assets.

Program Characteristics and Savings Outcomes
    The association between program (institutional) characteristics and 
savings outcomes matters because policy can affect program design. The 
results below are derived from multivariate regressions that control 
for a wide range of program and participant characteristics.
    Match rates. A central feature of IDAs is the match rate. In 
regressions, higher match rates have large, strong associations with 
reduced risk of unmatched withdrawals and with reduced risk of exit. 
Match rates do not, however, have a statistically significant link with 
AMND.
    Qualitative evidence suggests that matches attract people to IDAs; 
quantitative evidence here suggests that higher match rates keep people 
in IDAs and encourage them to maintain their balances. But higher match 
rates do not seem to lead to greater deposits. We believe that these 
estimated associations result mostly from institutional factors, but 
economic factors, two-way causation, and censored data also matter to 
some unknown extent. The data from ADD do not allow a sharp test of the 
effect of match rates on savings outcomes.
    Monthly savings target. The monthly savings target is the amount 
that, if saved each month and not removed in unmatched withdrawals, 
would produce net deposits equal to the total match cap. On average in 
ADD, AMND was 67 percent of the savings target.
    Higher savings targets were strongly linked with large reductions 
in the risk of unmatched withdrawals and the risk of exit. Higher 
savings targets were also strongly linked with higher AMND.
    At least three forces may drive this. First, participants may 
change match caps into goals, leading to greater savings effort when 
match caps are higher. Second, AMND is cut-off for participants at the 
match cap. Third, programs may have assigned higher targets to groups 
expected to be high savers. These last two factors may induce a 
spurious positive correlation between the match cap and savings.
    Financial education. Required financial education is a central 
feature of IDAs in ADD. The average participant attended 10.5 hours of 
general financial education. Each hour up to 12 was linked with large 
increases in AMND, but hours after that had little effect.
    In broad terms, AMND increases with financial education (whether 
general or asset-specific), but only up to a point, probably somewhere 
between 6 and 12 hours. The content of classes probably also matters, 
but we did not measure it.
Participant Characteristics and Savings Outcomes
    Participants in ADD are not a random sample of people eligible for 
IDAs; they are program-selected and self-selected. Programs target 
certain people, and eligibles in the target group who expect the 
greatest net benefits are the most likely to enroll. Results in this 
report pertain only to eligibles who, if they had the choice, would 
enroll in IDAs.
    Compared with the overall U.S. population at or below 200 percent 
of the poverty line, IDA participants are more disadvantaged in that 
they are more likely to be female, African-American, or never-married. 
IDA participants are less disadvantaged, however, in that they are more 
educated, more likely to be employed, and more likely to have a bank 
account. These patterns likely reflect the explicit targeting of the 
``working poor'' by programs in ADD and the client base of the host 
organizations.
    Gender. About 80 percent of participants were female. Gender had no 
link with savings.
    Race/ethnicity. About 47 percent of participants in ADD were 
African-American, 37 percent were Caucasian, 9 percent Hispanic, 3 
percent Native American, 2 percent Asian-American, and 3 percent 
``Other.'' Although average AMND for all groups was at least $19.50, 
differences between groups were large. For example, compared with Asian 
Americans, average AMND was $10.58 less for ``Other,'' $11.62 less for 
Hispanics, $12.77 less for Caucasians, $20.82 less for African 
Americans, and $22.30 less for Native Americans.
    These differences are not due to race/ethnicity per se but rather 
to a constellation of socially produced characteristics correlated with 
both race/ethnicity and savings. In a perfect model that controlled for 
everything, the estimated link between race/ethnicity and savings would 
be zero.
    IDAs aim to increase inclusion in institutions for saving and asset 
accumulation. We do not know whether IDAs increase saving or whether 
they increase saving more for disadvantaged groups. Although IDAs in 
ADD did narrow relative racial/ethnic gaps, they are not a panacea.
    Education and employment. Given their income, participants in ADD 
were highly educated: 24 percent had a college degree of some sort, and 
85 percent completed high school. Education was not linked with the 
risk of exit. AMND was highest for people with 4-year college degrees.
    Participants in ADD also had a high incidence of employment: 78 
percent worked full-time or part-time. Employment status was not 
significantly associated with any savings outcomes.
    Receipt of public assistance. About 50 percent of participants in 
ADD had received some form of public assistance at enrollment or 
before. Current receipt of public assistance was not associated with 
any savings outcomes.
    Income. Mean income/poverty in ADD was 111 percent (median 100 
percent). About 21 percent were under 50 percent of the poverty line, 
and 12 percent were over 200 percent of the poverty line. The level of 
income was not associated with the risk of an unmatched withdrawal, the 
risk of exit, or AMND, but higher income was associated with a lower 
savings rate. Possible explanations include institutional factors, 
censored data, and measurement error, but we believe that institutional 
factors matter most and that they may be strongest for the poorest.
    Insurance coverage. About 51 percent of participants in ADD had 
health insurance, and 31 percent had life insurance. Health insurance 
did not have a significant association with exit, unmatched 
withdrawals, or AMND. Life insurance was not associated with AMND, but 
it was correlated with reduced risk of exit and of unmatched 
withdrawals.
    Asset ownership. Participants who owned assets likely had 
unobserved characteristics that predisposed them to save more in IDAs. 
For example, participants with a checking account were much less likely 
to exit, they were much less likely to take an unmatched withdrawal, 
and they had much higher average AMND. The same pattern holds for home 
owners and car owners.
                                Summary

    These mid-way results from ADD will raise questions, spark debate, 
and inform policy. The goal of this discussion and of future research--
in ADD and elsewhere--is to build knowledge about how programs that aim 
to encourage saving and asset accumulation can be more inclusive and 
generate greater net benefits.
                               __________
                               References

    Johnson, E., Hinterlong, J., & Sherraden, M. (2000). Strategies for 
creating MIS technology to improve social work practice and research. 
Paper presented at the Fourth Annual Technology Conference for Social 
Work Education and Practice, Charleston, South Carolina, August, 
[email protected].
    Moore, A., Beverly, S., Schreiner, M., Sherraden, M., Lombe, M., 
Cho, E. Y., Johnson, L., & Vonderlack, R. (2001). Saving, IDA programs, 
and effects of IDAs: A survey of participants, research report. Center 
for Social Development, Washington University in St. Louis, http://
gwbweb.wustl.edu/users/csd/.
    Moore, A., Beverly, S., Sherraden, M., Sherraden, M., Johnson, L., 
& Schreiner, M. (2000). How do low-income individuals save, deposit, 
and maintain financial assets? Paper presented at the Inclusion in 
Asset Building: Research and Policy Symposium, Center for Social 
Development, Washington University in St. Louis, Sept. 21-23, 
[email protected].
    Schreiner, M. (2000a). Resources used in 1998 and 1999 to produce 
Individual Development Accounts in the experimental program of the 
American Dream Demonstration at the Community Action Project of Tulsa 
County, research report. Center for Social Development, Washington 
University in St. Louis, http://gwbweb.wustl.edu/users/csd/.
    Schreiner, M. (2000b). A framework for financial benefit-cost 
analysis of Individual Development Accounts at the experimental site of 
the American Dream Demonstration, research design. Center for Social 
Development, Washington University in St. Louis, http://
gwbweb.wustl.edu/users/csd/.
    Sherraden, M. (1991). Assets and the poor: A new American welfare 
policy. Armonk, NY: M.E. Sharpe, ISBN 0-87332-618-0.
    Sherraden, M. (2000). On costs and the future of Individual 
Development Accounts, comment. Center for Social Development, 
Washington University in St. Louis, http://gwbweb.wustl.edu/users/csd/.
    Sherraden, M., Johnson, L., Clancy, M., Beverly, S., Schreiner, M., 
Zhan, M., & Curley, J. (2000). Savings patterns in IDA programs--
Downpayments on the American Dream Policy Demonstration, a national 
demonstration of Individual Development Accounts. Center for Social 
Development, Washington University in St. Louis, http://
gwbweb.wustl.edu/users/csd/.
    Sherraden, M., Page-Adams, D., Johnson, L., Scanlon, E., Curley, 
J., Zhan, M., Bady, F., & Hinterlong, J. (1999). Downpayments on the 
American Dream Policy Demonstration, start-up evaluation report. Center 
for Social Development, Washington University in St. Louis, http://
gwbweb.wustl.edu/users/csd/.

              The Savings for Working Families Act of 2001
                     Included in H.R. 7 and S. 592

------------------------------------------------------------------------
               Provision                             Language
------------------------------------------------------------------------
Eligibility (qualified individuals)....  --AGI cannot exceed $20,000
                                          (single), $25,000 (head of
                                          household), or $40,000
                                          (married)
                                         --Based on prior year's federal
                                          tax return.
                                         --Citizens and legal residents
                                          of the U.S. ages 18 through
                                          60, except students.
                                         --Accountholder can pay
                                          qualified expenses of spouse
                                          or dependent.
Allowable uses (qualified expenses)....  --First home purchase.
                                         --Small business capitalization
                                          or expansion.
                                         --Post-secondary education and
                                          vocational training.
Matching funds.........................  --IDA savings matched on a 1-1
                                          basis, up to $500 per year.
                                         --State, local and private
                                          sector sources may contribute
                                          matching funds to the accounts
                                          in accordance with their own
                                          matching ratios.
Federal tax credit.....................  --Qualified financial
                                          institutions (those that can
                                          hold an IRA) would be eligible
                                          for a tax credit for the
                                          aggregate amount of all
                                          matching funds provided, plus
                                          a one-time $100 credit per
                                          account opened plus an annual
                                          $30 credit per account to
                                          maintain the account. The $100
                                          credit is meant to cover
                                          financial education,
                                          recruitment, marketing,
                                          withdrawals, administration,
                                          etc.
                                         --The tax credit may be taken
                                          by the qualified financial
                                          institution or its
                                          ``contractual affiliate.''
                                          This means that the for- or
                                          non-profit qualified financial
                                          institution can partner with
                                          an entity to take the tax
                                          credits on behalf of the
                                          financial institution. For
                                          example, a credit union may
                                          contract with a for-profit
                                          affiliate with that affiliate
                                          taking the tax credits on
                                          behalf of the (tax-exempt)
                                          credit union. Similarly, to
                                          reduce various costs, a for-
                                          profit financial institution
                                          may form an umbrella for-
                                          profit consortium to take tax
                                          credits on behalf of its
                                          members.
Sources and limits on individual         --No limits or restrictions on
 deposits into accounts.                  deposits: if one is eligible
                                          based on prior year's AGI,
                                          then any deposit will be
                                          considered valid, whether from
                                          earned income, disability
                                          payments, gifts, etc.
Federal tax treatment of accounts......  --Individual deposits already
                                          after-tax.
                                         --Interest on individual
                                          deposits taxable.
                                         --All matching funds and
                                          interest not taxable at time
                                          of deposit or for qualified
                                          expenses.
Penalties for withdrawal of              --No penalty, but accountholder
 individuals' own savings.                loses corresponding matching
                                          funds unless withdrawn amount
                                          is paid back by September 30
                                          following withdrawal.
Role of non-profits and Tribes.........  --Qualified non-profits are
                                          expected to run IDA programs;
                                          qualified non-profits include
                                          501(c)(3)s, CDFIs, and credit
                                          unions.
                                         --Tribes may run their own
                                          programs.
                                         --Qualified financial
                                          institutions may also
                                          collaborate with other
                                          ``contractual affiliates'' to
                                          carry out the program.
Role of financial institutions.........  --Qualified financial
                                          institutions are those that
                                          offer IRAs.
                                         --Financial institutions will
                                          hold all accounts and matching
                                          funds.
Financial education training...........  --Required before asset can be
                                          purchased but with waivers for
                                          ``hardship'' and ``lack of
                                          need.''
How asset purchased....................  --Funds paid directly from both
                                          accounts (individual and match
                                          accounts) to asset provider,
                                          upon approval of financial
                                          institution, nonprofit
                                          organization, or Tribe.
Legal structure of the account.........  --Individual's savings: account
                                          owned solely by the eligible
                                          individual.
                                         --Matching funds: kept in
                                          separate, parallel account
                                          owned by qualified financial
                                          institution, non-profit, or
                                          Tribe.
Program certification..................  --Qualified non-profits and
                                          financial institutions must
                                          meet quality standards for
                                          their IDA program as specified
                                          by the Secretary.
Effect on mean-tested federal programs.  --All funds (individual
                                          savings, matches, and
                                          earnings) disregarded in
                                          determining eligibility for
                                          means-tested federal programs
                                          (e.g., Food Stamps, Medicaid,
                                          SSI, etc.).
Administering agency...................  --Treasury Department.
Reporting and evaluation...............  --All qualified non-profits and
                                          financial institutions must
                                          participate in regular
                                          monitoring and reporting.
                                         --Secretary will establish an
                                          evaluation protocol to assess
                                          costs and outcomes.
Applicable years.......................  --For all accounts opened
                                          within 5 years (2002-2006),
                                          matching funds will be
                                          available through 2008. No new
                                          accounts can be opened after
                                          2006.
------------------------------------------------------------------------

                                

    Chairman McCrery. Thank you, Mr. Boshara.
    Ms. Aviv.

  STATEMENT OF DIANA AVIV, VICE PRESIDENT FOR PUBLIC POLICY, 
                   UNITED JEWISH COMMUNITIES

    Ms. Aviv. Good afternoon, Mr. Chairman and distinguished 
Subcommittee members. Thank you very much for the opportunity 
to present our views today.
    The United Jewish Communities (UJC) is a faith-based 
charity that represents 189 local Jewish federations, 400 
independent communities across North America. We are the 
largest Jewish philanthropy in the world, raising several 
billion dollars of private funds each year, and represent a 
significant network of social service providers.
    Our federations assist and fund people in need through 
hundreds of health and welfare agencies serving more than 1 
million clients each year. This work is at the heart of our 
mission and is fundamental to our religious obligation to serve 
the poor.
    People give to charity because they think it is the right 
thing to do. Our experience also informs us that they give more 
generously when presented with tax incentives. For this reason, 
we are pleased to support H.R. 7's IRA charitable rollover and 
the nonitemizer deduction.
    Since the purpose of these provisions is to spur greater 
charitable giving, the offsets used to pay for these measures 
should not come from the very funds designed to serve the same 
mission of helping those at risk and in need. Investment by 
government in helping people in need remains the single most 
important function that government can perform to enable people 
to help themselves and their families.
    These tax incentives should not become entangled with the 
problematic provisions contained in this legislation. 
Therefore, we urge you to consider splitting off the charitable 
incentive provisions from the rest of the bill.
    UJC has several other serious concerns with H.R. 7 that we 
would like to illuminate today.
    As you know, this bill would enable houses of worship to 
compete for public funding on an equal basis with social 
service agencies without requiring them to incorporate 
separately. Yet, to protect houses of worship from undue 
government interference, these religious providers, whose 
primary purpose is the expression of their religious beliefs, 
may seek waivers to exempt them from having to comply with the 
same regulations that govern nonprofit agencies.
    Such standards may include accreditation; counselor-client 
ratios; nutrition requirements; health, safety, and fire 
standards. Service providers who are not required to meet the 
same basic standards of quality in care will be able to provide 
services at a lower cost. This would result in unfair 
competition and could drive many legitimate organizations out 
of business.
    Given its inability to monitor such programs, government 
may be exposed to greater potential fraud and abuse.
    While H.R. 7 provides for religious organizations to be 
subject to the same regulations as nongovernment organizations, 
regarding accepted accounting principles, there is no 
requirement that faith-based recipients of public funds would 
need to comply with any other standards or regulations. The 
bill is silent on the applicability of national and local 
standards and regulations, and this ought to be remedied 
posthaste.
    We are also deeply concerned that this legislation does not 
adequately protect clients who have no wish to partake in 
religiously related programming, and who might feel coerced to 
participate. There is nothing in the bill that prohibits 
providers from holding prayer meetings immediately before and 
after government-funded services, as long as the religious 
activities are funded privately. The client is not necessarily 
aware of what portion of the program is funded with public 
dollars.
    As a social worker, who has spent years working with 
vulnerable populations, I can attest that the vast majority of 
clients do not have the wherewithal to insist upon their right 
not to be placed in potentially coercive environments. It is 
easier for many not to seek help in the first place, with the 
result that their health and welfare may be jeopardized.
    The provision in H.R. 7 concerning this issue leaves the 
responsibility of objecting to the religious character of the 
organization up to the client after he or she has sought 
assistance. Only then would the government be required to 
provide an alternative service within a reasonable period of 
time.
    Our tax dollars should fund viable secular alternatives in 
advance and not leave this burden to the client.
    The proponents of faith-based programs acknowledge that 
there is no evidence that religious programs produce better 
results than the existing network of services. We think that 
the responsible thing to do is to test the program first for 
effectiveness and iron out the religious entanglements before 
embarking upon wholesale government reengineering of such 
massive proportions.
    One of the major reasons that many houses of worship have 
not been able to create their own separate organizations is 
because they do not have the capacity to do so. The solution, 
though, is not to waive existing standards but to provide funds 
for capacity building. H.R. 7 ought to include grants to 
facilitate this.
    In conclusion, there are many successful ways that 
government can partner with faith organizations in working 
toward our common goal of assisting people in need without 
running afoul of the Constitution. This includes technical 
assistance, research, information dissemination, and capacity 
building.
    We strongly support such partnerships and will continue to 
fund privately programs and services that are so important to 
communities of faith.
    [The prepared statement of Ms. Aviv follows:]

   Statement of Diana Aviv, Vice President for Public Policy, United 
                           Jewish Communities

    Good morning Chairmen Herger and McCrery, Congressmen Cardin and 
McNulty, and distinguished Subcommittee members. I am Diana Aviv, Vice 
President for Public Policy for the United Jewish Communities and I 
thank you for the opportunity to present United Jewish Community's 
views on House Bill 7. The range of issues raised by this legislation 
is of profound importance to the local communities that I represent 
here today.
    United Jewish Communities [UJC] is a faith based charity that 
represents 189 local Jewish Federations, and 400 hundred independent 
communities, in 800 localities across North America. We are the largest 
Jewish philanthropy in the world, raising several billion dollars of 
private funds each year, and represent a significant network of service 
providers. Our Federations help to plan, coordinate, and fund services 
to people in need, through 18 hospitals, 160 skilled nursing 
facilities, 100 HUD-financed Section 202 facilities, 200 independent 
living facilities, 160 family service and job training agencies, and 
hundreds of other programs serving more than 1 million clients each 
year. This work is a core to the mission of our organization, our 
traditions, and is fundamental to our religious obligation to serve the 
poor through charity, acts of loving kindness and repair of the world. 
Toward this end we have created a network of social services that offer 
assistance to people at every stage of their lives and in all moments 
of need.
    For over a century, the Federation system has engaged in such 
philanthropic efforts and has partnered with national and local 
governments to ensure that the needs of America's most vulnerable 
people do not go unmet. Over the decades, we have successfully 
discharged our religious obligations as a faith based charity, while at 
the same time have worked within a structural framework that respected 
the constitutional separation of church and state.
    Mr. Chairmen and distinguished committee members, we want to take 
this opportunity to express our appreciation to President Bush for his 
statements early in his term, on the importance of the charitable 
sector, community-based organizations and government's vital support of 
their work. We also appreciate the President's expressed concern about 
not violating the constitutional separation of church and state and the 
need to have viable secular alternatives for those individuals not 
wishing to receive services from a faith based charity. Certainly the 
President's interest in this subject has generated a new round of 
discussion around the nation about the scope of the relationship 
between the religious sector and government. We welcome that 
conversation.
    People give to charity because they think it is the right thing to 
do, because of their religious beliefs and because of personal 
imperatives. Our experience also informs us that they give more 
generously when presented with tax incentives for charitable giving. 
One of the most important ways that government can assist charities is 
through tax incentives that may lead to greater generosity by donors. 
This approach, of course, is not intended to replace the vital 
obligations of the public sector to make available adequate levels of 
funding to meets the needs of vulnerable Americans. The basic 
investment by government, in helping people in need through its funding 
of social service initiatives, remains the single most important 
function that government performs to address human suffering and to 
enable people to help themselves and their families. There are other 
ways that will further assist charities and we believe that the 
provisions in H.R. 7 pertaining to charitable giving represent such 
constructive opportunities. In particular we note support of the IRA 
charitable rollover and the non-itemizer charitable deduction. Since 
their purpose is to spur greater charitable giving to assist charities 
in furthering their missions, the offsets used to pay for these 
measures should not come from the very funds intended to serve the same 
mission of helping those at risk and in need.
    These are important provisions that should stand on their own and 
not become entangled in many of the problematic provisions also 
contained in this legislation. We urge you to consider splitting off 
the charitable incentive provisions from the rest of the Bill, as the 
Senate has decided to do. In this way your commitments to provisions 
that enjoy wide support on a bipartisan basis and that help charities 
with their fund raising efforts, will be realized.
    United Jewish Communities has two major concerns regarding the 
expansion of Charitable Choice included as Title II of House Bill 7 
that we would like to discuss with you today. The first relates to 
quality control and the second to religious coercion creeping into the 
delivery of services.
    House Bill 7, as you know, would enable houses of worship to 
compete for public funding on an equal basis with social service 
agencies without requiring them to incorporate separately. Yet to 
protect houses of worship from undue government interference, these 
churches, synagogues and mosques, whose primary purpose is the 
expression of their religious beliefs, may seek local, state or federal 
waivers to exempt them from having to comply with the same standards 
and regulations that govern 501(c) (3) agencies. Such standards may 
include accreditation, counselor-client ratios, health, safety, and 
fire standards, and nutrition requirements, among others. These are 
standards that we have created over the years insure that our tax 
dollars are spent in ways that meets basic standards of decency, 
efficiency, and effectiveness. We expect institutions that receive 
public funds to be accountable for the way they spend those dollars and 
we need adequate oversight to ensure that such standards are 
maintained. Maintaining such standards costs money. Providers, who are 
not required to meet the same basic standards of quality and care 
designed to protect the client, would be able to provide services at a 
lower cost. This inevitably would result in unfair competition that 
could drive many legitimate, high quality 501(c)(3) organizations out 
of business. Having different standards for some providers may also 
expose the government to a greater potential for fraud and abuse, given 
its inability to monitor such programs.
    Since the purpose of such legislation is to provide improved, 
effective service to people, a level playing field in which all 
charities must apply on the same basis for funds and be subject to the 
same standards of accountability, is essential to ensure ongoing public 
confidence. The inability of government to exercise oversight could 
result in some unscrupulous providers hiding behind the cover of such 
waivers. This could jeopardize the health and safety of the client and 
further erode the confidence of the public in government's ability to 
discharge its obligations in a fair, accountable and responsible way.
    While House Bill 7 in Section 201 (h) states that religious 
organizations ``shall be subject to the same regulations as other non-
governmental organizations to account in accord with generally accepted 
accounting principles for the use of such funds,'' there is no 
requirement that faith-based recipients of public funds would need to 
comply with any other standards and regulations required of not-for-
profit service providers. In fact, House Bill 7 is silent on the 
applicability of federal, state, and local, standards and regulations, 
and this ought to be remedied post haste.
    We also are deeply concerned that this legislation does not 
adequately protect clients who have no wish to partake in religiously 
related programming and who might feel coerced to accept such 
programming. There is nothing in the Bill that prohibits providers from 
holding prayer meetings immediately before and at the conclusion of the 
government funded service in the very same space as the prayer service, 
as long as the prayers or other religious activities are funded 
privately. The client is not necessarily aware what portion of the 
program is funded with public dollars and what portion is private. To 
them it is a continuous service.
    Distinguished Members, as a social worker who has spent years 
working directly with vulnerable populations, I can attest that the 
vast majority of clients do not have the self confidence, knowledge and 
wherewithal to insist upon their right not to be placed in potentially 
coercive environments. Their lives are stressed enough to begin with, 
without having the burden of informing the service provider which 
element of the program is unacceptable to them. It is easier not to 
seek the help in the first place with the result that clients' health 
and welfare may be jeopardized.
    As a minority religion, we worry about the absence of viable and 
effective oversight to ensure that overzealous religious providers do 
not use prayer and religious instruction in counseling and other 
services with unwilling and highly vulnerable recipients. Vulnerable 
people should not forced to deal with potentially coercive religious 
experiences through government funded services and should not have the 
burden placed on them, of objecting to such programming.
    The provision in House Bill 7, Section 202 (f) that addresses this 
issue does not provide sufficient protection. The provision leaves the 
responsibility of objecting to the religious character of the 
organization up to the client, after s/he has sought assistance. Only 
then the government entity would be required to provide an alternative 
service within a reasonable period of time. Our tax dollars should fund 
viable secular alternatives in advance, and not leave this burden to 
the client seeking help. Since virtually no new funds have been 
included in the budget for these programs, it is unlikely that all 
communities will have a secular alternative program on every 
``northeast corner'' for every religious program located on the 
``northwest corner''. Even in major cities, given the pressures on 
local budgets, it does not seem likely that viable secular alternatives 
will be readily available to clients seeking such service.
    Switching currently designated public funds from one group to 
another, even without all the potential constitutional entanglements, 
will not necessarily result in more successful service to a larger 
number of people. The proponents of faith based programs are the very 
first to say that there is no evidence whatsoever that religious 
programs produce better results than the existing network of services. 
Nor does the scholar, Raam Cnaan, on whose work the Professor DiIulio 
has based his judgments. There is virtually no comparative scholarly 
evidence to support such claims. While a number of studies do show a 
connection between church attendance and lower incidence of arrest, 
substance abuse and ongoing employment, there is no correlation between 
the effectiveness of services provided by these religious institutions 
versus their secular counterparts. We think that the responsible thing 
to do is to test the programs first for effectiveness and to iron out 
all the religious entanglements before embarking upon wholesale 
government re-engineering of such massive proportions.
    We believe that one of the major reasons that so many individual 
houses of worship have not been able to create their own separate 
501(c)(3) organizations is because they simply do not have the capacity 
to do so. Our own service providers have had the benefit of our local 
Federations who serve as intermediaries, providing planning, technical 
assistance, seed and capital development grants and other 
infrastructure assistance. They also have had the benefit of a skilled 
national system that can connect them with other agencies in all parts 
of the country to learn from and share resources with.
    Many of the 350,000 churches, synagogues and mosques have only 
between 200-400 congregational members and do not have the resources to 
create separate institutions or to comply with local, state and federal 
standards of service delivery. The answer is not to lower or waive the 
standards, but to provide funds for capacity building and 
infrastructure development so that these institutions may fairly 
compete with others, on the same basis for public funding and without 
violating the Establishment Clause. House Bill 7 ought to include such 
grants to build the institutions locally and strengthen their linkages 
with other similar providers.
    In conclusion, there are many successful ways that Government can 
and should partner with faith-based organizations, in working towards 
our common goal of assisting people in need. For the better part of a 
decade the Department of Housing and Urban Development (HUD) has worked 
with religious organizations to provide technical assistance, 
information dissemination, capacity building and a voice with the 
Secretary of HUD. Additionally, for many years we have been part of a 
government partnership with religious based charities though FEMA's 
Emergency Food and Shelter program where the Salvation Army, Catholic 
Charities USA, United Church of Christ, American Red Cross, United Way 
of America and the United Jewish Communities have overseen and 
distributed funds to local food pantries and soup kitchens that serve 
our most vulnerable populations. We have strongly supported such 
partnerships and continue to fund and encourage others in the private 
sector to fund religious programs and services that are so important to 
communities of faith.
    Thank you very much. I will be very pleased to answer any questions 
you may have.

                                

    Chairman McCrery. Thank you, Ms. Aviv.
    Ms. Meiklejohn.

STATEMENT OF NANINE MEIKLEJOHN, LEGISLATIVE AFFAIRS SPECIALIST, 
DEPARTMENT OF LEGISLATION, AMERICAN FEDERATION OF STATE, COUNTY 
                    AND MUNICIPAL EMPLOYEES

    Ms. Meiklejohn. Thank you, Chairman McCrery and Chairman 
Herger.
    My name is Nanine Meiklejohn. I am a legislative 
representative at the American Federation of State, County and 
Municipal Employees (AFSCME).
    Our legislative director, Charles Loveless, had very much 
hoped to present this testimony, but he had to leave because 
his father quite ill. We appreciate your accommodating us by 
allowing me to appear in his place.
    We also appreciate the opportunity for the AFSCME to 
present this testimony.
    Let me start by emphasizing that AFSCME values the good 
work of religious organizations, and we support finding ways to 
encourage their good work.
    We work closely with organizations such as Catholic 
Charities and Lutheran Social Services in forging public and 
nonprofit coalitions to address our Nation's unmet social 
needs.
    To really understand H.R. 7, the bill has to be put in the 
overall context of current budget and tax policies, which 
envision fewer resources for many social service programs over 
the next decade.
    While we take no position on the merits of the tax 
provisions in H.R. 7, we are concerned that without offsets the 
cost could explode over the next 10 years.
    The administration's budget cuts many of the programs to 
which H.R. 7 would apply charitable choice. While tax 
incentives can help charities augment publicly funded programs, 
they can in no way replace these nationwide systems. The 
resulting spending cuts will undermine these systems by 
shortchanging public and nonprofit agencies, including those 
currently run by religiously affiliated charities.
    Supporters of H.R. 7 contend that the charitable choice 
provisions are necessary to end discrimination against 
sectarian organizations in the awarding of government grants. 
We would submit that the reality is that no such discrimination 
exists. We all know that various religious organizations 
receive funds through separate secular nonprofit entities. And 
small organizations--both secular and sectarian--face the same 
challenges applying for government money and adhering to 
government requirements.
    In fact, we submit that H.R. 7 actually gives preferential 
treatment to sectarian groups. This is because the measure 
allows them, as publicly funded government grantees, to retain 
certain exemptions that they enjoy in recognition of the fact 
the religious speech and practice are protected.
    These include exemptions from key Federal labor laws that 
give unemployed workers unemployment benefits and that give all 
private sector workers the right to organized representation in 
the workplace. They also include civil rights law that 
prohibits religious-based employment discrimination.
    But H.R. 7 goes even further by giving sectarian 
organizations unique standing to file a lawsuit against public 
officials if they believe they have been denied a grant on the 
basis of their religious character. No other grant applicant 
has a similar right to challenge a grant or contract award.
    This goes well beyond leveling the playingfield and will 
undermine longstanding State and local government contracting 
practices that are designed to ensure the selection of the most 
competent and effective providers. Public officials will be 
placed in the no-win situation of selecting among different 
religions and between secular and sectarian applicants. 
Religion could take precedence over experience and expertise.
    We believe, as Congressman Scott said, that H.R. 7 does 
intend to fund the faith. Otherwise, there can be no logical 
explanation for the secular alternative requirement in H.R. 7.
    However, there appears to us to be no meaningful way to 
ensure that a secular alternative is available in all cases. As 
a result, some very real dilemmas could arise.
    For example, welfare recipients are subject to strict work 
requirements. If the only available and conveniently located 
program is a sectarian program with which the individual is 
uncomfortable, will he or she be sanctioned for refusing to 
participate?
    Charitable choice attempts to mix government and religion, 
even though they are fundamentally different. Maintaining the 
independence of religious institutions is precisely what has 
protected the spiritual integrity of houses of worship and our 
religious freedom. But government needs to be accountable to 
taxpayers and voters. It cannot simply contribute to the 
collection plate.
    Taxpayers quite rightly expect a proper accounting for 
their tax dollars through provisions of law such as performance 
standards, licensing rules, auditing requirements, due process, 
and conflict of interest requirements.
    We believe that both the citizens and religion are best 
protected when government and religion are kept separate. The 
bill does not, because it cannot, reconcile the two in a 
satisfactory way.
    While at first glance charitable choice seems to be an idea 
with strong appeal, the more you consider it, the more 
problematic it becomes. We urge you to reject it.
    Thank you.
    [The prepared statement of Ms. Meiklejohn follows:]

    Statement of Nanine Meiklejohn, Legislative Affairs Specialist, 
  Department of Legislation, American Federation of State, County and 
                          Municipal Employees

    Mr. Chairman, my name is Nanine Meiklejohn, Legislative Affairs 
Specialist, Department of Legislation, at the American Federation of 
State, County and Municipal Employees (AFSCME). AFSCME represents 1.3 
million employees who work for federal, state and local governments, 
health care institutions, and nonprofit agencies. We appreciate the 
opportunity to testify on H.R. 7, the Community Solutions Act, and in 
particular, on the charitable choice provisions in the bill.
    AFSCME supports and values the good work of religious 
organizations, especially the current partnerships which government 
maintains with faith-based organizations through secular religiously-
affiliated nonprofit organizations, such as Catholic Charities and 
United Jewish Federations. Our own members are active in their 
congregations and in their communities. They are no strangers to the 
pressing needs of vulnerable individuals and poor communities. Indeed, 
hundreds of thousands of them work day in and day out in these 
neighborhoods, and they do so in the face of steady criticism from 
public officials who seek political advantage by condemning government 
while depriving public agencies of the resources and leadership 
necessary to provide quality services.
    AFSCME strongly believes, however, that charitable choice is the 
wrong way to do right. We do not believe that charitable choice is good 
for religion or for the government-supported social services 
infrastructure that originally began in the 1930s as private charities 
were overwhelmed by the Great Depression. Already charitable choice has 
opened up divisions in our society based on religious differences and 
prejudices. It has distracted attention from the real issue of 
providing adequate resources to address the problems of poverty. It 
will permit religious discrimination in taxpayer-funded programs and 
has the effect of removing employees in federally-funded programs from 
several key labor and benefit protections. It will spawn litigation 
that will put state and local officials in an untenable political and 
legal position.
    H.R. 7 cannot be judged adequately without considering the 
Administration's overall budget and tax policies, which envisions far 
fewer resources for many of the federal programs operated by public and 
non-profit agencies that assist poor neighborhoods and families. We 
take no position on the merits of the five tax relief provisions in 
H.R. 7. However, we are very concerned that, without tax offsets, the 
$100 billion 10-year cost will contribute further to an erosion of the 
government-funded social services system.
    The Administration appears committed to shifting social services 
policy away from direct spending to tax credits and deductions. Its 
proposal to allow Temporary Assistance for Needy Families (TANF) funds 
to be used to reimburse states for revenue losses attributable to a 
state tax credit for donations to ``qualified'' charities most 
graphically demonstrates this point. It explicitly converts a program 
of direct spending to public and private agencies into tax cuts for 
private charities.
    The difference between direct spending and tax incentives is 
profound. The first uses the superior capacity of the federal 
government to maintain a comprehensive infrastructure. The second 
depends on the uncertain actions of private individuals and 
organizations, who are least able to give when times are bad. The 
likelihood that the resources of state and local governments and 
private charities will be overwhelmed when times are bad is great.
    When charitable choice is combined with the Administration's budget 
and tax plan, it will pit religious, secular nonprofit and public 
agencies against each other for a declining share of federal funds and 
will divert taxpayer funds away from public agencies and current 
nonprofit providers. It will create the false illusion of ``doing more 
with less.''
    Charitable choice advocates contend that the bill is needed to 
change current policies that discriminate against faith-based 
organizations in the awarding of government grants. In fact, there is 
no discrimination. Many religious organizations receive funds through 
separate secular nonprofit organizations, and many small community-
based organizations face the same administrative obstacles applying for 
funds as do small churches.
    In fact, charitable choice actually would give preferential 
treatment to sectarian organizations. Under H.R. 7, houses of worship 
could retain certain exemptions to rules that all other grantees must 
follow even though they too would be government grantees providing 
publicly-funded services.
    The charitable choice provisions in H.R. 7 allow houses of worship 
to retain special exemptions from federal civil rights and worker 
protection rules in recognition of the fact that religious speech and 
practice are different. Under current law, houses of worship can base 
their hiring and personnel policies on the tenants of their faith. As a 
result, they can refuse to hire or take adverse action against 
individuals because of their religion or because of personal behavior, 
such as sexual preference or contraceptive practices, that does not 
comport with their religious beliefs. From our perspective, this means 
that experienced and qualified employees of public agencies who lose 
their jobs will not be eligible for employment with a sectarian-based 
organization if they practice the ``wrong'' religion.
    In addition, the effect of charitable choice is to expand to 
government-funded programs certain exemptions from worker protection 
laws. Federal court and National Labor Relations Board (NLRB) cases 
show that if entities promulgate, propagate, or indoctrinate a 
religious faith, they would not come under the jurisdiction of the NLRB 
and their workers could not organize and bargain collectively. Federal 
law also exempts employees of churches from the unemployment insurance 
program.
    The current exemptions for houses of worship exist in order to 
protect religion from state intrusion and were intended to apply to 
these organizations only as private sectarian-based entities. If such 
organizations become providers of taxpayer-funded government services, 
the rationale for their special status diminishes and the rationale for 
treating them as any other government grantee is strengthened.
    H.R. 7 goes even further, however, by adding a significant new 
right for sectarian-based organizations not enjoyed by other grant 
applicants. It gives them standing to file a lawsuit against a federal, 
state or local official or agency alleging that they have been denied a 
grant on the basis of their religious character. Since no other grant 
applicant has a similar right to file a lawsuit challenging a grant or 
contract award, H.R. 7 goes well beyond ``leveling the playing field.''
    Implementing charitable choice also appears to provide sectarian-
based organizations with other special advantages in applying for 
federal funds. For example, in the fall of 1998, then-Governor Tommy 
Thompson's administration in Wisconsin announced that welfare agencies 
hiring church groups as partners would improve their chances of winning 
TANF contract renewals and of earning financial bonuses. Such an 
entity, FaithWorks in Milwaukee, subsequently received $670,000 to run 
an addiction recovery program that uses a so-called ``faith-enhanced'' 
12-step program and Bible study. It is now the subject of a lawsuit.
    Such policies and practices will undermine and distort longstanding 
state and local government practices such as competitive bidding which 
are designed to ensure the selection of the most competent and 
effective providers. They will put public officials in a no-win 
situation. For example, if a mayor receives two applications from 
secular non-profit organizations and three from faith-based 
organizations representing different religions, he or she may fear that 
choosing the secular organization could lead to a lawsuit by a rejected 
sectarian-based applicant and that selecting one sectarian-based 
applicant could provoke a lawsuit from another. Religion could take 
precedence over proven experience and effective service delivery and 
capacity; and some religions may receive more favorable consideration 
for federal funds than others.
    We also are concerned that H.R.7 may lead to religious-based 
discrimination against individuals eligible for federal childcare, job 
training, welfare, and housing programs or result in their involuntary 
acquiescence to religious instruction in exchange for assistance. The 
bill allows federal funding of programs that are religious in character 
as long as private funds pay for the religious portions of the program. 
This is the reason for the inclusion of the secular alternative 
requirement.
    However, the secular alternative requirement has very real 
practical limitations. As noted previously, federal direct spending is 
expected to decline even though social services programs have a huge 
backlog of unmet needs. The bill does not specify whether the federal, 
state or local government is responsible for the guarantee of a secular 
alternative program. It also is silent on the right of an individual to 
file a lawsuit if the secular alternative is not available.
    Since there appears no meaningful way to ensure the availability of 
the secular alternative in all cases, the promise of one is empty, and 
some very real dilemmas could arise as charitable choice is implemented 
more aggressively. For example, welfare recipients are subject to 
strict work requirements. If the only available and conveniently 
located program is a faith-based program with which the individual is 
uncomfortable, will he or she be sanctioned for refusing to 
participate? H.R. 7 does not address this issue directly.
    No doubt there are other such instances in which indiscriminately 
inserting charitable choice provisions into a government program will 
have unintended and undesirable consequences. This is because 
charitable choice attempts to mix government and religion even though 
they are fundamentally different.
    Sectarian-based organizations need to maintain their independence 
and religious character and remain free from government scrutiny and 
rules. Maintaining this independence is precisely what has protected 
the spiritual integrity of houses of worship and religious freedom for 
all of us.
    Government needs to be accountable to the taxpayers and voters. 
Taxpayers appropriately expect a proper accounting for use of their tax 
dollars and remedial action in the case of misspent funds, fraud, or 
poor performance. Congress seeks to achieve certain policy objectives 
through provisions creating performance standards, licensing rules, 
auditing requirements, due process protections, equal representation of 
diverse interests in the administration of many federal programs, and 
other program requirements.
    The notion of charitable choice is at odds with one of the 
fundamental principles on which the nation was founded: that both the 
citizens and religion are best protected when government and religion 
are kept separate. It does not, because it cannot, reconcile the two in 
any satisfactory way. Indeed, charitable choice is an idea with strong 
initial appeal that holds up less and less the more public scrutiny it 
receives.
    Many of our ancestors fled to this country seeking religious 
freedom, and we have been successful in protecting their vision. It is 
no accident that religious freedom has flourished and that religious 
bigotry has not been tolerated. By keeping government out of religion 
and religion out of government, we have protected each person's 
religious beliefs while also protecting the government's duty to 
advance society's interests as each generation sees fit. Charitable 
choice is an unwise departure from this tradition and should be 
rejected.

                                

    Chairman McCrery. Thank you, Ms. Meiklejohn. And we 
appreciate your stepping in on short notice to substitute.
    I thank all the witnesses for your testimony. Mr. Neal has 
one quick question.
    Mr. Neal. Thank you, Mr. Chairman.
    Chairman McCrery. Right?
    Mr. Neal. One quick one for Mr. Yopp.
    The question is that there is some criticism in some 
circles--and I have a Shriners hospital in Springfield which I 
am very proud of--but there is some criticism contributing 
excess IRA funds somehow becomes a threat to retirement 
security down the road. Do you think that that is a cause for 
concern?
    Mr. Yopp. No, Congressman. I don't actually think that that 
is the problem. I think that the problem is that the people 
that want to donate to our charities today want it simple. They 
want the ability to take the money out of their IRAs, take it 
straight to the charity, donate the money, and have it, 
basically, tax-free.
    Mr. Neal. I didn't tell Mr. McCrery, but a second question 
quickly.
    [Laughter.]
    Mr. Neal. Are you experiencing, in the hospital system, any 
large number of new patients, because of any circumstance that 
we are not aware of?
    Mr. Yopp. Yes, Congressman, we are.
    Basically, it appears as though some of the HMOs have 
reduced the medical benefits available to children and now have 
taken the position that cerebral palsy patients are not 
treatable.
    Shriners hospitals is in the forefront of trying to treat 
cerebral palsy patients. Cerebral palsy patients will never be 
cured, but they can be made better. And Shiners hospital is 
doing their best to make them better.
    So, we are getting a heavy influx now of cerebral palsy 
patients applying for our services.
    Mr. Neal. We appreciate what you do.
    Mr. Yopp. Thank you, sir.
    Mr. McNulty. Mr. Chairman, I just want to thank all of the 
witnesses for their testimony.
    And I hope that Ms. Meiklejohn will give our best wishes to 
Chuck and tell him that we are all praying for his father's 
speedy recovery. Thank you.
    Chairman McCrery. Thank you, Mr. McNulty.
    And, again, I want to thank all the witnesses for your 
excellent testimony.
    We have a vote on the floor right now. No other member of 
the Subcommittee has a question for this panel, so you all may 
leave and get something to eat or whatever you need do. 
[Laughter.]
    However, we do have one more panel, so the members will be 
back, following this vote, to entertain testimony from the 
third and final panel of the day.
    Thank you. The Committee stands in recess.
    [Questions submitted from Chairman Herger to the panel, and 
their responses follow:]
                              United Jewish Communities    
                                   Washington Action Office
                                       Washington, DC 20019
                                                      June 27, 2001
Wally Herger
Chairman, Human Resources Subcommittee
Ways and Means Committee
U.S. House of Representatives
Washington, DC 20515

    Dear Chairman Herger:

    Thank you for the opportunity to testify at the hearing of the 
Human Resources and Select Revenue Measures Subcommittees of the Ways 
and Means Committee on H.R. 7, the Community Solutions Act of 2001, on 
June 14, 2001. It is my pleasure to be able to respond to your 
additional question, with regard to ensuring secular alternatives in 
the delivery of social services under any Charitable Choice provisions.
    As I stated in my testimony, the presence of a viable, secular 
alternative to any service provided by a house or houses of worship is 
absolutely critical in ensuring that clients in need of social services 
do not feel pressured or uncomfortable in receiving services in a 
religious environment.
    In its current form, H.R. 7 does not provide adequate, proactive 
protection from this. Instead, H.R. 7 proposes that only after a client 
has an objection to the religious character of an organization 
providing services and conveys that objection in some way to the 
government, does the government have the requirement to fund a secular 
alternative. There is no mechanism created in H.R. 7 to ensure that 
this could happen, even after the fact. Current law on Charitable 
Choice, originally included as Section 104 of the Personal 
Responsibility and Work Opportunity Reconciliation Act 1996 [H.R. 
3734], contains similar language stating that an ``alternative 
provider'' should be provided for any client who objects to the 
religious nature of a social service.
    I have reviewed the testimony of Dr. Amy Sherman to which you 
referred in which Dr. Sherman states that:
    Out of thousands of service recipients engaged in programs offered 
by FBOs collaborating with government, interviewees reported only two 
complaints by clients who felt uncomfortable with the religious 
organization from which they received help. In both cases--in 
accordance with the charitable choice guidelines--the clients simply 
opted out of the faith-based program and enrolled in a similar program 
operated by a secular provider.
    The testimony offered by Dr. Sherman is based on anecdotal 
information from interviews with ``faith and government 
representatives'' and not with the clients of these social service 
providers. Accordingly, there is a potentially significant disconnect 
between formally recorded incidences [and the providers' perceptions] 
and what a client's experiences and emotions are.
    There is a strong likelihood that clients who feel uncomfortable 
with the atmosphere of a particular faith-based service provider, 
because of the specific religion of the provider or religiously 
coercive behavior, may choose simply to stop obtaining those services 
rather than lodge a formal complaint against the provider, especially 
where there is no accessible manner in which to request a secular 
alternative. Likewise, Dr. Sherman's research does not seem to account 
for any clients who may feel uncomfortable about the religious nature 
of a provider, but who choose to continue with the services out of fear 
that there is no alternative for them.
    As a social worker who has spent years working directly with 
vulnerable populations, I can attest that the vast majority of clients 
do not have the self confidence, knowledge and wherewithal to insist 
upon their right not to be placed in potentially coercive environments. 
Many people who need assistance have a number of barriers that keep 
them from independence, including disabilities, mental illness, 
illiteracy and/or severe addictions. Their lives are difficult enough 
to begin with, without having the burden of informing the service 
provider which element of the program is unacceptable to them. It is 
easier not to seek the help in the first place with the result that 
clients' health and welfare may be jeopardized.
    Unfortunately, there is no empirical data that supports Dr. 
Sherman's assertions. I would, however, like to offer some of our own 
anecdotal information as evidence that coercion and discomfort are very 
real and problematic issues that have arisen under current Charitable 
Choice laws, and will continue to arise if Charitable Choice is 
expanded.
    United Jewish Communities was first alerted to the issue of 
Charitable Choice a few years ago, when the Jewish Federation of 
Greater Dallas contacted us about a specific experience. In that 
particular instance, a Jewish refugee was seeking services related to 
resettlement and naturalization, and was affirmatively sent by a 
government agency to receive services in a Christian church. For most 
clients, if the government suggests that they attend a particular 
social service agency, it would be unlikely that they would feel able 
to object to the same government about the religious character of a 
particular agency. Our Dallas client felt so uncomfortable that she and 
her family declined services.
    The need for a viable secular alternative is not just an issue that 
arises in rural districts requiring a client to drive many miles to the 
service provider, it can be equally important in large cities. As you 
may know, the Federation system has resettled almost half a million 
Jews from the Former Soviet Union in the last 20 years. Many of these 
new residents are living in major metropolitan areas. Particularly for 
elderly Russian Jews, their neighborhoods can determine how and whether 
they receive social services. Even in the resource-laden and urban area 
of New York, the UJA-Federation of Jewish Philanthropies of New York 
has reported Jewish clients having trouble accessing non-religious 
services in their boroughs or local communities. Particularly with 
people who have faced extreme persecution based on their religion, it 
is unlikely they will be comfortable receiving religiously pervasive 
services under the auspices of a congregation of another faith.
    A lack of adequate and holistic statistical data on this subject is 
just one reason to proceed cautiously and judiciously in expanding 
Charitable Choice provisions. More importantly, clients in social 
service agencies are often in crisis, with limited resources, and are 
much more likely to simply give up altogether, than to attempt to 
negotiate with local or state governmental entities to try and find [or 
wait to create] an alternative that does not contain religious 
programming or content. As we in the social service field begin to see 
clients who are harder to serve, and who posses increasingly more 
difficult barriers to self-sufficiency and independence, it is 
essential that we not establish even more obstacles in an effort to 
relieve need and despair.
    In the end Mr. Chairman, I know you agree with me that our goal is 
to help provide relief and a helping hand to enable people to be as 
independent as possible. Before we change the system in such profound 
ways, we ought to be reasonably sure that the changes will produce 
improved outcomes. Thank you for the opportunity to submit information 
on your question. Please do not hesitate to contact me for any further 
information, or if you would like to schedule a meeting on this topic.
            Sincerely,
                                                 Diana Aviv
                                   Vice-President for Public Policy

cc: Benjamin L. Cardin, Ranking Member, Human Resources Subcommittee
John Conyers, Jr., Ranking Member, Judiciary Committee
Jim McCrery, Chairman, Select Revenue Measures Subcommittee
Michael R. McNulty, Ranking Member, Select Revenue Measures 
Subcommittee
Charles B. Rangel, Ranking Member, Ways and Means Committee
Jim Sensenbrenner, Jr., Chairman, Judiciary Committee
William M. Thomas, Chairman, Ways and Means Committee

                                

                              American Federation of State,
                            County, and Municipal Employees
                                               Washington, DC 20036
Wally Herger
Chairman, Human Resources Subcommittee
Ways and Means Committee
U.S. House of Representatives
Washington, DC 20515

    Question 1: What do you mean by suggesting that the cost of the 
tax-related provisions in H.R. 7 ``will contribute further to an 
erosion of the government-funded social services system'' in the U.S.? 
Hasn't social services spending been rising over the past decades, and 
dramatically at that? Isn't such spending projected to continue rising 
in the future under the President's budget? So what are you referring 
to by suggesting that there already as been an ``erosion'' in funding 
that will deepen in the future?
    Answer: The point that we were trying to make was that the $1.3 
trillion tax cut, which recently was re-estimated to cost $1.8 
trillion, will use up most of the projected available surplus revenue 
over the next 10 years. Enacting additional tax cuts, without offsets, 
will further erode the Federal government's revenue base and therefore 
erode its ability to fund domestic programs in general and social 
service programs in particular.
    According to an analysis by the Center on Budget and Policy 
Priorities, in fact, the President's budget for domestic discretionary 
programs would increase by only 1.5 percent next year once certain 
technical adjustments are made. This is well below the inflation rate 
and a $9 billion cut below the Congressional Budget Office baseline. 
Indeed, the administration's budget proposes level funding or 
reductions for a number of the programs to which H.R. 7 would add 
charitable choice. For example, the adult, youth and dislocated worker 
programs under the Work force Investment Act would be reduced by an 
aggregate total of $359 million in FY 2002. It also cuts spending for 
the Community Development Block Grant program and freezes spending for 
the Job Corps and Community Service Employment programs for older 
Americans.
    A historical look at Federal spending indicates that overall the 
Federal financial commitment to social services, employment and 
training and community development assistance was much stronger in the 
late seventies and early eighties than it is today, particularly when 
measured as a percentage of the Gross Domestic Product. When inflation 
and population growth are considered, Federal spending in these budget 
categories is about 50 percent less than it was in l9eighties. While 
there are some individual cases of large increases, notably for the 
Head Start program and foster care payments, generally Federal spending 
in these categories has fallen far behind. In some individual cases the 
effective drop in spending is dramatic. If the Title XX program had 
kept pace with inflation and population growth, it would be funded at 
$8.5 billion, instead of the $1.7 billion it receives today. The 
President's budget anticipates continued erosion if inflation and 
population growth is considered.
    Question: Has there been any evidence that public agency employees 
have ``lost their jobs'' as you fear under charitable choice to date?
    Answer: AFSCME represents employees of public agencies and non-
profit social service agencies. Given the budgetary picture we have 
described, it is hard not to speculate that the available funds will 
have to be stretched among more providers or that some existing 
providers many not have their contracts renewed if charitable choice is 
adopted. This is especially true since religious applicants are the 
only organizations entitled to challenge grant awards in court.
    The reality so far is that charitable choice has not been implement 
in any systematic manner so far. It has been incorporated into three 
Federal programs, the largest being the Temporary Assistance for Needy 
Families (TANF) program, but the Clinton administration interpreted the 
provision in a manner consistent with prior policy and practice. To our 
knowledge very few sectarian programs that have been funded. Therefore, 
it is not possible to draw any conclusions, based on the experience to 
date, about the full impact of charitable choice on either the public 
agencies or secular non-profit providers yet.
            Sincerely,
                                          Nanine Meiklejohn
                                     Legislative Affairs Specialist
                                          Department of Legislation

                                

    [Recess.]
    Chairman Herger. [Presiding.] This Ways and Means hearing 
will reconvene.
    And I welcome our next panel to the table; Mrs. Humphreys, 
who is secretary of the Indiana Family and Social Services 
Administration. It is good to have you with us. Nathan J. 
Diament, director of public affairs of the Union of Orthodox 
Jewish Congregations of America. Good to have you with us. Mr. 
Brent Walker, executive director of the Baptist Joint Committee 
on Public Affairs. And Ms. Samantha Smoot, executive director 
of the Texas Freedom Network in Austin, Texas.
    With that, why don't we begin our testimony. We may have 
another witness or so come in a little later.
    Ms. Humphreys, if we could begin with your testimony, 
please?

STATEMENT OF KATHERINE HUMPHREYS, SECRETARY, INDIANA FAMILY AND 
     SOCIAL SERVICES ADMINISTRATION, INDIANAPOLIS, INDIANA

    Ms. Humphreys. Thank you, Chairman Herger. And thank you 
Representative Cardin, Chairman McCrery, Representative 
McNulty, and other distinguished members of the Human Resources 
and the Select Revenue Subcommittees.
    It is my pleasure to appear before this Joint Subcommittee 
today to provide information about FaithWorks Indiana, our 
State's initiative to involve faith-based and community 
organizations in providing services to Hoosiers in Indiana.
    I am hopeful that our experience in Indiana with faith-
based and community organizations helps advance the important 
dialog. As you go forward with considering expansion of 
charitable choice, we urge both caution and careful 
consideration.
    We fear that to expand service opportunities to faith-based 
organizations will be counterproductive if those efforts 
unnecessarily threaten the religious character of those groups, 
violate the rights of those seeking assistance from government-
funded programs, or include mandates that reduce the 
flexibility of States to pursue innovative solutions to 
furthering the objectives of welfare reform.
    In Indiana, we, like other States, have had many challenges 
as we have pursued the objectives of welfare reform. We have 
had challenges with community capacity. We have had challenges 
in dealing with people who have not traditionally accessed the 
Health and Human Services networks. And these individuals have 
been more difficult because of multiple issues that they are 
dealing with.
    But in response to these challenges, Governor O'Bannon 
launched FaithWorks Indiana on Thanksgiving in November 1999. 
And it was Indiana's attempt to widen the doorway for faith-
based organizations to access funding.
    Our program has several key ingredients: We have kept it 
simple. We have not changed our procurement systems, nor our 
evaluation systems. We have simply widened the doorway.
    And during the first 18 months, we have developed a 
statewide technical assistance network to assist faith-based 
organizations interested in public funding. We have awarded 
contracts of $3.5 million to approximately 40 faith-based 
organizations. And we are coming to the end of our first grant 
year.
    We have developed an infrastructure to support new 
providers on a variety of issues. We believe that the benefits 
of using faith-based organizations include taking advantage of 
their unique ties in their communities. They have a level of 
trust and respect from neighborhood residents that is 
unparalleled in many other organizations. They are generally 
close in the neighborhoods, close to people that they are 
intended to serve. And they have a new and different approach 
to serving people, who are often members of their congregation.
    The critical components of FaithWorks Indiana is, number 
one, we do outreach to faith-based organizations; two, we use a 
very strong performance-based contracting system; and, three, 
we have an advisory group that provides support for development 
of best practices; and, finally, we provide a wide range of 
technical assistance to faith-based organizations.
    Our technical assistance includes needs assessment; 
information on other funding opportunities; proposal writing; 
reporting requirements; establishing a 501(c)(3), which we 
encourage but we do not require; and we also encourage them to 
partner with other organizations when and if appropriate.
    We have developed an ongoing support structure, which 
includes an 800 number that they can all access; a Web site 
where they can get up-to-date information; and, again, the 
advisory group, which provides support for best practices.
    We have no funding set aside for faith-based organizations. 
They simply compete on a level playing field. Providers are 
chosen on the basis of their ability to provide quality 
services.
    In this last round of funding applications, we found that 
out of 150 applications, about a third of them were faith-based 
organizations.
    We also do extensive site visits to faith-based 
organizations. And, again, these organizations are reimbursed 
through a performance-based contracting system. That is, if 
they are expected to provide General Educational Development 
(GED) training or job training, we pay them according to the 
numbers of people who receive those services and we pay them 
for successful outcomes.
    Let me talk just for a moment about compliance. We do not 
fund worship or religious instruction. And that is included in 
the provider contract. We have on-site monitoring tools to 
ensure compliance, with corrective action plan procedures.
    And we are in the process of developing--in fact, they are 
at the printer now--flyers and posters informing the clients 
that they are ``in the driver's seat'' and that they have the 
rights appeal, should they be forced into some sort of 
religious dialog with the providers of the service.
    We intend to strengthen the monitoring procedures, 
including client surveys. We will be doing an evaluation at the 
end of the first year. We intend to expand this program out 
into the rural areas. And we are going to continue to identify 
public and private sources of funding for faith-based 
organizations.
    And I won't take the time to tell you the many stories 
about the successes that we have had with a number of these 
programs, but I would like to say, in conclusion, that this 
debate is important, and we commend you for promoting and 
sponsoring it.
    As a State administrator, I encourage you to maintain the 
direction and support, but most importantly, maintain the 
flexibility for States to develop their own programs. It is 
important for you to continue to consult with States like 
Indiana before proposing changes, and to learn what is going on 
in the States, what we are learning as we attempt to develop 
this program.
    You need to agree to the basic parameters and principles 
and policy objectives as you debate this issue. The policy 
objectives should be focused on the outcomes, specifically the 
successful transition of people on welfare to productive lives 
and jobs that will support them. And to the extent that we 
achieve those outcomes, people who need assistance, people in 
your community and mine, will benefit.
    You need to encourage States to innovate, to give States 
the incentive and the latitude to ``widen the doorway.'' Hold 
us accountable and we will accomplish great things, and so will 
the citizens of our State who are helped by this program.
    Indiana is moving forward incrementally. We are moving 
slowly. We are learning as we go along. And we look forward to 
sharing our future success with this Committee and others in 
the future. Thank you very much.
    [The prepared statement of Ms. Humphreys follows:]

Statement of Katherine Humphreys, Secretary, Indiana Family and Social 
             Services Administration, Indianapolis, Indiana

    Chairman Herger, Representative Cardin, Chairman McCrery, 
Representative McNulty, distinguished Members of the Human Resources 
and the Select Revenue Subcommittees, thank you for this opportunity to 
appear before this joint committee meeting today to provide information 
about FaithWorks Indiana, our state's initiative to involve faith-based 
and community organizations in providing services to Hoosiers in need.
    I have reviewed H.R. 7, the Community Solutions Act of 2001, 
particularly as it relates to the role of states such as mine regarding 
the existing Charitable Choice provision, and proposed opportunities to 
expand this initiative. H.R. 7 continues the important dialogue we have 
started in our nation concerning the role of faith-based and community 
organizations in providing assistance to individuals and families in 
need in the most effective and efficient means possible.
    I am hopeful that our experience in Indiana with faith-based and 
community organizations helps inform this important dialogue. As you go 
forward with considering expansion of Charitable Choice, we urge both 
caution and careful consideration. We fear that to expand service 
opportunities to faith-based organizations will be counterproductive if 
those efforts unnecessarily threaten the religious character of these 
groups or violate the rights of those seeking assistance from 
government-funded programs.
    As you know, social services in our state and each state take up 
many, many important issues that directly affect the lives of our 
citizens. The issues are quite varied from the expansion of housing 
opportunities for individuals and families or helping our citizens as 
they age, to making sure child care is available for working families. 
Sometimes the help we provide is direct, such as in instances when we 
work to protect individuals and families from domestic violence or help 
provide a meal for people who are hungry.
    As the Secretary of the Indiana Family and Social Services 
Administration, and as executive assistant to our Governor Frank 
O'Bannon, I am very pleased to outline some of the important work being 
done already under the existing Charitable Choice provision, for the 
people of Indiana. Faith-based and community organizations are actively 
involved in social services across our state.
    A timely example of this involvement is at hand just this week--as 
we expect Governor O'Bannon to announce this year's grants for our 
state's successful Fathers and Families initiative that seeks to 
increase the role of fathers in the lives of their children. Among the 
grants being awarded this week, the Governor has included many faith-
based and community organizations who seek to help in improving the 
role of fathers in families.
    The people of Indiana are compassionate and caring about those in 
need. In Indiana, Hoosiers seek common sense solutions to situations 
and concerns that face our citizens.
    And so the response of our faith-based and community organization 
providers to new opportunities afforded them under the Charitable 
Choice provision of the Welfare Reform Act is not at all surprising. 
Further, their interest and participation in FaithWorks Indiana, our 
state-level mechanism to help faith-based and community organizations 
access the system and create ways to help, has been particularly 
noteworthy.
    Since Governor O'Bannon launched FaithWorks Indiana during 
Thanksgiving Week of 1999, the response has been outstanding. Statewide 
meetings drew hundreds of community groups, congregations and other 
faith-based groups to learn more about how they could participate. 
Since that time, faith-based organizations have continued to grow in 
their knowledge and awareness of how to provide or expand services to 
those in need. More than 40 faith-based organizations have provided 
services under contract in Indiana since the inception of FaithWorks 
Indiana, under competitively-selected contracts for human services. 
There are many more that have chosen not to seek contracts, but to work 
in partnerships with our agency and other community groups to help 
families who have limited incomes or are seeking the training and 
skills they need to lift themselves from government assistance.
    We view the work of FaithWorks Indiana as simply `widening the 
doorway,' if you will, for a new generation of potential providers in 
human services and involving them in an integrated service strategy to 
help individuals and families move to self-sufficiency. These new 
providers help us build the provider base, and ultimately may 
contribute to increasing the quality and level of services offered to 
those in need.
    As you know, faith-based and community organization providers have 
always had the opportunity to participate, to contract with the state 
to provide services. In Indiana, however, we have used the advent of 
Charitable Choice to develop FaithWorks Indiana to ensure each 
potential community provider can access the system.
    This has not created any new burden on the system or the state--
rather it has helped create broadened partnerships in providing 
services that bring new perspectives and approaches to supporting 
individuals in need. The technical assistance to access funding and 
services we provide is not a guarantee for faith-based or community 
organization providers, but it does assist them in learning how to 
develop services and access funding. A recent state-by-state survey on 
the participation of faith-based and community organization providers 
singled out Indiana as among the few states where significant, 
meaningful participation of faith-based and community organization 
providers is occurring.
    This participation has occurred in our state without any list of 
special provisions or changes to how we did business before. We simply 
make our process more known in the community. Faith-based providers 
must compete to provide services to individuals in the same manner as 
any other potential contractor with the State of Indiana, utilizing the 
same procurement systems already in place. The difference is, the 
``rules of the game'' have been presented to them.
    When we do that--government wins because we obtain more competitive 
and more diverse bids; the bidder wins because a contract assists them 
meet a social responsibility or business objective; and the family wins 
because services are more available to them. This help includes 
educating them on available funding streams, help in identifying the 
needs of their communities, matching those needs with the funding, 
understanding necessary reporting and performance measurement systems, 
and developing their organizations to meet those needs. That same level 
of help is available, and offered to community-based providers of all 
types.
    The key component in all of this effort is maintaining our 
commitment to performance-based contracting. We expect and demand from 
our contractors, faith-based or otherwise, that they perform specific 
services and achieve specific outcomes with those they serve. Payments 
are based on outcomes so that we can ensure that our service delivery 
system meets the need of those served. We pay only for performance and 
outcomes that we, the state advertise. Outcomes such as these have 
helped us win TANF High Performance Bonuses for the last two years in a 
row for success in the workplace.
    Further, ongoing monitoring and reporting systems remain in place 
so that community-based and faith-based providers get the help they 
need to succeed, and that the State can assure that its outcomes and 
goals are being met. Monitoring includes on-site visits with providers, 
and discussions with individual feedback from those being served. We 
have been clear, no government funds will support worship, religious 
instruction or proselytizing.
    We believe Indiana manages a system that succeeds in `widening the 
doorway' of participation for community-based and faith-based 
providers, while preserving equity in the system and a commitment to 
positive impacts on the lives of those seeking help.
    Our efforts have helped us in meeting what we believed were 
emerging needs in the post-welfare reform era in Indiana. Those 
included continued need for providers to focus services on the entire 
family and the ``whole'' individual. Our efforts also helped us as we 
looked for new ways to help clients needing long-term assistance--
including those facing multiple, deeply-entrenched barriers to self-
sufficiency.
    Faith-based and community organization providers represent a new 
approach to helping for a couple of reasons: they are located in the 
community, near those we seek to serve; and they enjoy a solid 
reputation in the community which builds trust among potential clients.
    In conclusion, let me tell you that much of what has been 
accomplished in Indiana has occurred because of the creativity and 
flexibility allowed under the federal Temporary Assistance for Needy 
Families (TANF) program, and the Charitable Choice provision. We are 
convinced that when given a chance, states and local communities can 
partner together to provide creative solutions to long-standing issues 
and challenges in human services. This is what makes your ongoing 
consideration of Charitable Choice all the more important as we go 
forward.
    It is my hope that by outlining some of the success we have enjoyed 
in carrying out the spirit of the Charitable Choice provision in 
Indiana, we have helped further inform your debate.
    Thank you for this opportunity to discuss Indiana's FaithWorks 
program.

                                

    Chairman Herger. Thank you for your testimony.
    And it is good to have Dr. Amy Sherman with us, senior 
fellow at the Welfare Policy Center of Hudson Institute.
    And without objection, your full testimonies will be 
submitted for the record. And if you could summarize in 5 
minutes, please. Dr. Sherman.

  STATEMENT OF AMY L. SHERMAN, PH.D., SENIOR FELLOW, WELFARE 
                POLICY CENTER, HUDSON INSTITUTE

    Dr. Sherman. Thank you.
    I have been asked to comment specifically on H.R. 7's 
proposal to expand charitable choice. As you know, charitable 
choice is currently applied within four Federal programs: TANF, 
Welfare to Work, Community Services Block Grant, and Substance 
Abuse and Mental Health Services Administration.
    And, obviously, in considering the possibility of expanding 
it, we do well to examine its implementation and effects thus 
far. And my remarks on that topic are based on analysis from a 
nine-State study of the implementation of charitable choice, as 
well as additional research that I have conducted over the past 
few years.
    Charitable choice aims to create a level playing field 
between secular and religious providers for public funding and 
was designed in part to facilitate increased government-faith 
collaboration without compromising the religious character of 
the service providers or abridging the religious liberties of 
clients. And based on my study of charitable choice 
implementation in the nine States, I have concluded that 
charitable choice has accomplished those aims:
    First, it has made government and faith collaboration 
plausible to public officials and religious leaders. It has 
served as sort of a green light to public officials who now 
feel more comfortable reaching out to the faith sector because 
Washington has given its blessing.
    Second, in interviews with both faith representatives and 
government representatives working collaboratively, I have 
found that religious groups are not being forced to sell their 
soul as a result of taking government funds, and I have found 
that clients' civil liberties have been respected.
    The study uncovered no examples of faith-based 
organizations who felt that their religious expression had been 
squelched. And also, and very importantly, out of the thousands 
of service recipients engaged in the programs offered by faith-
based groups, interviewees reported only two complaints by 
clients who felt uncomfortable with the religious organization 
from which they were receiving service.
    And in both cases, in accordance with charitable choice, 
those clients simply opted out of the faith-based program and 
enrolled in a similar program provided by a secular 
organization.
    I should note that relatedly, the nine-State study also 
uncovered no example of clients being unable to exercise that 
right of getting into an alternative secular provider.
    Third, charitable choice is stimulating new partnerships. 
One of the interesting findings of the study was that out of 
all the faith-based groups engaged in financial contracts under 
charitable choice in the nine States, 57 percent, or over half, 
were contracts with faith-based organizations that had no 
previous history of receiving government funding. Thus, as a 
result of charitable choice, the traditional social services 
network has, in fact, been broadened with the inclusion of new 
providers, which means more choices for clients in need.
    Fourth, in some instances, charitable choice has helped to 
stimulate new and more deeply engaged relationships with 
struggling families. What I mean by that is that through their 
collaboration with government, some congregations and faith-
based organizations are offering to low-income citizens 
services that they had not previously offered. Specifically, 
some have shifted from a more relief-oriented approach, such as 
offering food or clothing, to a more development-oriented 
approach, such as offering literacy programs or mentoring or 
job training.
    So the bottom-line, in terms of the news from the front 
lines of the implementation of charitable choice, appears to be 
so far, so good.
    As to the scope and nature of the implementation of 
charitable choice, in the nine States, I uncovered 84 examples 
of financial collaboration with contracts equaling 
approximately $7.5 million.
    In the last 2 years, I have done some additional studies in 
seven other States and have uncovered charitable choice 
contracting equal to roughly $60.5 million.
    The vast majority of these contracts, of course, are funded 
under TANF; the rest under Welfare to Work.
    Mentoring and job training efforts were the most popular 
services that government has been purchasing through faith-
based groups, although the study did uncover a wide variety of 
faith-based programs getting government funding, including 
literacy, and life skills, and homeless programs, and substance 
abuse recovery programs.
    Findings from the nine-State study do indicate that, at 
least to a modest extent, charitable choice has made possible 
the provision of some faith-based social services for the poor 
that might not have been available otherwise.
    Specifically, out of 71 contracts written with faith-based 
groups new to government funding, 13 underwrote services that 
the faith-based group had not previously offered and three were 
written to significantly expand a service that they were 
already providing.
    In conclusion, in the past several years of doing some 
consulting and providing technical assistance to congregations 
and faith-based organizations, I believe that the expansion of 
charitable choice into additional funding streams will 
significantly benefit low and moderate income families, because 
it will make possible both new programs in their communities as 
well as an expansion of current programs.
    This is because it seems as though most congregations are 
more involved with children and youth than they are with 
adults, and many congregations and faith-based groups are 
involved in housing and economic development. But all of those 
services are not the ones typically purchased through TANF or 
Welfare to Work. Thus, by expanding charitable choice into 
Federal funding streams that do underwrite the services most 
commonly offered by faith-based organizations, we ought to see 
an significant expansion of these necessary services in 
distressed communities.
    [The prepared statement of Dr. Sherman follows:]

   Statement of Amy L. Sherman, Ph.D., Senior Fellow, Welfare Policy 
                        Center, Hudson Institute

GENERAL COMMENTS
    Thank you for this opportunity to comment on the Community 
Solutions Act of 2001. I have been asked to comment on the 
implementation of existing Charitable Choice programs, since H.R. 7 
proposes to expand the charitable choice guidelines to additional 
federal funding streams. My remarks are based on observations and 
analysis from the research I have been conducting on this subject for 
the past four years. First, I will make some general comments based on 
my study of charitable choice implementation in nine states (CA, IL, 
MA, MI, MS, NY, TX, VA, and WI) and then offer some specific comments 
on several topics of interest to this subcommittee.
    Charitable Choice aims to create a level playing field between 
secular and religious service providers competing for public funding 
and was designed in part to facilitate increased government-faith 
collaboration without compromising the religious character of the 
service providers or abridging the civil liberties of clients. Based on 
my study of charitable choice implementation in the nine states, I 
concluded that charitable choice is accomplishing those aims:
    First, it has made church-state collaboration plausible to public 
officials and religious leaders. Charitable choice has served as a 
``green light'' to public officials who now feel more comfortable 
reaching out to the faith sector because ``Washington has given its 
blessing'' to such collaboration. Meanwhile, religious leaders who 
mistakenly believed that the principle of separation of church and 
state made financial collaboration improper have discovered within 
charitable choice a formal approval of such collaboration.
    Second, interviews with faith and government representatives 
working collaboratively indicated that religious groups accepting 
government funding are not having to sell their souls, and clients' 
civil rights are being respected. The study uncovered almost no 
examples of faith-based organizations (FBOs) that felt their religious 
expression had been ``squelched'' in their collaborative relationship 
with government. Also, out of the thousands of service recipients 
engaged in programs offered by FBOs collaborating with government, 
interviewees reported only two complaints by clients who felt 
uncomfortable with the religious organization from which they received 
help. In both cases--in accordance with the charitable choice 
guidelines--the clients simply opted out of the faith-based program and 
enrolled in a similar program operated by a secular provider.
    Third, Charitable Choice is stimulating new partnerships. Over half 
of the FBOs currently receiving government funding to underwrite new 
initiatives to serve the poor in the nine states I examined had no 
previous history of government contracting. Thus, the traditional 
social services network is being broadened with the inclusion of ``new 
players.'' Moreover, and importantly, these new players are doing new 
things. That is, in their collaboration with government, churches and 
FBOs are offering low-income citizens services they had not previously 
offered. In most instances, these religious groups have shifted from 
merely providing commodities to the poor (e.g., used clothing or free 
groceries) to working with struggling individuals intensively, face-to-
face, through mentoring and job training programs.
    The bottom line, in terms of the news from the frontlines of the 
implementation of charitable choice is simply this: so far, so good.

SPECIFIC COMMENTS
    Allow me now to comment on several specific topics of interest to 
this hearing.
First, what is the scope of state and local efforts to implement 
        charitable choice in terms of writing contracts with faith-
        based organizations?
    With regard to my study of the nine states, I uncovered 84 examples 
of financial collaborations crafted since 1996.\1\ The total dollar 
amount of these contracts equaled approximately $7,518,667.\2\ (See 
Table A.) Notably, 57 percent of these collaborations were between 
government agencies and FBOs that had had no previous history of 
receiving government funds; thus my earlier comment that charitable 
choice has indeed brought ``new players'' into the arena of government-
supported social services. WI, CA, TX, and MI were the most active 
states in fostering new collaborations with FBOs, and the most common 
types of social services the FBOs were offering were mentoring and job 
training.
---------------------------------------------------------------------------
    \1\ A very small number of the programs listed in Appendix B are 
targeted to low income communities rather than low income individuals. 
While such programs are not formally means tested, they should be 
considered part of the overall welfare system. Only a small fraction of 
aggregate welfare spending is provided through such programs.
    *\2\ Appendix B provides a list of the major Federal and state 
welfare programs covered in this testimony.
---------------------------------------------------------------------------
    In addition to activities in these nine states, I have uncovered 
examples of charitable choice collaborations in seven other states: AR, 
IN, MD, NC, OH, WA, and WV. The total amount of contracting with FBOs I 
uncovered for these states equaled $60,669,000. I have not done an 
exhaustive survey and thus cannot say with certainty whether charitable 
choice contracting is also occurring in additional states. According to 
a recent survey of states conducted by the Associated Press, 31 states 
and the District of Columbia have awarded no government contracts ``to 
religious groups who would have not been eligible'' prior to charitable 
choice.\3\ Based on the knowledge available, it is reasonable to 
conclude that roughly two-thirds of states have not pursued new 
financial contracting opportunities with FBOs under charitable choice. 
Such a conclusion also fits with what we know about charitable choice 
compliance by the states. According to the Center for Public Justice's 
National Charitable Choice Report Card, 37 states and the District of 
Columbia received a failing grade of ``F.'' This grade indicates that 
these states have not made the necessary changes in their procurement 
procedures and contracting language that would bring them into 
compliance with the charitable choice guidelines.\4\
---------------------------------------------------------------------------
    \3\ The White House, A Blueprint for New Beginnings: A Responsible 
Budget for America's Priorities, (Washington, D.C.: U.S. Government 
Printing Office, 2001)
    \4\ Income Security (function code 600) contains some non-welfare 
expenditures, specifically outlays for retired Federal employees and 
other retirement spending. However, the rate of growth of this 
retirement spending changes little from 1 year to the next, therefore 
once the Code 600 outlay totals are known one can predict the means-
tested component with reasonable accuracy.
---------------------------------------------------------------------------
    Table B provides some data drawn from a variety of news reports 
concerning additional contracting activities occurring in the nine 
states and other states. For all the states except MD, NC, and WV, 
these figures concern the total amount of contracting with FBOs; i.e., 
they count not only those contracts written with organizations new to 
formal public collaboration but also those with a history of receiving 
government funds. As Table B indicates, the total of these contracts 
comes to $60,669,000.
    Thus, I estimate that the total amount of contracts in these 15 
states, written both with FBOs new to financial collaboration with 
government and FBOs with previous government contracts, equals 
approximately $68,187,667.000.\5\
---------------------------------------------------------------------------
    \5\ The White House, p. 196.
---------------------------------------------------------------------------
    However, the figures we are most interested in when we pose the 
question, ``How much charitable choice contracting is actually 
happening?,'' are those that tell us about the scope of contracting 
with FBOs that are new to the arena of formal government collaboration. 
After all, Charitable Choice purposes to create a level playing field 
for faith-based providers of social services in the competition for 
public funding; it is about providing equal access to organizations 
that desire to preserve their religious identity and character when 
receiving public dollars. Therefore, in Table C, I have provided an 
estimate of the total of contracting between government agencies and 
these ``new players'' in the nine states of my original study. The 
grand total of such contracts for these nine states equaled $5,029,755. 
This means that, of funds undergirding all the financial contracts 
these nine states wrote with FBOs, approximately 67 percent of the 
dollars went to FBOs that were not part of the traditional--some would 
say ``old boys' network'' of--religiously affiliated social service 
providers.
    Finally with regard to the scope of contracting, it should be noted 
that the vast majority of contracts uncovered in the study were those 
funded under the TANF (Temporary Assistance to Needy Families) program. 
The rest were funded under the Department of Labor's Welfare to Work 
program. I found no instances of contracts with FBOs written under the 
CSBG (Community Services Block Grant) or SAMHSA (Substance Abuse and 
Mental Health Services Administration) programs (these are the other 
two federal funding streams currently regulated by charitable choice).
The second topic of interest concerns the nature of services being 
        provided to the poor through these government-faith 
        collaborations.
    By far in the nine states studied, mentoring and job training 
efforts were the most popular programs being funded through contracts 
with ``new'' FBOs. From the information available regarding contracting 
in other states besides those nine, again mentoring and job training 
services topped the list. That is not to say, however, that these are 
the only services being offered. Under charitable choice, FBOs are also 
providing transportation services, life skills training, shelter and 
counseling for the homeless, and substance abuse recovery programs.
Third, we can ask the question: What difference is charitable choice 
        making? In other words, to what extent are states and 
        communities contracting with FBOs that could have received 
        private funds and provided the services without charitable 
        choice?
    This is not an easy question to answer in the absence of 
significant discussions with the leaders of FBOs that are involved in 
these contracts. What we can say, from the nine-state study, is that 
there were 71 contracts government agencies had written with FBOs that 
did not have a previous experience of accepting government funding. Out 
of those 71 contracts, 13 were to underwrite a new service that the FBO 
had not previous offered and 3 were with nontraditional FBOs who, as a 
result of their charitable choice contracts, significantly expanded an 
``old'' service.
    Regarding activities outside the nine states of the original study, 
it appears that charitable choice has stimulated new services by 
nontraditional FBOs in West Virginia (Mission West Virginia) and in 
North Carolina (Faith Empowerment Coalition) and that it has stimulated 
a significant expansion of current services by other nontraditional 
FBOs (e.g., Jobs Partnership in NC and Payne Memorial Outreach in MD).
Fourth, we can ask to what extent are states putting into place the 
        necessary infrastructure for recruiting and managing faith-
        based involvement.
    Table D lists some information relevant to this query. As it 
indicates, 14 states have formally designated staff persons to serve as 
liaisons to the faith community (AZ, AR, CA, CO, GA, MD, NJ, NY, NC, 
OH, OK, PA, TX, VA). Indiana has established Faithworks, an agency 
within the state's Family and Social Services Administration 
specifically designed to provide to FBOs technical assistance about 
contracting with government. Texas actually designates a staff person 
as a faith-based liaison in each of the DHS's ten regions; Texas has 
also put in place an accounting/reporting system to keep track of the 
number of contracts being written with FBOs by the Department of Human 
Services and by the Texas Workforce Commission. Virginia and North 
Carolina, in addition to their state-level liaison to the faith 
community, have designated regional or county-level faith-based 
liaisons.
    In addition, some states have formally reached out to the faith 
community by sponsoring state-wide or regional conferences on the faith 
community role's in welfare reform. VA, CO, TX, NJ, IN, OH and PA are 
among those that have done this; OK and UT are currently planning such 
events.
    In states that have pursued significant privatization of welfare 
service delivery, to discover how charitable choice is being 
implemented it is necessary to examine the relationship between FBOs 
and those nongovernment entities that hold contracts with state 
government to administer welfare and/or operate ``One Stop'' career 
centers. As regards this group, a few findings are notable. Wisconsin 
has formally encouraged private welfare contractors known as ``Local 
Service Providers'' (LSPs) to subcontract with FBOs by making such 
subcontracting a ``best practice'' that state officials look for when 
reviewing the proposals of competing LSPs.\6\ Also, Florida's state 
Workforce Development Board is currently underwriting a dialogue 
between FBOs, business leaders, and individuals from the One Stop 
Centers that has as its aim the production of a series of 
recommendations for the state as to how it can facilitate fruitful 
collaboration between the state's One Stop Centers and the faith 
community.
---------------------------------------------------------------------------
    \6\ Projected outlay figures taken from Office of Management and 
Budget, Budget of the U.S. Government: Fiscal Year 2001, (Washington, 
D.C.: U.S. Government Printing Office, 2000). Table 32-2, pp. 352-364.
---------------------------------------------------------------------------
Fifth and finally, we can ask what lessons have been learned thus far 
        concerning the implementation of charitable choice.
    The first two, most obvious lessons are that (1) there exists a 
great need to educate public officials about charitable choice and (2) 
public officials need to be held accountable to comply with charitable 
choice in their state policies and procedures. Charitable Choice is the 
law and is not optional.
    The other lessons may be less obvious. One is to recognize that 
direct financial collaboration between government entities and FBOs is 
just one means of cooperation. My nine-state study uncovered over 40 
examples of creative, non-financial collaborations through which 
individuals in need were receiving important supportive services from 
FBOs. In addition, the fact that Charitable Choice provides equal 
access to FBOs in the competition for public funding does not mean that 
efforts to create other means of increasing resources to effective FBOs 
should not be simultaneously advanced. H.R. 7 is attentive to these by 
proposing changes to allow non-itemizers to deduct charitable 
contributions and permit tax-free withdrawals from IRAs for charitable 
contributions. Congress would do well also to pursue efforts to 
increase the use of vouchers in the social service arena and encourage 
federal and state charity tax credits.
    Moreover, in a significant number of cases (20), the financial 
relationship between the government and the FBO was an indirect one, 
mediated via a strategic intermediary organization. In these examples, 
government wrote a generally large contract with the intermediary 
organization (usually a large, administratively sophisticated nonprofit 
such as Goodwill) and then the intermediary organization wrote sub-
contracts for specific services with smaller-sized FBOs. This 
arrangement was universally reported as a win-win situation. Government 
was enabled to write one large contract with an organization that it 
was confident had the technical expertise and experience to 
appropriately manage and administer the dollars, and small and mid-
sized FBOs that would never have been able successfully to secure or 
administer a huge contract were able to partner with the intermediary 
and receive a modest and manageable amount of funding that supported 
their important and needed work. The FBO leaders from these 
arrangements that I interviewed also often volunteered that they were 
glad for the additional ``distance'' from government the indirect 
contracting mechanism afforded; they felt possible church/state 
tensions were diminished in this ``arms-length'' relationship.
    A second less obvious lesson learned is that, despite significant 
media accounts to the contrary, conservative and Evangelical faith-
based organizations are notably involved in charitable choice 
contracting. Fully 20 of the 84 financial collaborations engaged 
organizations labeling themselves conservative or Evangelical.
    Third, the nine-state study uncovered no examples of a client being 
unable to exercise his or her right of receiving services from an 
alternative, secular provider. The charitable choice guidelines insist 
that states must provide a secular alternative for clients who do not 
desire to receive their services from a faith-based provider. Even in 
my interviews with public officials from rural areas, I did not hear of 
any examples of clients being unable to exercise this right because of 
the lack of a geographically accessible secular provider.
    Fourth, it is clear that both public officials and faith-based 
leaders need to be more careful to incorporate the charitable choice 
guidelines into the language of their contracts. In many instances, the 
contracts written with the FBOs utilizing federal funds regulated by 
charitable choice were the standard, ``boiler-plate'' contracts used 
prior to the 1996 reforms. Such contracts do not include the formal 
language of the charitable choice provisions. As noted earlier, this 
failure to codify charitable choice in these contracts has not led to 
serious problems with respect to the rights of FBOs or service 
beneficiaries. Nonetheless, as government-faith collaborations continue 
to increase, it will be important for both parties to be more 
intentional in formalizing their working relationship according to the 
guidelines specified by charitable choice. Doing so will further 
minimize the likelihood of problems for either FBOs or clients.
    Fifth, and finally, it is clear that charitable choice contracting 
is not a good option for all FBOs. Some lack the necessary 
administrative capacity for managing government contracts of any 
significant size. Others, based on their theological doctrines, cannot 
in good conscience accept government funding. Still others may so 
premise their community healing efforts on direct evangelism and 
proselytization that they would find it difficult to navigate the 
guidelines of charitable choice, which protect the religious character 
of FBOs receiving public funding but prohibit the expenditure of public 
dollars for purposes of sectarian worship or proselytization. However, 
for many other FBOs, collaborating with government may be a fruitful 
strategy that advances their mission and strengthens their community 
development projects and/or their initiatives to lovingly assist 
vulnerable citizens in achieving their highest potential.
    H.R. 7 takes seriously the tremendous current contribution FBOs and 
houses of worship currently make in strengthening America's social 
safety net. Recent studies by Professor Ram Cnaan of the University of 
Pennsylvania\7\ and Professors Carl Dudley and David Roozen of Hartford 
Seminary,\8\ for example, suggest that over 85 percent of congregations 
provide critical social services, from preschools to prison ministries, 
health clinics and tutoring programs, to food pantries and literacy 
classes. Moreover, there is significant anecdotal evidence as to the 
effectiveness of FBOs in solving our most difficult social problems \9\ 
and growing empirical evidence of the importance of religion in the 
lives of at-risk youth in assisting them to escape the deleterious 
effects of living in disordered and distressed neighborhoods.\10\ In 
the era of welfare reform devolution, it is clear the strength of the 
faith sector must be tapped in the great struggle against poverty. H.R. 
7 proposes to do so through a variety of means. The expansion of 
charitable choice is one--certainly not the only effort needed--but one 
that has thus far well-served the interests of those whom many in our 
society consider ``the least of these.''
---------------------------------------------------------------------------
    \7\ Ram A. Cnaan and Gaynor I. Yancey, ``Our Hidden Safety Net,'' 
in E.J. Dionne and John J. DiIlulio, Jr., eds., What's God Got to Do 
with the American Experiment? (Washington, D.C.: The Brookings 
Institution, 2000) chapter 21.
    \8\ Carl S. Dudley and David Roozen, ``Faith Communities Today,'' 
(Hartford Institute for Religion Research at Hartford Seminary, March 
2001).
    \9\ See, for example, Amy L. Sherman, Restorers of Hope (Crossway 
Books, 1997); Ronald J. Sider, Just Generosity (Baker Books, 1999), and 
Robert L. Woodson, Sr., The Triumphs of Joseph (The Free Press, 1998).
    \10\ See, for example, Byron R. Johnson, ``A Better Kind of High,'' 
(University of Pennsylvania Center on Research on Religion and Urban 
Civil Society, 2001).

              TABLE A.--CONTRACTING UNDER CHARITABLE CHOICE
         [Results from 9-State Study (research completed 8/99)]
------------------------------------------------------------------------
                                                            Indirect
               State                 Direct Contracts      Contracts
------------------------------------------------------------------------
CA................................         $1,116,608           $771,000
IL................................         $1,313,000           $490,000
MA................................            $40,000           $300,000
MI................................           $744,470           $ 10,000
MS................................               NONE               NONE
NY................................         $1,860,705               NONE
TX................................           $130,449               NONE
VA................................           $114,568      1 (no $ info)
WI................................           $385,867           $242,000
                                   -------------------------------------
    SUBTOTALS.....................         $5,705,667         $1,813,000
    GRAND TOTAL = $7,518,667
------------------------------------------------------------------------

                TABLE B.--ADDITIONAL/UPDATED INFORMATION
                   [AP and other news accounts, 2001]
------------------------------------------------------------------------
            State                      Amount                  #
------------------------------------------------------------------------
AR..........................         $ 1,000,000 est.                 14
IN..........................               $3,500,000                 40
MD..........................      at least $1,500,000         at least 1
MI..........................             $ 30,000,000           \11\ 150
MO..........................              $ 1,005,000            12 est.
NC..........................        at least $363,000         at least 2
OH..........................        $17,000,000+ est.        at least 31
TX..........................    $ 5,000,000 ('00-'01)                 23
WA..........................    $ 951,000 (since '98)        # not given
WVA.........................     $ 350,000 (at least)       1 (at least)
    SUBTOTAL = at least
 $60,669,000................
------------------------------------------------------------------------
\11\ $2 million was awarded in 19 contracts to FBOs with no formal
  history of receiving government funds.

       TABLE C.--CHARITABLE CHOICE CONTRACTS WITH ``NEW PLAYERS''
                      [Results from 9-State Study]
------------------------------------------------------------------------
                                                            Indirect
               State                 Direct Contracts      Contracts
------------------------------------------------------------------------
CA................................         $1,116,608           $771,000
IL................................         $1,313,000           $490,000
MA................................           $ 40,000           $300,000
MI................................          $ 301,300           $ 10,000
MS................................               NONE               NONE
NY................................          $ 150,000               NONE
TX................................           $ 95,449               NONE
VA................................           $114,568      1 (no $ info)
WI................................           $ 85,830           $242,000
                                   -------------------------------------
    SUBTOTALS.....................         $3,216,755         $1,813,000
    GRAND TOTAL = $5,029,755
------------------------------------------------------------------------

             TABLE D.--STATES' EFFORTS TO REACH OUT TO FBOs

Faith-based Liaisons
    * 14 states have formally designated a staff person(s) to serve as 
liaisons to the faith community (AS, AR, CA, CO, GA, MD, NJ, NY NC, OH, 
OK, PA, TX, VA).
Conferences
    * VA, CO, TX, NJ, IN, OH, OK, PA and UT are among those that have 
sponsored state wide or regional info conferences.
Technical Assistance
    * IN and TX have formal systems for providing TA to FBOs.
Monitoring/Tracking CC Implementation
    * TX has a formal system.
    * Data provided by Wisconsin's Department of Workforce Development.

           APPENDIX A.--F-B CONTRACTING IN CONTEXT IN WI 2000
------------------------------------------------------------------------
                                    Total
         Region Name             Contracting   FB Contracting      %
------------------------------------------------------------------------
Ashland Region...............      $2,273,703        $360,922        16%
Eau Claire Region............        $723,004         $41,400         6%
Green Bay Region.............      $5,762,893   \12\ $920,088         16
Milwaukee W-2 Agencies            $10,038,462        $400,400          4
 Employment Solutions........
YW-Works.....................      $3,112,353        $115,200        3.7
OIC..........................     $41,545,000         $77,500         >1
Maximus......................      $1,491,084        $171,001        1.4
UMOS.........................      $1,518,464         $92,465          6
------------------------------------------------------------------------
\12\ Does not include contracts with two FBOs that receive money on a
  per client basis.

                                

    Chairman Herger. Thank you for your testimony, Dr. Sherman.
    And now we will hear from Reverend Luis Cortes, president 
of the Nueva Esperanza in Philadelphia, Pennsylvania. Reverend 
Cortes?

   STATEMENT OF REVEREND LUIS CORTES, JR., PRESIDENT, NUEVA 
  ESPERANZA, INC., PHILADELPHIA, PENNSYLVANIA, AND CHAIRMAN, 
  NATIONAL HISPANIC RELIGIOUS PARTNERSHIP FOR COMMUNITY HEALTH

    Rev. Cortes. Thank you, Mr. Chairman.
    I represent Nueva Esperanza, the largest Hispanic faith-
based community development corporation in the country. I also 
serve as chairman of the National Hispanic Religious 
Partnership for Community Health, a national ecumenical 
umbrella organization of over 5,000 Hispanic congregations in 
40 States, Puerto Rico, and the District of Columbia. It is the 
only network of its kind in the country.
    I represent the hundreds of Hispanic communities of poverty 
that desperately need this legislation. H.R. 7 would allow us 
to compete for Federal funds in areas such as health care, 
housing, economic development, childcare, juvenile delinquency, 
crime prevention, and domestic violence prevention, where are 
currently precluded to compete but most qualified to serve.
    Remove this discriminatory practice against us and create a 
level playing field and allow all who wish to increase service 
to their communities to compete for Federal funds. Only the 
most qualified will ultimately receive Federal funding, but the 
opportunity to compete should be for all.
    Once allowed to compete, faith-based organizations can do a 
better job of reaching those the Federal programs are designed 
to serve. I know we can do better because we have done so with 
State funds, private funds, and foundation grants, and local 
initiatives.
    Located in Hispanic Philadelphia, Nueva Esperanza serves 
the poorest community of our city. In a community with a 40 
percent male high school drop-out rate, we run a charter high 
school program that is a national model and recently started a 
junior college.
    We have built and rehabilitated over 100 single-family 
homes and helped over 700 families obtain their first mortgage.
    We own a 150-acre campground outside of the city where many 
Philadelphia children experience their first overnight camping 
experience, their first night outside of the city.
    We are currently developing a 6-acre industrial site into a 
community service building, and it is turning around an entire 
neighborhood.
    We have touched thousands of lives in Philadelphia and 
Nueva is just but one agency with only 13 years in existence. 
Congregations and faith-based organizations can do so much more 
if we are provided the opportunity to compete for resources.
    And there is a need for more. Despite America's recent 
prosperity, many Americans have indeed been left behind: 34.5 
million Americans live below the poverty level; 44 million go 
without health insurance. Many are Hispanic Americans who, 
despite working very hard, find themselves isolated in rural 
and urban communities. Isolated first by poverty and second by 
language.
    The Hispanic families turn to the local faith community as 
their primary place of assistance. In many Hispanic 
communities, the local congregation is the only institution 
that is owned by the people of the community--not the police, 
not the fire, school, or even the social service agency, if one 
exists.
    In the Hispanic congregation, even God speaks Spanish.
    Our people turn to that institution because of their trust 
in it--trust that has been earned through decades of service. 
It is a better, faster, and more effective way to communicate 
and serve those in need.
    Frequently, the most trusted institution, churches and 
congregations are physically and socially at the center of the 
Hispanic community. Unfortunately, congregations in those 
communities are in the poorest neighborhoods, and they reflect 
the economics of that neighborhood and often lack the finances 
to provide better services.
    Expansion of charitable choice would provide the 
opportunity to partner with the Federal Government to help 
serve our communities, to reach those who have remained 
untouched by traditional agencies and services.
    It is faith-based 501(c)(3) agencies like Nueva Esperanza, 
founded by people with a mission, connected to and trusted by 
the community, that have the best chance at succeeding where 
traditional agencies have failed.
    I believe faith-based institutions can do better because of 
their desire and motivation to succeed. Service is not just 
employment, but also a sacred trust, a duty, a mission.
    For religious organizations, it is a mission that is bound 
by our religious conviction to love. This is a commodity that 
cannot be purchased by government, and it is a byproduct of the 
mission, yet it is the ingredient that has assisted more people 
to transform their lives.
    Mr. Chairman, there are unfortunate families; they are on 
the brink of dissolving. Hungry, abused, neglected, isolated 
Latino Americans--they need help and this is what is at stake 
here.
    This is what charitable choice is about. I ask you to allow 
us to compete and show that we are worthy of the opportunity.
    Thank you for allowing me to testify before you today.
    [The prepared statement of Rev. Cortes follows:]

  Statement of Reverend Luis Cortes, Jr., President, Nueva Esperanza, 
   Inc., Philadelphia, Pennsylvania, and Chairman, National Hispanic 
               Religious Partnership for Community Health

    Thank you, Mr. Chairman, and members of the Committee for inviting 
me to testify before you today on the importance of H.R. 7--the 
Community Solutions Act of 2001.
    I am The Reverend Luis Cortes, Jr., president of Philadelphia-based 
Nueva Esperanza--the largest Hispanic faith-based community development 
corporation in the country. I also serve as chairman of the National 
Hispanic Religious Partnership for Community Health, a national 
ecumenical umbrella organization of over 5,000 Hispanic congregations 
in 40 states, Puerto Rico, and the District of Columbia. It is the only 
network of its kind in the country. The Partnership was initiated under 
the Clinton Administration but it is only today, with President Bush's 
faith-based initiative and the advancement of H.R. 7 that its full 
potential can be realized.
    Communities of poverty desperately need this legislation. 
Unfortunately, a great deal of confusion and misconception still exists 
about what this legislation will and will not do, and why it is so very 
important.
    The misconceptions regarding H.R. 7 fall into three broad 
categories: issues surrounding the separation of church and state 
guaranteed by our First Amendment, concern over discriminatory hiring 
practices and, most important, questions regarding the necessity of 
expanding charitable choice to serve Americans in greatest need.
    The first misconception is that by permitting government funding of 
faith-based social service providers, H.R. 7 threatens the First 
Amendment--the cornerstone of American religious liberty--the 
separation of church and state.
    H.R. 7 clearly prohibits federal, state, and local funds from being 
used for ``sectarian worship, instruction, or proselytization.'' This, 
quite simply, insures the Acts' compliance with the First Amendment. 
Nueva Esperanza has served the Hispanic community in Philadelphia for 
over twelve years and we have never proselytised, we do not attempt to 
convert anyone from their beliefs, if any, to ours.
    Nueva Esperanza is not a church--we are a 501(c)(3) agency that 
provides services to our community. Our mission is to serve those in 
need. Many, if not most, of our hospitals and universities began and 
remain faith-based institutions, working side by side with all levels 
of government and the private sector for generations. At Nueva we, like 
these hundreds of faith-based hospitals, universities and thousands of 
non-profit faith-based based agencies, understand the distinction, the 
need to separate church and state.
    The second misconception surrounds claims that The Community 
Solutions Act would allow faith-based groups to discriminate in their 
hiring practices, excluding those with different beliefs, different 
lifestyles. It is actually the Civil Rights Act of 1964 that states, 
``in order to maintain their religious character, faith-based 
organizations may require that its employees adhere to the religious 
practices of the organization''. This provision has been in place for 
over 35 years.
    Over the course of nearly four decades this provision has been at 
the disposal of religious organizations that have been providing 
services to the poor with government assistance. Nueva, for example, 
has hired hundreds of people and religious preference has not been an 
issue in our hiring. Catholic Charities, the Salvation Army, countless 
faith-based universities and hospitals have done the same. There is no 
evidence that the 1964 Civil Rights Act has led to discriminatory 
hiring practices in four decades. Nor would we expect any with the 
passage of H.R. 7.
    The third misconception and most fundamental area of confusion 
relates to the need to expand charitable choice. Charitable choice 
refers to the provisions of the 1996 welfare reform legislation that 
allows faith-based organizations to compete for federal funds--but only 
under the limited Temporary Assistance to Needy Families (TANF) 
jurisdiction. To date, these funds have been used very successfully for 
social services block grants, and drug and alcohol addiction services. 
The charitable choice provisions of H. R. 7 would allow faith-based 
organizations to compete for federal funds in areas from which they are 
currently precluded.
    We have a fundamental right in this country to compete. H. R. 7 
would allow us to compete for federal funds in areas such as health 
care, housing, economic development, childcare, juvenile delinquency, 
crime prevention and domestic violence prevention. These are areas 
where today congregations are never allowed to compete and faith-based 
non-profit organizations are only occasionally allowed to compete for 
federal program funds. We should create a level playing field, remove 
past biases against us, allow all who wish to increase service to their 
communities to compete for federal funds. Only those most qualified 
will ultimately receive federal funding, but all should be allowed to 
compete.
    Once allowed on the playing field, we can do a better job of 
reaching those the federal programs are designed to serve. I know we 
can do better because we have done so already. We have done so with 
state funds and private funds and foundation grants and local 
initiatives.
    Nueva Esperanza is located in Hispanic Philadelphia, the poorest 
community of our city. In a community with a 40% male high school drop-
out rate, we run a charter high school that serves as a national model 
and recently started a junior college. We have built and rehabilitated 
over 100 single-family homes and helped over 700 families obtain their 
first mortgage. We own a 150-acre campground outside of the city where 
many Philadelphia children experience their first overnight camping 
experience, their first night outside of the city. We are currently 
developing a 6-acre industrial site into a community service building 
and it is turning an entire neighborhood around. We have touched 
thousands of lives in Philadelphia and Nueva is just one agency with 
only thirteen years in existence. Congregations can do so much more if 
we are provided the opportunity to compete for resources.
    And we must do more. Despite our recent prosperity many Americans 
have indeed been left behind. 34.5 million Americans live below the 
poverty level; 44 million go without health insurance. Many are 
Hispanic Americans who, despite working hard, find themselves isolated 
in rural and urban communities. Isolated, first by language and second, 
by poverty. These Hispanic families turn to the local faith community 
as their primary place of assistance. In many communities the local 
congregation is the only institution that is owned by the people of the 
community. Not the police, fire, school or even the social service 
agency--if one exists. In the congregation even God speaks Spanish. Our 
people turn to that institution because of their trust in it--trust 
that has been earned through decades of service. It is a better, faster 
and more effective way to communicate and serve those in need.
    Churches and congregations are physically and socially at the 
center of the Hispanic community, frequently the most trusted 
institution. Unfortunately, congregations in the poorest neighborhoods 
reflect the economics of that neighborhood and often lack the finances 
to provide better services. Expansion of charitable choice would 
provide the opportunity to partner with the federal government to help 
serve our communities, to reach those who have remained untouched by 
traditional agencies and services.
    In Philadelphia, we have a 40% male high school dropout rate in the 
Hispanic community. We have a 38% teen pregnancy rate. Traditional 
agencies are not enough--we need to do more. It is faith-based 501(c) 3 
agencies like Nueva--founded by clergy, run by a pastor, connected to 
and trusted by the community--that have the best chance at succeeding 
where traditional agencies have failed. We cannot leave these folks 
behind.
    I believe faith-based institutions can do better because of their 
desire and motivation to succeed. Service is not just employment, but 
also a sacred trust, a duty, a mission. For religious organizations it 
is a mission that is bound by our religious conviction to love. This is 
a commodity that cannot be purchased by government; it is a by-product 
of the mission, yet it is the ingredient that has assisted more people 
to transform their lives.
    I believe strongly that charitable choice should be expanded 
because it is the right thing to do to reach those in need. I also 
believe in doing the right thing even when it is not the most popular. 
Nonetheless, it was reassuring to learn of a recent survey by the Pew 
Charitable Trust where 70% of those surveyed support proposals to 
provide government subsidies to religious groups that run social-
service programs (The Pew Forum on Religion & Public Life and the Pew 
Research Center for the People and the Press survey of telephone 
interviews with 2,041 adults, April 2001). I offer the following 
findings for your consideration:
    77% of those surveyed said they thought a good reason to support 
government financing of religious groups was that it would make it 
easier for people in need of help to choose from a wide range of social 
service groups other reasons to support such aid. 72% felt that people 
who work or volunteer at religious group would be more caring and 
compassionate than those at other social service institutions or 
providers. 62% said that religious groups could do a better job than 
other organizations because the power of religion can change people's 
lives. 60% said that religious groups could provide services more 
efficiently than government programs.
     Age. 80% of those under 30 support government aid to nonprofit 
groups that have a religious affiliation, compared with only 55% of 
those 65 and older.
    Race and ethnicity. 81% of African-Americans and the same 
percentage of Hispanics support efforts to channel government aid to 
religious groups, compared with 69% of whites. Only 17% of African-
Americans and 16% of Hispanics said they thought nonprofit groups could 
best serve people in need, compared with 28% of whites.
     Income. People with higher incomes are slightly less likely to 
believe that religious groups should be able to compete for government 
funds--69% of people with family incomes of $50,000 or more support the 
idea, compared with 75% of those whose family income is less than 
$20,000. Affluent people are also much more likely to think nonprofit 
groups are best at providing social services-38% of those with family 
incomes of $75,000 or more believe that is true, compared with 21% of 
those with family incomes under $20,000.
    (The report is available at HYPERLINK ``http://www.pewforum.org'' 
http://www.pewforum.org. with a synopsis available in the April 19 
edition of The Chronicle of Philanthropy)
    Mr. Chairman, there are unfortunate families, those that are on the 
brink of dissolving, hungry, abused, neglected, isolated Americans--
this is what is at stake here. This is what charitable choice is about. 
I ask you to allow us to compete and show that we are worthy of the 
opportunity.
    Thank you for allowing me the opportunity to testify before you 
today.

                                

    Chairman Herger. Thank you, Reverend Cortes. And now Mr. 
Diament.

  STATEMENT OF NATHAN J. DIAMENT, DIRECTOR OF PUBLIC AFFAIRS, 
       UNION OF ORTHODOX JEWISH CONGREGATIONS OF AMERICA

    Mr. Diament. I thank you, Mr. Chairman.
    I represent the Union of Orthodox Jewish Congregations of 
America (UOJCA), which is a nonpartisan organization in its 
second century of serving the traditional Jewish community, and 
representing nearly 1,000 Jewish synagogues and their many 
members around the country.
    Since you have entered our written testimony into the 
record, I will try to speak quickly and hit the highlights.
    The first point I would like to make is that we should 
appreciate the fact that we are having in America in the early 
21st century a great discussion both about the relationship 
between religion and State, and also a renewed discussion about 
how to deal with the social welfare challenges that confront 
us.
    This effort has been spurred of late by the Bush 
administration's initiative, but it was also started, as has 
been noted earlier today, with four laws that were signed into 
law by President Clinton. I note this because it is often lost 
in the discussion that charitable choice initiatives have 
always been bipartisan initiatives, as they are in the case of 
H.R. 7. And just because this initiative is now receiving 
greater attention, that should not be the cause for baser 
partisanship, as some would have it.
    The faith-based initiative does seem to have become of a 
political Rorschach test, with all sorts of people groups 
projecting their worst fears upon it. But if we think about the 
questions carefully, they are complex, but can we deliberate 
and come up with the right answers, I believe.
    We at the UOJCA do not suggest, as some might, that every 
faith-based social service provider will do a better job than a 
secular or government agency. All of these entities are staffed 
by real people. Some will do better; some will do worse. Some 
people in need will be better served by a faith agency; some 
will not.
    But I think we learned a long time ago that one-size-fits-
all approaches are not the way to go these days. We need HUD 
and Habitat for Humanity; we need HHS and the Hebrew Home for 
the Aged.
    Moreover, we believe that enacting charitable choice and 
expanding these partnerships is not an excuse for letting the 
government shirk its commitment to devote an appropriate level 
of financial and human resources directly to addressing social 
needs.
    As to some of the issues that were raised earlier today in 
your members' panel, our position is that Establishment Clause 
stands for a simple proposition: that the government may not 
favor religion over other religions or religion over 
nonreligion. But it does not stand for the proposition that 
government must favor the secular over the sacred. The 
Establishment Clause, as the Supreme Court has said, demands 
neutrality toward religion, not hostility.
    Just this past Monday, the Supreme Court reinforced this 
central understanding of the Establishment Clause in a decision 
called Good News Club v. Milford Central School.
    That dealt with the question of whether of Christian youth 
group could have equal access to public school facilities after 
hours, along side the Boy Scouts and Girl Scouts and various 
other secular organizations. And the suggestion was the 
Establishment Clause would not allow the religious group to 
have equal access.
    The Court said that: The suggestion that treating the 
religious youth group on a equal basis with secular groups 
would damage the neutrality defies logic. The guarantee of 
neutrality is respected, not offended, when government, 
following neutral criteria and evenhanded policies, extends 
benefits to recipients whose ideologies and viewpoints, 
including religious ones, are broad and diverse.
    The Court also said: We decline to employ the Establishment 
Clause using a modified heckler's veto, in which a group's 
religious activity can be proscribed on the basis of what the 
members of the audience might misperceive.
    A decision last year, entitled Mitchell v. Helms, also 
dealt with the neutrality question. It is a more fragmented and 
more complicated decision, but more akin to charitable choice. 
It also deals with direct government funding.
    But it, too, puts neutrality as the central understanding 
of what the Establishment Clause requires on the part of 
government.
    I would also say we are very focused upon the Free Exercise 
Clause, the religious liberty rights that are protected in H.R. 
7 as well, both with regard to beneficiaries and with regard to 
agencies.
    With regard to beneficiaries, we think it is critical that 
no religious coercion take place. And we view the opt-out, the 
notion that they are given notice and the opportunity to opt 
for a secular alternative program, as critical for how to 
protect the religious rights of all American citizens.
    With regard to the faith-based providers, we believe that 
not augmenting or changing in any way the Title VII exemption, 
which has existed sine 1964 and has been upheld as 
constitutional by unanimous Supreme Court, should be altered in 
any way. We think it is critical for faith-based organizations 
to be able to determine their own character and to maintain 
their autonomy. And the Title VII exemption is critical in that 
regard.
    I find it interesting, as a political afficianado, that 
this question has been seized upon by the opponents of 
charitable choice. I think it is a very smart political move on 
their part, because, after all, everybody in America is against 
discrimination. But what they fail to mention time and again, 
number one, is that this has been around for 35 years, and, 
number two, that it is incredibly narrow and incredibly 
sensible.
    The notion of a faith-based institution engaging in faith-
based hiring is not the same as Exxon discriminating against 
blacks or Texaco discriminating against Hispanic or any other 
example from the private sector that you could come up with. 
This is fundamentally different from employment discrimination 
in every other context.
    It would be absurd to suggest that a Catholic church can 
get sued in Federal court because they wouldn't hire a Jew for 
their priesthood. And any suggestions along these lines does 
not respect the unique role and the unique capacities of 
religious organizations in our society.
    We have to vigorously debate these issues as we have done 
today, in thoughtful and measured ways, but slandering sacred 
institutions with the charge of bigotry has to be ruled out-of-
bounds.
    In short and in conclusion, I would just say that we find 
the protections in H.R. 7 on all of these issues to be moving 
in the right direction. We think they could be changed in some 
respects, and I am happy to discuss that with you and other 
members of the Committee, if you so desire.
    Thank you.
    [The prepared statement of Mr. Diament follows:]

 Statement of Nathan J. Diament, Director of Public Affairs, Union of 
                Orthodox Jewish Congregations of America

Introduction
    Thank you, Chairmen Herger and McCrery and Ranking Members Cardin 
and McNulty for the opportunity to address this hearing today. My name 
is Nathan Diament and I am privileged to serve as the director of 
public policy for the Union of Orthodox Jewish Congregations of 
America. The UOJCA is a non-partisan organization in its second century 
of serving the traditional Jewish community, and is the largest 
Orthodox Jewish umbrella organization in the United States representing 
nearly 1,000 synagogues and their many members nationwide.
    On behalf of the UOJCA, I come before you today to address two 
legal issues that are relevant to the effort to expand the already 
existing partnership between government and faith-based social service 
providers: the first issue is the Constitutional issue raised by the 
First Amendment's religion clauses, the second issue relates to 
religious liberty protections contained in our nation's civil rights 
statutes.
    But before addressing the legal issues, I would like to suggest 
that we step back for a moment and appreciate the broader context of 
our conversation today. Since this nation's founding, evaluating the 
role of religion in our society's public life has been part of our 
national conversation. But in recent months, this issue has been re-
engaged with new vigor and prominence. Last year's nomination of an 
Orthodox Jew to a national ticket put the discussion back on the front 
page. This year's creation of the White House Office of Faith-Based & 
Community Initiatives has served as a catalyst for continuing this 
national discussion. The fact that we are having this discussion is in 
itself a wonderful thing for our democratic society.
    Just as important is the fact that we are having a national 
discussion about finding new ways to address our social welfare 
challenges, particularly those confronting lower income populations. To 
have President Johnson's declaration of a war on poverty cited once 
again in public addresses appreciatively, rather than derisively is a 
welcome development.\1\
---------------------------------------------------------------------------
    \1\ Remarks by President Bush at University of Notre Dame 
Commencement Exercises, May 21, 2001. See, http://www.whitehouse.gov/
news/releases/2001/05/20010521-1.html
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    One more word of introduction, I believe is critical. It is the 
case that the Bush Administration's focus on faith-based initiatives 
has given this policy issue a new degree of attention. But I 
respectfully remind you that this is not a new initiative. It received 
bipartisan support in the congress and was signed into law by President 
Clinton on four occasions since 1996.\2\ Moreover, it was one of the 
few public policy initiatives that enjoyed support during the last 
presidential campaign from both parties' presidential candidates.
---------------------------------------------------------------------------
    \2\ Personal Responsibility & Work Opportunity Reconciliation Act 
(Pub. Law 104-193); Community Services Block Grant (Pub. Law 105-285); 
Children's Health Act (Pub. Law 106-310); and Community Renewal Tax 
Relief Act (Pub. Law 106-554).
---------------------------------------------------------------------------
    In a major address to the Salvation Army, it was candidate Al Gore 
who stated: ``The men and women who work in faith . . . based 
organizations are driven by their spiritual commitment . . . they have 
sustained the drug addicted, the mentally ill, the homeless; they have 
trained them, educated them, cared for them . . . most of all they have 
done what government can never do . . . they have loved them.'' Mr. 
Gore went on to propose what he called a ``New Partnership'' under 
which the ``charitable choice'' concept would be expanded. He stated: 
``As long as there is always a secular alternative for anyone who wants 
one, and as long as no one is required to participate in religious 
observances as a condition for receiving services, faith-based 
organizations can provide jobs and job training, counseling and 
mentoring, food and basic medical care. They can do so with public 
funds--and without having to alter the religious character that is so 
often the key to their effectiveness.''\3\
---------------------------------------------------------------------------
    \3\ Remarks by Vice President Al Gore on the Role of Faith-Based 
Organizations, delivered to the Salvation Army, Atlanta, GA, May 24, 
1999.
---------------------------------------------------------------------------
    I raise this today not to minimize in the least the commitment of 
President Bush and his Administration to this effort which is well 
known, but to remind you that, to date, ``charitable choice'' 
initiatives have been bipartisan initiatives, as they are in the case 
of H.R.7.
    The fact that this initiative is now receiving greater attention 
should not be the cause for baser partisanship. The faith-based 
initiative does seem to have become a political Rorschach test, with 
some interest groups projecting their worst fears upon it.\4\ But the 
fact that this initiative raises complex and critical questions should 
give rise to careful and reasoned discussion--as we have engaged in 
today--rather than overheated fear-mongering.
---------------------------------------------------------------------------
    \4\ See, Diament, A Faith-Based Rorschach Test, The Washington 
Post, March 20, 2001.
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Social Service Grants and the Establishment Clause
    America's synagogues, churches and other faith-based charities 
already play an important role in addressing many social challenges--
through soup kitchens and literacy programs, clothing drives and job 
skills training, our faith communities remain the ``little platoons'' 
of our civilized society. My organization believes that these 
institutions can play an even larger and more beneficial role if they 
are supported in that effort.
    We at the UOJCA do not suggest, as some might, that every faith-
based social service provider will do a better job than a secular or 
government agency. Each of these agencies are programmed and staffed by 
real people--some will do better than others. We do not assert that 
every person in need will best be served by a faith-based provider--
some will, some won't; we've long ago realized that ``one-size-fits-
all'' approaches do not work in most contexts--we need H.U.D. and 
Habitat for Humanity, H.H.S. and the Hebrew Home for the Aged. 
Moreover, we do not believe that including faith-based providers in the 
partnerships that government forms should be an excuse for letting the 
government shirk its commitment to devote an appropriate level of 
financial and human resources directly to addressing social needs.\5\ 
But we do believe that if the government decides not to go it alone, 
but to invite partners from the private and public interest sectors in 
tackling social welfare challenges, then the government ought not say 
to one class of agencies--``you may not be our partner because you are 
religious.''\6\
---------------------------------------------------------------------------
    \5\ For this reason, the UOJCA welcomed President Bush's recently 
announced plans to increase federal funding allocations for housing 
rehabilitation and drug treatment program grants. Notre Dame 
Commencement Address.
    \6\ This is exactly what the four existing charitable choice laws 
do; they do not provide for the indiscriminate funneling of government 
funds to churches and synagogues, they do provide that government grant 
makers cannot red-line such programs out of the funding pool on the 
sole basis of their religious character. Moreover, while charitable 
choice provisions permit participation by faith-based organizations, 
such participation is not mandated in any way.
---------------------------------------------------------------------------
    We submit that the Constitution's Establishment Clause stands for a 
simple proposition: that the government may not favor one religion over 
others, or religion over non-religion. But it does not stand for the 
proposition that government must favor the secular over the sacred. The 
Establishment Clause, as the Supreme Court has said, demands neutrality 
toward religion, not hostility.\7\
---------------------------------------------------------------------------
    \7\ ``It has never been thought either possible or desirable to 
enforce a regime of total separation'' . . . nor does the Constitution 
require complete separation of church and state; it affirmatively 
mandates accommodation, not merely tolerance, of all religions, and 
forbids hostility toward any.'' Lynch v. Donnelly, 465 U.S. 668, 673 
(1984).
---------------------------------------------------------------------------
    Neutrality, I submit to you, means that in a grant program, 
government must be ``faith-blind,'' if you will. Government ought to 
establish grant criteria that have nothing to do with whether 
prospective grantees are religious or secular,\8\ but simply whether 
they have the capacity to perform the service and obtain the results 
the government seeks to achieve through the grant. That is the essence 
of what the Establishment Clause demands in this context.
---------------------------------------------------------------------------
    \8\ I would refer the members of these Ways and Means Subcommittees 
to the testimony submitted last week by Professor Douglas Laycock, a 
leading scholar of the Constitution's religion clauses, to the House 
Judiciary Subcommittee on the Constitution in which he noted that 
currently there are no rules or regulations that prohibit government 
grant officials from discriminating against or among religions. See, 
http://www.house.gov/judiciary/2.htm
---------------------------------------------------------------------------
    Support for this neutrality-centered view can be found in many 
Supreme Court precedents the most recent of which is Good News Club v. 
Milford Central School, just decided on Monday.\9\ There, the Court 
reviewed the policy of a New York school district that allowed its 
public school facilities to be used for meetings by a wide range of 
civic and youth groups after school hours, but refused to allow a 
Christian youth group, the Good News Club, to use facilities for its 
meetings due to their religious content. Among the reasons the school 
district offered in support of its policy was that it was necessitated 
by the Establishment Clause. The Court ruled, by a 6-3 vote, that the 
school district's policy of exclusion violated the Free Speech rights 
of the Good News Club and that the Establishment Clause provided no 
basis for tolerating this violation.
---------------------------------------------------------------------------
    \9\ 2001 WL 636202. The opinion may also be retrieved off the 
Court's website at http://www.supremecourtus.gov/opinions/opinions.html 
The ruling was supported by Justices Thomas, Rehnquist, Kennedy, 
Scalia, O'Connor and Breyer.
---------------------------------------------------------------------------
    In its discussion of the Establishment Clause, the Court noted that 
it has ``held that a significant factor in upholding governmental 
programs in the face of Establishment Clause attack is their neutrality 
toward religion.'' \10\ Moreover, the Court noted that the suggestion 
that treating the religious youth group on an equal basis with secular 
groups ``would damage to the neutrality principle defies logic. For the 
`guarantee of neutrality is respected, not offended, when the 
government, following neutral criteria and evenhanded policies, extends 
benefits to recipients whose ideologies and viewpoints, including 
religious ones, are broad and diverse.' '' \11\
---------------------------------------------------------------------------
    \10\ 2001 WL 636202 at 7, quoting Rosenberger v. Univ. of Virginia, 
515 U.S. 819, 839 (1995).
    \11\ Id.
---------------------------------------------------------------------------
    The Court addressed several other aspects of the Establishment 
Clause challenge, the most relevant of which for this discussion is the 
concern over whether granting a religious entity a government benefit--
even as a matter of neutrality--would be perceived as government 
endorsement of religion. The Court emphatically rejected this assertion 
stating: ``We decline to employ Establishment Clause jurisprudence 
using a modified heckler's veto, in which a group's religious activity 
can be proscribed on the basis of what the . . . members of the 
audience might misperceive.''\12\
---------------------------------------------------------------------------
    \12\ 2001 WL 636202 at 8.
---------------------------------------------------------------------------
    While the question of to what degree religious groups may benefit 
from public resources was at issue in the Good News litigation, it is 
also the case that the government was being asked to permit a religious 
group to enjoy a relatively small and indirect benefit from public 
resources--the use of an otherwise empty public school classroom.\13\ 
In the case of Mitchell v. Helms, decided one year ago,\14\ the issue 
was whether the Establishment Clause would permit religious schools to 
benefit from government expenditures--arguably a closer analog to the 
issues raised in H.R.7.
---------------------------------------------------------------------------
    \13\ Another possible distinction is that the Good News Club 
possessed a compelling Free Speech claim in its case, that serves as a 
counterweight to the Establishment Clause concerns. The anemic reading 
of the Free Exercise Clause afforded by the current Court, see City of 
Boerne v. Flores, 117 S.Ct. 2157 (1997), unfortunately provides no such 
counterweight, although it should.
    \14\ 530 U.S. 793, 120 S.Ct. 2530 (2000).
---------------------------------------------------------------------------
    In Helms, like Good News, six of the nine justices came down 
squarely on the side of the neutrality view of the Establishment 
Clause.\15\ The issue before the Court was the constitutionality of a 
federal grant program which allows local education agencies to use 
federal funds for the purchase of supplementary educational materials, 
including textbooks and computers, for schools within their 
jurisdiction.\16\ Because the aid was also made available to parochial 
schools within the jurisdiction, it was challenged as a violation of 
the Establishment Clause.\17\ The Court rejected this challenge.
---------------------------------------------------------------------------
    \15\ This position is clearly enunciated by the plurality opinion 
of Justices Thomas, Rehnquist, Scalia and Kennedy and is at the core of 
the concurrence by Justices O'Connor and Breyer.
    \16\ Chapter 2 of the Education Consolidation and Improvement Act 
of 1981, Pub. L. 97--35, 95 Stat. 469, as amended, 20 U.S.C. Sec. 7301-
7373.
    \17\ Many public interest organizations, including the UOJCA, filed 
friend of the court briefs in the Helms case. Not surprisingly, those 
who question the neutrality principle today in the context of 
charitable choice also questioned it there. It is worth noting that the 
Solicitor General, on behalf of Secretary of Education Richard Riley, 
argued in support of the program's constitutionality. See, http://
supreme.lp.findlaw.com/supreme--court/docket/decdocket.html#98-1648.
---------------------------------------------------------------------------
    Justices Thomas, Rehnquist, Kennedy and Scalia rejected the 
challenge on the basis of a neutrality-centered understanding of the 
Establishment Clause without any qualifications. For these justices, so 
long as secular government aid is provided to religious institutions on 
the basis of religion-neutral criteria it does not violate the 
Establishment Clause, and the constitutionality of currently enacted 
and pending charitable choice laws is unquestionable.
    Justice O'Connor, joined by Justice Breyer, also invoked the 
principle of neutrality, but with qualifications.\18\ Inasmuch as this 
concurrence was essential to the Court's holding, it can be said that 
it is the O'Connor opinion that is controlling in Helms. At the same 
time, it must be noted that Justice O'Connor did not write a concurring 
opinion in the Good News case taking exception to the majority's strong 
focus upon the neutrality principle--as she did in Helms.
---------------------------------------------------------------------------
    \18\ Justice O'Connor was not prepared to accept what she viewed as 
the plurality's ``treatment of neutrality [as a] factor of singular 
importance'' above other factors developed in the Agostini case. 120 S. 
Ct. at 2556.
---------------------------------------------------------------------------
    Working with the framework she developed previously in Agostini v. 
Felton,\19\ Justice O'Connor determined that the program at issue did 
not violate the Establishment Clause because it furthered a secular 
purpose, did not have the primary effect of advancing religion,\20\ and 
did not raise the likelihood that an ``objective observer'' \21\ would 
believe the program was a governmental endorsement of a particular 
religion. It is important to note that, as part of this analysis, 
Justice O'Connor, like the Helms plurality, explicitly rejected the 
precedents of Meek v. Pittinger\22\ and Wolman v. Walter,\23\ which had 
held even the capability for (as opposed to the actual) diversion of 
government aid to religious purposes to be sufficient grounds to render 
an otherwise neutral aid program an Establishment Clause violation.\24\ 
Finally, Justice O'Connor stressed that the aid provided under the 
education grant program was ``secular, neutral and non-ideological,'' 
supplemented funds from private sources, and was expressly prohibited 
from being used for religious instruction purposes.\25\
---------------------------------------------------------------------------
    \19\ 521 U.S. 203 (1997), upholding a government funded program for 
secular special education teachers to teach in parochial schools. 
Writing for the Court's majority in Agostini, Justice O'Connor revised 
the much-maligned three prong test of Lemon v. Kurtzman, 403 U.S. 602 
(1971).
    \20\ For Justice O'Connor, the question of whether an aid program 
has the primary effect of advancing religion is determined by whether: 
a. the aid is actually diverted for religious indoctrination; b. the 
eligibility for program participation is made with regard to religion; 
and c. the program creates excessive administrative entanglement.
    \21\ Justice O'Connor's ``objective observer'' is not the typical 
person on the street, but a person ``acquainted with the text, 
legislative history, and implementation of the statute.'' Wallace v. 
Jaffree, 472 U.S. 38, 76 (1985).
    \22\ 421 U.S. 349 (1975).
    \23\ 433 U.S. 229 (1977).
    \24\ 120 S. Ct. at 2558. Justice O'Connor notes that the plurality 
bases its reasoning for this point on the Court's precedents that have 
allowed government aid to be utilized to access religious instruction, 
specifically Witters v. Washington, 474 U.S. 481 (1983), and Zobrest v. 
Catalina Foothills Sch. Dist., 509 U.S. 1 (1993). O'Connor correctly 
notes that those cases relied heavily on the ``understanding that the 
aid was provided directly to the individual student who, in turn, made 
the choice of where to put that aid to use,'' 120 S. Ct. at 2558, as 
opposed to a per-capita, direct aid program at issue in Helms. With 
regard to this issue in this context of direct aid to faith-based 
social service agencies, see below at note 22.
    \25\ 120 S. Ct. at 2569.
---------------------------------------------------------------------------
    Taking all of these considerations together, it is possible to 
construct a regime under which faith-based organizations may receive 
government social service grants in a manner consistent with the latest 
interpretation of the Establishment Clause.\26\ This regime is 
evidenced in the previously enacted charitable choice laws and in the 
pending Community Solutions Act, H.R.7. The eligibility criteria for 
receiving a grant are religion neutral. The grant program serves the 
secular purpose of providing social welfare services to needy 
individuals. The grant funds are expressly prohibited from being 
``expended for sectarian worship, instruction or proselytization.'' 
\27\ And Justice O'Connor's sophisticated ``objective observer'' would 
not believe that government support for the faith-based provider under 
this legislation constituted the endorsement of the particular 
religion.\28\
---------------------------------------------------------------------------
    \26\ Of course, Good News Club v. Milford, Mitchell v. Helms and 
the long line of school/religion cases that came before it pose 
Establishment Clause questions squarely in the area of K-12 education, 
where the Court has been most sensitive to Establishment Clause 
concerns. It is quite plausible that an assessment of the 
constitutionality of charitable choice programs would employ more 
relaxed criteria than those discussed in any of these cases.
    \27\ H.R.7 Sec. 201(i).
    \28\ H.R.7, Sec. 201(c)(3).states that the receipt of funds by a 
religious organization ``is not and should not be perceived as an 
endorsement by the government of religion.''
---------------------------------------------------------------------------
    Moreover, the bill's accounting and auditing requirements are a 
safeguard against the diversion of funds for religious purposes, as 
well as an appropriate means of ensuring that public funds are expended 
for their specifically intended programmatic purposes.\29\
---------------------------------------------------------------------------
    \29\ These last two provisions lessen the need for the aid to flow 
on the basis of private and independent choices discussed above, note 
18. At the same time, it is certainly the case that any ``voucherized'' 
mechanisms, as opposed to direct grants, for charitable choice will 
satisfy the conditions set out by Justice O'Connor in Helms in this 
regard. From a policy standpoint, however, a voucher-based approach has 
two principle shortcomings; it reinforces the non-neutral treatment of 
religious entities and it biases against newer participants and 
programs who cannot overcome start-up costs while waiting for vouchers 
to be presented by beneficiaries.
---------------------------------------------------------------------------
Free Exercise of Religion Considerations; For Program Beneficiaries
    There are other safeguards in charitable choice laws that are not 
necessitated by the Establishment Clause, but by the Constitution's 
Free Exercise Clause--a feature of the First Amendment that ought to 
carry equal weight to the Establishment Clause but, for a variety of 
reasons, often seems forgotten--even by the Supreme Court.\30\
---------------------------------------------------------------------------
    \30\ Members of this Committee are well aware of the Court's recent 
apathy toward the Free Exercise Clause beginning with Employment 
Division v. Smith, 474 U.S. 872 (1990), resulting in the passage of the 
Religious Freedom Restoration Act, 42 U.S.C. Sec. 2000bb. ``RFRA'' was 
struck down by the Court in City of Boerne v. Flores, 117 S.Ct. 2157 
(1997) to which congress, led by members of this Committee, responded 
last year with the Religious Land Use and Institutionalized Persons 
Act, 42 U.S.C. Sec. 2000cc.
---------------------------------------------------------------------------
    As members of a minority religion in this country, we in the 
Orthodox Jewish community are terribly sensitive to the issue of 
religious coercion in general, and certainly in situations where 
government support, albeit indirect, is involved. We believe government 
should bolster the ``first freedom'' of religious liberty at every 
opportunity. Thus, we would insist that there be adequate safeguards to 
prevent any eligible beneficiary from being religiously coerced by a 
government-supported service provider. We believe that a requirement 
that each beneficiary be entitled to a readily accessible alternative 
service program and that each beneficiary be put on specific notice 
that they are entitled to such an alternative is the proper method for 
dealing with this issue. Moreover, as a condition for receiving federal 
assistance, faith providers must agree not to refuse to serve an 
eligible beneficiary on the basis of their religion or their refusal to 
hold a particular religious belief. These safeguards are contained in 
H.R.7.\31\
---------------------------------------------------------------------------
    \31\ Some have suggested that allowing a beneficiary to opt out of 
the faith-related portions of the faith-based agency's program while 
being entitled to partake of the secular portions of the program is an 
appropriate safeguard. We believe this is insufficient. It would force 
beneficiaries to constantly assert their objection in contexts where 
that might be difficult, if not awkward. The best safeguard, in the 
view of the UOJCA, for the religious ``objector'' is to facilitate his 
or her participation in an acceptable alternative program as is 
provided in H.R.7 Sec. 201(f)(1).
---------------------------------------------------------------------------
Free Exercise of Religion Considerations; For Faith-Based Providers
    There are also critical religious liberty considerations with 
regard to the protections afforded to religious organizations by the 
Constitution and federal civil rights laws. As you are already aware, 
the one that has received considerable attention from critics of the 
faith-based initiative is the thirty-seven year old federal law\32\ 
permitting religious organizations to hire employees on the basis of 
religion.\33\ A few basic points must be made with regard to this 
argument which, I believe, will set the record straight and refute the 
accusation that suggests that all American houses of worship are, in 
fact, houses of bigotry.
---------------------------------------------------------------------------
    \32\ A recent survey conducted by the Pew Forum on Religion and 
Public Life noted broad support for the faith-based initiative overall, 
but concerns over permitting religious social service providers to 
receive government funds while continuing to possess the right to hire 
on the basis of religion. At no point, however, was any information 
offered to the respondents apprising them of the limited nature of the 
exemption, see below, or its creation as part of the Civil Rights Act 
of 1964. See, http://pewforum.org/events/0410/report/topline.php3.
    \33\ Section 702 of the Civil Rights Act of 1964, as amended 42 
U.S.C. Sec. 2000e-1, provides in relevant part: ``This subchapter shall 
not apply . . . to a religious corporation, association, educational 
institution or society with respect to the employment of individuals of 
a particular religion to perform work connected with the carrying on by 
such corporation, association, educational institution, or society of 
its activities.''
---------------------------------------------------------------------------
    As the members of this Committee are well aware, the Civil Rights 
Act of 1964 is the great bulwark against objectionable acts of 
discrimination and Title VII of that Act bans discrimination in 
employment on the basis of race, ethnicity, gender, religion and 
national origin. It was the very same architects of modern civil rights 
law who created a narrow exemption in the 1964 Act permitting churches, 
synagogues and all other religious organizations to make hiring 
decisions on the basis of religion.\34\
---------------------------------------------------------------------------
    \34\ Religious institutions remain bound by prohibitions against 
employment discrimination on the basis of race, ethnicity and the like.
---------------------------------------------------------------------------
    It would be absurd, to say the least, to suggest that a Catholic 
parish could be subjected to a federal lawsuit if it refused to hire a 
Jew for its pulpit. In 1972, still the heyday of civil rights reforms, 
Congress expanded the statutory exemption to apply to virtually all 
employees of religious institutions, whether they serve in clergy 
positions or not. The Free Exercise Clause demands this broad 
protection, and in 1987, the Supreme Court unanimously upheld the Title 
VII exemption as constitutional.\35\
---------------------------------------------------------------------------
    \35\ Corp. of Presiding Bishop v. Amos, 483 U.S. 327 (1987). The 
majority opinion assumed only ``for the sake of argument'' that the 
Sec. 702 exemption as enacted in 1964, prior to its 1972 expansion by 
congress, was sufficient to meet the requirements of the Free Exercise 
Clause, 483 U.S. at 336, while Justice Brennan, joined by Justice 
Marshall, suggested that the broader exemption was also supported by 
Free Exercise requirements; he noted that ``[r]eligion included 
important communal events for most believers. They exercise their 
religion through religious organizations, and these organizations must 
be protected by the [Free Exercise][C]lause.'' 483 U.S. at 341, quoting 
Laycock, Towards a General Theory of the Religion Clauses, 81 Colum.L. 
Rev. 1373, 1389 (1981).
---------------------------------------------------------------------------
    This well-established law has now become a central feature of the 
opposition to charitable choice; so much so that the interest groups 
who have joined together to fight charitable choice over the last few 
years have called themselves the ``Coalition Against Religious 
Discrimination'' and decry the fact that this initiative will ``turn 
back the clock on civil rights.''
    In fact, what is happening here is savvy political gamesmanship, 
not substantive argument. These very same opponents have lost their 
argument for the strictest view of church-state separation in the 
courts and in Congress. After all, the charitable choice laws that I 
described earlier received bipartisan support in the face of their 
protestations. Thus, they have cast about for a more potent political 
argument, and have found it in invoking the evils of discrimination--
something all Americans rightly oppose.
    But the assumption underlying the opponents' assertion is that 
faith-based hiring by institutions of faith is equal in nature to every 
other despicable act of discrimination in all other contexts. This is 
simply not true.
    In fact, in the incredibly diverse and fluid society that is 
America 2001, religious groups are increasingly open and reflective of 
that diversity. There are now black Jews, Asian Evangelicals and white 
Muslims and these trends will only increase.\36\ This is because, at 
their core, religious groups are supposed to care not about where you 
come from or what you look like, only what you believe.\37\
---------------------------------------------------------------------------
    \36\ See Diana Eck, A New Religious America, (Harper-Collins, 
2001).
    \37\ Secular groups that are ideologically driven--from liberal to 
conservative--function in a similar manner and enjoy an analogous 
constitutional protection for their hiring practices under the freedom 
of expressive association, also recognized under the First Amendment. 
Thus, even though Planned Parenthood may receive government grants, it 
cannot be compelled to hire pro-lifers.
---------------------------------------------------------------------------
    Religious institutions are thus compelled to ignore a person's 
heredity and champion his or her more transcendent characteristics.\38\ 
Those who appreciate the role of religious institutions in America 
should resist the easy equation the opponents assert, for its 
implications are dangerous indeed. After all, a defining element of the 
civil rights era was a commitment to root out invidious forms of 
discrimination not only in public institutions, but in the private 
sector--at lunch counters, in motel rooms and on bus lines. If faith 
institutions' hiring practices are so terribly wrong, are we not 
obligated to oppose them however we can irrespective of whether they 
receive federal funds? If, as the critics suggest, your church and my 
synagogue are such bigoted institutions, why do we offer them the 
benefit of tax-exempt status? Why do we afford their supporters tax 
deductions for their contributions? Why do we hallow their role in 
society as we do?
---------------------------------------------------------------------------
    \38\ Of course, one cannot overlook the fringe groups such as the 
Church of the Creator and Aryan Church that propound a ``theology'' of 
racial and ethnic hatred and hold themselves out as ``religions.'' They 
are despicable and give mainstream religions a bad name. But we don't 
generally make our public policy decisions on the basis of the radical 
extremist; we afford everyone the freedom of speech even though it will 
benefit the neo-Nazi or the flag-burner. This approach should not be 
abandoned here.
---------------------------------------------------------------------------
    There are other arguments to be made against the faith-based 
initiative over which we may reasonably differ. Some people may hold 
fast to a vision of stricter separation of church and state--even in 
the face of Supreme Court decisions to the contrary, while others may 
believe that the best way to serve Americans in need is solely through 
government agencies. We ought to vigorously debate these points as we 
have at this hearing. But slandering our sacred institutions with the 
charge of bigotry is unacceptable and must be ruled out of bounds.
    A second rejoinder, with regard to the specific goals of this 
policy initiative, is important as well. If the goal of charitable 
choice is to leverage the unique capacities of faith-based providers 
with government grants, to force them to dilute their religious 
character is the same as saying you don't believe in the whole 
enterprise.\39\ The critics, obviously do not, but we believe that, 
carefully considered and properly structured, expanding the partnership 
between government and faith-based social service agencies is a 
critical component of a strategy to bring new solutions to America's 
social welfare challenges.
---------------------------------------------------------------------------
    \39\ Again in Vice President Gore's words, ``the religious 
character [of these organizations] that is so often the key to their 
effectiveness.'' Speech to Salvation Army. See also, Jeffrey Rosen, 
Religious Rights, The New Republic, February 26, 2001.
---------------------------------------------------------------------------
Conclusion
    At the end of the day, the debates surrounding the faith-based 
initiative come down to questions of cynicism versus hope. The cynics 
see a slippery slope down every path; some see deeply religious people 
as untrustworthy--incapable of following regulations and perpetually 
plotting to proselytize their neighbor, while others see every civil 
servant as a regulator lacking restraint just waiting to emasculate 
America's religious institutions.
    But if we set our minds--and our hearts--to it, we can find a way 
to be more hopeful. After all, what this is really about is bringing 
some new hope and some real help to people in need through a new 
avenue.

                                

    Chairman Herger. Thank you very much, Mr. Diament.
    And now we will hear from Brent Walker, executive director 
of the Baptist Joint Committee on Public Affairs.
    Mr. Walker.

STATEMENT OF J. BRENT WALKER, EXECUTIVE DIRECTOR, BAPTIST JOINT 
  COMMITTEE ON PUBLIC AFFAIRS, AND ADJUNCT PROFESSOR OF LAW, 
                GEORGETOWN UNIVERSITY LAW CENTER

    Mr. Walker. Thank you, Mr. Chairman, for this opportunity 
to testify on a matter as important as religious liberty and 
the separation of church and State.
    I am both a lawyer and ordained Baptist minister. I also 
serve as adjunct professor of law at Georgetown University Law 
Center, where I teach a seminar in church-State relations. But 
today, I speak only on behalf of the Baptist Joint Committee.
    The Baptist Joint Committee is 65 year-old group that 
serves 14 different Baptist bodies, focusing exclusively on 
matters relating to religious liberty and the separation of 
church and State.
    We take seriously both religion clauses in the First 
amendment--No Establishment and Free Exercise--as essential 
guarantors of what we think is God-given religious liberty.
    The Baptist Joint Committee joins others in applauding 
President Bush's recognition of religion's vital role in 
addressing social ills, but we believe religion will be harmed, 
not helped, by redirecting billions in government money to fund 
pervasively religious enterprises.
    So we oppose charitable choice and Title II of H.R. 7, not 
because we are against the delivery of faith-based social 
services but because we desire to protect religious liberty.
    The problems with charitable choice are many and let me 
name several of them.
    First of all, charitable choice is unconstitutional. It 
promotes religion in a way that breaches the wall of separation 
between church and State. The Supreme Court has long said that 
government financial aid to pervasively religious 
organizations, even ostensibly for secular purposes, violates 
the Establishment Clause of the First amendment.
    And with all due respect to my friend Nathan Diament, I 
think there is a big difference between the Good News case, 
which simply said that government must accommodate private 
religious speech, between that and actually advancing a 
religious practice and message by paying for it.
    Second, charitable choice results in excessive entanglement 
between government and religion. It is an iron law of American 
politics that what government funds, government regulates. And 
normally that is a good thing, to provide for accountability of 
tax dollars. But it raises serious concerns when government 
becomes entangled in the affairs of religion.
    This is what a Virginia pastor friend of mine meant, I 
think, when he asked government not to give us any pats on the 
back, for all too often, a friendly pat on the back by Uncle 
Sam turns into a hostile shove by Big Brother.
    Third, charitable choice dampens religion's prophetic 
voice. Religion has historically stood outside of government's 
control, serving as a critic of government. Accepting 
government funding will create a dependency, however, on 
government.
    Martin Luther King Jr. once said, ``the church is not the 
master or the servant of the State, but rather the conscience 
of the State. It must be the guide and the critic of the State, 
and never its tool.''
    The conscience? Absolutely. A tool? Heaven forbid.
    Fourth, charitable choice authorizes religious 
discrimination in employment. It explicitly permits religious 
organizations to retain their Title VII exemption, even in a 
program substantially funded by governmental money.
    Religious discrimination in the private sector is a 
welcomed accommodation of religion, which we support. But to 
subsidize it with tax dollars is an unconscionable advancement 
of religion, which we oppose.
    Fifth, charitable choice encourages unhealthful rivalry and 
competition among religious groups. We enjoy religious peace 
and harmony in this country despite our dizzying diversity for 
the most part because government has had the good sense to stay 
out of religious affairs.
    I agree with Representative Chet Edwards in his assertion 
that if he maliciously wanted to set out to destroy religion in 
America, he could think of no better way to do it than to put a 
pot of money with billions of dollars and let churches fight 
over it and then have the politicians pick and choose which 
religious group gets the money.
    Simply put, charitable choice is the wrong way to do right. 
Thankfully, there are right ways to do it.
    Government and religion may cooperate in the provision of 
social services in many ways that are good for government, good 
for religion, good for the taxpayers, and good for the people 
served.
    First, houses of worship may continue to pay for social 
service ministries the old-fashioned way: with tithes and 
offerings and funds from other private sources. And government 
may and should encourage increased private giving. We applaud 
the provisions in H.R. 7 that expand the deductibility rules 
for charitable gifts for the 70 million Americans that do not 
currently itemize deductions.
    Second, houses of worship may spin off religiously 
affiliated organizations to accept tax funds and provide social 
service ministries without integrating religion into the 
government-funded program. Religiously affiliated organizations 
can minister out of religious motivation and even make 
available some privately funded, separately offered, 
voluntarily attended religious activities, as long as they do 
not proselytize or require religious worship or discriminate on 
the basis of religion in hiring.
    This option also has another benefit. It sets up a firewall 
against government regulation of and entanglement with the 
pervasively religious organization.
    Third, government should lift onerous restrictions on 
houses of worship that unreasonably interfere with their 
ministries. Congress has already taken the lead by passing the 
Religious Land Use bill last fall, which protects religious 
organizations from burdensome and unreasonable zoning laws and 
regulations. And I congratulate you for taking that bold step.
    Finally, government and religious organizations--even 
pervasively religious ones--may carefully cooperate in 
creative, nonfinancial ways. government may tout the good works 
that religious organizations do, make referrals when 
appropriate, share information, and invite religious providers 
to serve on government task forces.
    In sum, these illustrations are just several of the ways in 
which we are able to forge a win-win situation in this debate. 
Social services can be delivered by religious organizations, 
the autonomy of houses of worship can be protected from 
government regulation, and the constitutional values that 
promote religious liberty, such as separation of church and 
State, can be preserved.
    We all want to do what is right--to help those in need. 
Let's do it the right way.
    Thank you.
    [The prepared statement of Mr. Walker follows:]

    Statement of J. Brent Walker, Executive Director, Baptist Joint 
 Committee on Public Affairs, and Adjunct Professor of Law, Georgetown 
                         University Law Center

    Thank you, Mr. Chairman and Members of the Subcommittee, for this 
opportunity to speak to you on a matter as important as religious 
liberty.
    I am J. Brent Walker, executive director of the Baptist Joint 
Committee on Public Affairs (BJC). I am an ordained Baptist minister. I 
also serve as an adjunct professor of law at Georgetown University Law 
Center, where I teach an advanced seminar in church-state law. I speak 
today, however, only on behalf of the BJC.\1\
---------------------------------------------------------------------------
    \1\ My curriculum vitae is attached. Neither I nor the BJC has 
received a federal grant or contract in the current or preceding two 
fiscal years.
---------------------------------------------------------------------------
    The BJC serves the below-listed Baptist bodies,\2\ focusing 
exclusively on public policy issues concerning religious liberty and 
its constitutional corollary, the separation of church and state. For 
sixty-five years, the BJC has adopted a well-balanced, sensibly 
centrist approach to church-state issues. We take seriously both 
religion clauses in the First Amendment--No Establishment and Free 
Exercise--as essential guarantors of God-given religious liberty.
---------------------------------------------------------------------------
    \2\ Alliance of Baptists, American Baptist Churches in the U.S.A., 
Baptist General Association of Virginia, Baptist General Conference, 
Baptist General Convention of Texas, Baptist State Convention of North 
Carolina, Cooperative Baptist Fellowship, National Baptist Convention 
of America, National Baptist Convention U.S.A. Inc., National 
Missionary Baptist Convention, North American Baptist Conference, 
Progressive National Baptist Convention, Inc., Religious Liberty 
Council, and Seventh Day Baptist General Conference.
---------------------------------------------------------------------------
    No principle is more important to Baptists and the BJC than 
religious liberty and separation of church and state. At our best, we 
embrace the words of John Leland, a Virginia Baptist evangelist, who 
said over 200 years ago: ``The fondness of Magistrates to foster 
Christianity has caused it more harm than all the persecution ever 
did.'' That is why for the last five years the BJC has fought 
``charitable choice'' proposals to allow government to fund religious 
ministries.

                The Problems With ``Charitable Choice''

    ``Charitable choice''--a specific legislative provision that allows 
pervasively religious organizations, such as houses of worship, to 
receive government funds to subsidize social services--was first 
codified in 1996 as part of the welfare reform law.\3\ Since then, 
Congress has passed three additional pieces of legislation containing 
``charitable choice'' provisions.\4\
---------------------------------------------------------------------------
    \3\ Personal Responsibility and Work Opportunity Reconciliation 
Act, Public Law 104-193 [1996].
    \4\ Community Services Block Grant Act, Public Law 105-285 [1998]; 
the children's Health Act of 2000, Public Law 106-310 [2000]; and the 
New Markets Venture Capital Program Act, Public Law 106-554 [2000].
---------------------------------------------------------------------------
    For the first time since its inception five years ago, ``charitable 
choice'' has attracted national attention and scrutiny in the last few 
months.\5\ The cause of the focused attention on this important topic 
is undeniably the attention given to ``faith-based initiatives'' by 
President George W. Bush. President Bush opened six federal offices of 
Faith-Based and Community Initiatives during his second week in office 
and has listed faith-based proposals, including the expansion of 
``charitable choice,'' as one of his top domestic priorities for his 
administration's first year.
---------------------------------------------------------------------------
    \5\ Contrary to some strains of popular opinion, cooperation 
between government and religion in the provision of social services is 
not a new idea. It predates this Administration's ``faith-based 
initiatives'' and even the 1996 ``charitable choice'' provision. This 
cooperation--often between government and religiously affiliated 
organizations that are not pervasively religious--demonstrates the 
right way for religion and government to partner in providing social 
services to those in need.
---------------------------------------------------------------------------
    We join others in applauding President Bush's recognition of 
religion's vital role in addressing social ills. But we believe 
religion will be harmed, not helped, by directing government money to 
fund pervasively religious enterprises.
    So we oppose ``charitable choice''--not because we are against 
faith-based social ministries--but because of our desire to protect 
religious freedom.
    As the BJC has said for several years, ``charitable choice'' is the 
wrong way to do right.\6\ The problems with ``charitable choice'' are 
many.
---------------------------------------------------------------------------
    \6\ Indeed, the BJC Board adopted a ``Resolution on the Charitable 
Choice Provision in the New Welfare Act'' as early as October 8, 1996.
---------------------------------------------------------------------------
    First, ``charitable choice'' is unconstitutional. ``Charitable 
choice'' promotes religion in ways that breach the wall of separation 
between church and state. The United States Supreme Court has long said 
that governmental financial aid to pervasively religious organizations, 
even for ostensibly secular purposes, violates the Establishment Clause 
of the First Amendment.\7\ Pervasively religious entities (like houses 
of worship and parochial schools)--ones that are so fundamentally 
religious that they cannot or will not separate secular and religious 
functions--should be disqualified from receiving government grants 
because to fund them is to fund religion.
---------------------------------------------------------------------------
    \7\ See Bowen v. Kendrick, 487 U.S. 589 (1988); Roemer v. Board of 
Public Works, 426 U.S. 736 (1976); Hunt v. McNair, 413 U.S. 734 (1973); 
and Tilton v. Richardson, 403 U.S. 672 (1971).
---------------------------------------------------------------------------
    In a pervasively religious institution, the money that goes into 
one pocket goes into all of its pockets. Proponents of ``charitable 
choice'' who claim that the provision does not violate the separation 
of church and state point to a provision that bars government funds 
from paying for ``sectarian worship, instruction or proselytization.'' 
However, this so-called ``protection'' is illusory since privately-
funded sectarian worship, instruction or proselytization may operate 
throughout the tax-funded program. Even if one purports to pay for only 
the soup and sandwich through a government grant, these funds will 
necessarily free up other money to pay the preacher to bless the meal 
and deliver a sermon after dinner. In short, ``charitable choice'' 
unconstitutionally funds government services that are delivered in a 
thoroughly religious environment.
    Second, ``charitable choice'' violates the rights of taxpayers. 
Just as funding pervasively religious organizations violates the First 
Amendment's Establishment Clause, taking my taxes to pay for your 
religious organization, or vice versa, violates the First Amendment's 
free exercise principles. Although the Supreme Court has never ruled 
that taxpayers have standing to assert a free exercise challenge to a 
funding scheme, I believe this is exactly what Thomas Jefferson had in 
mind when he said that ``to compel a man to furnish contributions of 
money for the propagation of opinions which he disbelieves and abhors, 
is sinful and tyrannical.'' \8\ It was over 200 years ago, and it is 
today. Government should not be allowed to use your tax money to 
promote my religion.
---------------------------------------------------------------------------
    \8\ ``A Bill for Establishing Religious Freedom,'' Virginia 
Assembly, presented June 1779.
---------------------------------------------------------------------------
    Third, ``charitable choice'' results in excessive entanglement 
between government and religion. It is an iron law of American politics 
that government regulates what it funds. This is what a Virginia pastor 
friend of mine meant when he asked government not to give us any ``pats 
on the back.'' For all too often a friendly pat by Uncle Sam turns into 
a hostile shove by Big Brother.
    Some regulation is outlined in the ``charitable choice'' 
legislation itself. As already mentioned, religious organizations that 
receive grants must make sure that the tax money is not used to pay for 
``sectarian worship, instruction or proselytization.'' It is a mystery 
how this legislative language will be enforced without a government 
officer standing in the sanctuary or poring over the church books, all 
the while making razor-thin theological judgments about what amounts to 
worship, instruction or proselytization. The ``charitable choice'' 
provision also requires religious organizations to be audited. If funds 
are segregated, then the audit would be limited to that funding. If the 
funds are not so segregated, then government will be able to review all 
of the church's books.
    The regulations set forth in the statute, however, are just the 
beginning. Other federal and state laws and regulations are triggered 
by the expenditure of federal tax money.\9\ Even in cases where the 
religious organization agrees with the purpose of those laws and 
regulations, putting itself in a position to prove the compliance, 
itself, may be inimical to the autonomy of religious organizations. 
Ensuring compliance with rules and regulations will also drain the 
already overtaxed resources of the religious organizations providing 
services. I agree with the recent observation that churches will spend 
``more time reading the Federal Register than the Bible.'' \10\
---------------------------------------------------------------------------
    \9\ See generally, Rogers, Melissa, ``The Wrong Way to Do Right: 
Charitable Choice and Churches,'' in Welfare Reform and Faith-Based 
Organizations; Derek Davis and Barry Hankins, Editors; J.M. Dawson 
Institute of Church-State Studies, Baylor University, Waco: 1999; pp. 
64-67.
    \10\ Tanner, Michael in ``Corrupting Charity: Why Government Should 
Not Fund Faith-Based Charities'', CATO Institute, March 22, 2001.
---------------------------------------------------------------------------
    Fourth, ``charitable choice'' dampens religion's prophetic voice. 
Religion has historically stood outside of government's control, 
serving as a critic of government. How can religion continue to raise a 
prophetic fist against government when it has the other hand open to 
receive a government handout? It cannot.
    Dr. Martin Luther King, Jr., arguably the twentieth century's best 
example of religion's prophetic voice, warned:
          The church must be reminded that it is not the master or the 
        servant of the state, but rather the conscience of the state. 
        It must be the guide and the critic of the state, and never its 
        tool. If the church does not recapture its prophetic zeal, it 
        will become an irrelevant social club without moral or 
        spiritual authority.\11\
---------------------------------------------------------------------------
    \11\ King, Jr. Martin Luther, Strength to Love, 1963.
---------------------------------------------------------------------------
    But cannot religious organizations simply refuse government funding 
if it begins to harm their ministries? Yes, that is possible, but not 
likely. Government money may be irresistible to many churches on meager 
budgets. ``Charitable choice'' is a temptation of Biblical proportions. 
Once the money is taken, religious organizations can develop a 
dependency, not unlike an addiction to a drug. As conservative 
Christian commentator Timothy Lamer pointed out:
          Federal funding is a narcotic. Once addicted, recipients find 
        it hard to live without. . . . Once Christian charities get 
        used to collecting the subsidy, they will develop programs and 
        goals premised on receiving government aid. The threat of 
        losing such aid will be genuinely terrifying. They will surely 
        fight such cuts and thus become what conservatives detest--
        recipients of federal grants lobbying for ``more.'' Are 
        Christian conservatives prepared for the sight of Christian 
        charities lobbying to keep their place at the federal 
        trough?\12\
---------------------------------------------------------------------------
    \12\ Lamer, Timothy in The Weekly Standard, January 15, 1996.
---------------------------------------------------------------------------
    Fifth, ``charitable choice'' authorizes religious discrimination in 
employment. Under Title VII of the Civil Rights Act of 1964, churches 
and some other religious organizations are granted an exemption to 
discriminate on the basis of religion in their hiring and firing 
practices. This exemption, when it applies to privately-funded 
enterprises, appropriately protects the church's autonomy and its 
ability to discharge its mission. For example, the Catholic Church must 
be free to exercise its religion by hiring only Catholics as priests. 
Courts have interpreted this exemption to apply not only to clergy, but 
also to all the religious organization's employees, including support 
staff, and not only to religious affiliation, but also to religious 
beliefs and practices.
    ``Charitable choice'' explicitly allows religious organizations to 
retain their Title VII exemption, even in a program substantially 
funded by government money. Allowing religious organizations to 
discriminate in the private sector is a welcomed accommodation of 
religion; but to subsidize religious discrimination with tax dollars is 
an unconscionable advancement of religion that simultaneously turns 
back the clock on civil rights in this country.
    Sixth, ``charitable choice'' encourages unhealthful rivalry and 
competition among religious groups. We enjoy religious peace in this 
country despite our dizzying diversity for the most part because 
government has stayed out of religion.
    I have heard your colleague Representative Chet Edwards (D-TX) say 
on several occasions that if he maliciously wanted to destroy religion 
in America, he could think of no better way than to put a pot of money 
out there and let all the churches fight over it. I agree. ``Charitable 
choice'' is a recipe for religious conflict.
    ``Charitable choice'' also drags religion into the ugly 
governmental appropriations process--the underbelly of democracy. 
Government does not have the money to fund every religious group in 
this country. It will have to pick and choose. All too often, the 
majority faith in a particular area will prevail. But regardless of who 
wins, the process will not be pretty.
    These six examples are just a few of the problems with ``charitable 
choice.'' Simply put, ``charitable choice'' is the wrong way to do 
right. Thankfully, there are right ways to do right.

                       Doing Right the Right Way

    In dealing with church-state disputes, I always try to find a 
workable, practical solution even while acknowledging constitutional 
tensions. Common sense often suggests the best way to proceed. There is 
a better way. Government and religion may cooperate in the provision of 
social services in many ways that are good for government, religion, 
taxpayers and the people served.
    To help people of faith evaluate the many permissible ways to 
cooperate with government and avoid ill-advised financial partnerships 
between government and pervasively religious organizations, the Baptist 
Joint Committee, along with The Interfaith Alliance Foundation, has 
published a document entitled Keeping the Faith: The Promise of 
Cooperation, the Perils of Government Funding: A Guide for Houses of 
Worship.\13\ The guide first advises houses of worship to define the 
vision of their enterprise and then to determine whether government 
funding or other forms of cooperation will promote or detract from that 
vision. Keeping the Faith offers the following basic advice.
---------------------------------------------------------------------------
    \13\ Please see BJC Web site, www.bjcpa.org, for the full text of 
Keeping the Faith.
---------------------------------------------------------------------------
    There are many ways for government and religion to cooperate in the 
provision of social services while protecting the quality of tax-funded 
services and the autonomy and integrity of religious organizations.
    First, houses of worship may continue to pay for social service 
ministries the old-fashioned way: with tithes, offerings and funds from 
other private sources. Government may and should encourage increased 
private giving. Tax deductions and other incentives to foster 
corporate, foundation and individual giving are absolutely proper. The 
idea of encouraging corporate matching funds for employees' gifts to 
religious organizations and other charities is a good one.
    Increasing private funding for charities may also be achieved 
through expanding deductibility rules for charitable gifts for the 70 
million Americans--two-thirds of all taxpayers--that do not currently 
itemize deductions. This is one of President Bush's faith-based 
proposals with which there is room for widespread consensus and a 
positive impact on the nonprofit sector. According to some estimates, 
the provision found in Title I of the Community Solutions Act (H.R. 7) 
would increase annual charitable giving by more than $14.6 billion--a 
growth of 11% over 2000 giving levels--and encourage over 11 million 
non-itemizing taxpayers to become new givers.\14\
---------------------------------------------------------------------------
    \14\ ``Incentives for Nonitemizers to give more: An Analysis,'' 
PriceWaterhouseCoopers, January 2001.
---------------------------------------------------------------------------
    Government priorities may also encourage the private sector to fund 
the social service ministries of pervasively religious organizations. 
Recently, the Robert Wood Johnson Foundation announced plans to provide 
$100 million in grants to 3,000 religious programs for the disabled and 
the elderly.\15\ Participants in a conference titled ``Faith-Based 
Demonstration for High Risk Youth'' recently reported that private 
foundations seem to be more generous with their funding of religious 
organizations since the launch of President Bush's ``faith-based 
initiatives.'' \16\
---------------------------------------------------------------------------
    \15\ ``$100 Million Pledged for `Faith-Based' Aid,'' The Washington 
Post, March 28, 2001.
    \16\ ``Private Sector follows Bush, funds faith-based programs,'' 
The Washington Times, April 19, 2001.
---------------------------------------------------------------------------
    Second, houses of worship may spin off religiously affiliated 
organizations to accept tax funds and provide social service 
ministries--out of religious motivation, to be sure, but without 
integrating religion into the government-funded programs. This option 
was available even before ``charitable choice'' was passed in 1996, and 
President Bush's faith-based initiative may inspire more religious 
organizations to explore this option. This way of delivering social 
services is exemplified by the good work of Catholic Charities, 
Lutheran Social Services and United Jewish Communities. Religiously 
affiliated organizations can continue to minister to the needs of 
people out of religious motivation and even make available some 
privately-funded, separately-offered religious activities so long as 
they do not proselytize, require religious worship or discriminate on 
the basis of religion in hiring or service providing. In this vein, 
Sharon Daly, who leads Catholic Charities, has said that, ``We help 
others because we are Catholic, not because we want them to be.'' \17\
---------------------------------------------------------------------------
    \17\ Rogers, ``The Wrong Way to Do Right,'' p. 78.
---------------------------------------------------------------------------
    This option also has another benefit. It sets up a firewall against 
government regulation of and entanglement with the pervasively 
religious organization. As long as this is done through a separate 
organization, the regulation should not seep through the corporate 
distinction and infect that church or house of worship. The 
institution-wide application of some regulation mandated by the Civil 
Rights Restoration Act makes this protection even more critical.
    It has been suggested by some that the process of setting up a 
separate religiously affiliated organization is too cumbersome for some 
houses of worship, particularly those that are small in size and 
resources. This suggestion ignores two important realities. First, many 
churches have successfully established separate religiously affiliated 
organizations and have operated within safeguards for decades. Second, 
setting up a distinct 501(c)(3) affiliate should be no more onerous 
than complying with governmental regulation in the first place. If the 
real concern is easing regulatory burdens, then the government, 
specifically the Internal Revenue Service, could provide technical 
assistance to religious and other community providers wanting to 
utilize this option.
    Third, government should lift onerous restrictions on houses of 
worship that unreasonably interfere with their ministries. Congress and 
state legislatures should make sure that religion, including the 
provision of social services by religious organizations, is properly 
accommodated. Congress has already taken the lead by passing the 
Religious Land Use and Institutionalized Persons Act,\18\ which 
protects religious organizations from burdensome zoning laws absent a 
compelling governmental interest. States should continue to pass state 
Religious Freedom Acts and localities should adopt zoning 
classifications that respect the autonomy of churches to run their 
social services with minimal restrictions.
---------------------------------------------------------------------------
    \18\ Public Law 106-274 [2000].
---------------------------------------------------------------------------
    Fourth, government and religious organizations--even pervasively 
religious ones--may carefully cooperate in creative, non-financial 
ways. Houses of worship can expand their influence in this area by 
partnering with other private organizations that have ties with the 
government. Government may also support the work of pervasively 
religious organizations without the use of taxpayer money. For example, 
government may tout the good work that religious organizations do, make 
referrals when appropriate, share information, and invite religious 
providers to serve on government task forces.
    These illustrations are just some of the ways in which we are able 
to forge a win-win situation. They demonstrate that social services can 
be delivered by religious organizations, the autonomy of pervasively 
religious organizations can be protected from governmental regulation, 
and the constitutional values that promote religious liberty, such as 
separation of church and state, can be preserved.

                Implementation of ``Charitable Choice''

    Although ``charitable choice'' is now law in four different federal 
statutes, very few pervasively religious organizations have elected to 
apply for government funds for their social service ministries. There 
are several reasons for this gap between legislation and 
implementation.
    First, according to reports, only a handful of states have 
aggressively implemented ``charitable choice'' since 1996.\19\ Most 
states have not instituted local regulations to assist pervasively 
religious organizations in applying for ``charitable choice'' grants.
---------------------------------------------------------------------------
    \19\ ``Charitable Choice Compliance: A National Report Card,'' 
Center for Public Justice, September 28, 2000. Meckler, Laura, 
``Charitable Choice Rarely Utilized,'' Associated Press, March 19, 
2001.
---------------------------------------------------------------------------
    Not surprisingly, Texas, the state that has most aggressively 
implemented ``charitable choice,'' has also drawn the most litigation. 
Two of the five pending cases involving government funding of 
pervasively religious organizations are in Texas.\20\
---------------------------------------------------------------------------
    \20\ American Jewish Congress and Texas Civil Rights Project v. 
Bost (W.D. Tex) 00-A-CA-528-SS; Lara v. Tarrant County (Texas Supreme 
Court).
---------------------------------------------------------------------------
    Second, the Clinton Administration did not promulgate rules and 
regulations to implement ``charitable choice.'' In fact, acknowledging 
the constitutional problems, the Department of Justice interpreted 
``charitable choice'' to exclude pervasively religious entities from 
qualifying for receipt of government funds. In his signing statement 
for the Children's Health Act of 2000, President Clinton noted:
    The Department of Justice advises, however, that this provision 
would be unconstitutional to the extent that it were construed to 
permit governmental funding of organizations that do not or cannot 
separate their religious activities from their substance abuse 
treatment and prevention activities that are supported by SAMHSA aid. 
Accordingly, I construe the Act as forbidding the funding of such 
organizations and as permitting Federal, State, and local governments 
involved in disbursing SAMHSA funds to take into account the structure 
and operations of a religious organization in determining whether such 
an organization is constitutionally and statutorily eligible to receive 
funding.\21\
---------------------------------------------------------------------------
    \21\ Clinton, President William J., Statement of the President, 
October 17, 2000, signing of H.R. 4365, the ``Children's Health Act of 
2000.''
---------------------------------------------------------------------------
    Third, and most instructively, churches and other pervasively 
religious organizations are hesitant to enter into contractual, 
financial relationships with the government. The state of Wisconsin 
received an ``A'' on Center for Public Justice's report card on 
compliance with ``charitable choice,'' with the following explanation: 
``Gov. Thompson (R) made faith-based subcontracts a key performance 
indicator for W-2 (welfare) contractors in 1998.'' However, Thompson, 
now Secretary for Health and Human Services, recently noted that they 
only awarded government funds to one religious organization: ``We 
opened it up and we didn't have as many applications as we thought 
there would be. We didn't pursue it any more. We made it available.'' 
\22\
---------------------------------------------------------------------------
    \22\ Meckler, ``Charitable Choice Rarely Utilized.''
---------------------------------------------------------------------------
    The situation in Wisconsin is not an anomaly. Churches and other 
pervasively religious organizations understand the dangers of 
government funding of their social service ministries. Thousands of 
houses of worship are providing social services across the country, but 
they are doing it in the right ways--using private funds for their 
pervasively religious ministries or spinning off separate religiously 
affiliated organizations to accept government funds.

                               Conclusion

    The Baptist Joint Committee and other religious groups oppose 
``charitable choice'' not because we want to discourage the delivery of 
faith-based social services. On the contrary, we oppose it precisely 
because of our religious conviction and our desire to maintain maximum 
religious freedom in this country.
    We all want to do right--to help those in need. Let's do it in the 
right ways.

                                

    Chairman Herger. Thank you, Mr. Walker.
    And now for our final witness, Samantha Smoot, executive 
director of the Texas Freedom Network in Austin, Texas. Ms. 
Smoot

STATEMENT OF SAMANTHA SMOOT, EXECUTIVE DIRECTOR, TEXAS FREEDOM 
             NETWORK EDUCATION FUND, AUSTIN, TEXAS

    Ms. Smoot. Thank you, Mr. Chairman.
    I appreciate the opportunity to be here today. My 
organization is a nonpartisan, nonprofit organization that 
provides research and public education. We are committed to 
promoting religious tolerance, protecting civil liberties, and 
maintaining the constitutional separation between church and 
State.
    Over the course of the last year, we have engaged in a 
study of the effects of charitable choice in Texas.
    After the Welfare Reform Act 1996, and under the leadership 
of then-Governor George W. Bush, Texas launched an aggressive 
campaign to implement charitable choice. In fact, we have been 
cited as one of the two most aggressive States in the country 
in implementing this program.
    And now, as the national initiative is unfolding in much 
the same way as ours did in Texas, I hope that the record of 
this program's implementation is useful and can offer some 
insight into some of the difficulties in implementation of the 
proposed faith-based initiative.
    Our problems in Texas with charitable choice ranged widely, 
from some of the inherent difficulties that come with 
commingling State and religious funds, to the dangers incurred 
by relaxing basic health and safety standards in the name of 
protecting religious autonomy.
    I want to tell you briefly about four programs in Texas. 
Each of these anecdotes illustrates a different set of problems 
with the implementation of charitable choice in Texas.
    I would love to be able to talk to you more about the macro 
picture of implementation of this program, but one of our 
difficulties has been that because of the gray area involved in 
charitable choice and whether an organization is a religiously 
affiliated group or, in fact, a religious group where the funds 
go directly to a house of worship, there has been a remarkable 
lack of accountability of this program in our State.
    In fact, I can tell you that there are 2,369 charitable 
choice programs in Texas, that the vast majority of them are 
either informal and not funded or they are religiously 
affiliated and had been funded all along. But I can't tell you 
either the number is 15 or 150 of new pervasively sectarian 
programs that are being funded.
    So, let me talk to you about the programs that we have 
studied and do know about.
    First, I want to mention a program called the Jobs 
Partnership of Washington County. This story illustrates a lot 
of the problems with the inherent lack of accountability of 
charitable choice.
    This program is a job training program in a rural area. 
They won a small grant from the Texas Work force Commission to 
pay for $8,000 of their $20,000 budget. So this is a little 
program.
    The idea of the program was to spend one night a week on 
job skills and one night a week on religious practice: worship, 
Bible study, hymns and so forth. In fact, what happened was 
that the religious aspects of the program permeated every 
single moment of the program.
    For instance, on the very tangible end, funds were expended 
to purchase religious materials, such as Bibles. On the less 
tangible end, as a pervasively sectarian program, the program 
used funds to instill the notion that job training was 
preparing one for life as a Christian, that one was working not 
for one's boss but for the Lord, for instance.
    These religious underpinnings informed every aspect of the 
program. And the religious message did seem to have a coercive 
effect on clients, one in three of whom reported that they felt 
pressure to join the program's host church.
    Another problem with charitable choice that has emerged in 
Texas is the concern about preferential treatment being given 
to grant applicants based on their religious nature.
    We had a very large grant given last year in Texas by our 
Department of Human Services. Two programs applied for this 
grant, one called Lockheed Martin, which has extensive 
experience all over this country with welfare-to-work programs, 
and another called the Institute for Responsible Fatherhood.
    The Lockheed group brought decades of experience to the 
table. The Institute for Responsible Fatherhood brought very 
little. I could go through the various differences in their 
qualifications. I won't, because it is in the written 
testimony. But they are numerous.
    But most importantly, the Lockheed proposal was for 
$930,000 and the Institute for Responsible Fatherhood's 
proposal was for $1.5 million. Institute for Responsible 
Fatherhood got the grant. And I believe that, in this instance, 
the playingfield was not level.
    And so one final word about the playingfield being level. 
There has been a lot of talk about removing ``unnecessary 
barriers'' which prevent religious institutions from serving 
those in need. Deregulation of these faith-based service 
providers is essential to the concept of charitable choice.
    In the name of leveling the playingfield in Texas, we 
passed laws relaxing regulations for faith-based programs. The 
rationale for doing so, and H.R. 7 would allow this to happen, 
has been what we call the ``faith factor.'' And I think we all 
agree that the ``faith factor,'' the expressly religious 
component behind these religious programs, is part of what 
makes some of them effective for some people.
    And there is also the belief that the ``faith factor'' 
should not be hampered by government oversight or government 
intrusion.
    The problem is that, in the name of protecting the ``faith 
factor,'' in Texas, what we have seen happen as a result is 
that we have lost basic accountability for funds and we have 
left some of the people in need without some very basic health 
and safety provisions.
    I won't go through the two stories that I have for you. You 
may be familiar with the Roloff Homes----
    Chairman Herger. Our time has expired.
    Ms. Smoot. OK. Thank you very much.
    Can I mention one, very quick last thing?
    Chairman Herger. Very quickly.
    Ms. Smoot. OK.
    I just want you to know that 5 years into this program, in 
a State that has maybe covered the most ground in charitable 
choice, Texas lawmakers, the very ones who passed charitable 
choice legislation 4 years ago, have seen fit to roll back the 
alternative accreditation program, one of linchpins of 
charitable choice there, because it has just been a can of 
worms. So I just wanted to mention that to you.
    [The prepared statement of Ms. Smoot follows:]
Statement of Samantha Smoot, Executive Director, Texas Freedom Network 
                     Education Fund, Austin, Texas
    I am here today representing the Texas Freedom Network Education 
Fund, a nonprofit research and public education organization committed 
to promoting religious tolerance, protecting civil liberties and 
maintaining the Constitutional separation between church and state. 
Over the course of the last year, the Texas Freedom Network Education 
Fund has studied the effects of the `charitable choice' program in 
Texas.
    After the Welfare Reform Act of 1996, and under the leadership of 
Governor George W. Bush, Texas launched an aggressive campaign to 
implement `charitable choice'.
    The Texas model of `charitable choice' took a two-pronged 
approach--diverting public funds to religious social service programs 
while simultaneously loosening regulations over these faith-based 
providers.
    Now, as the national initiative unfolds in much the same way as its 
Texas predecessor, the state's five-year record offers insight into 
some of the difficulties in the application of the proposed faith-based 
initiative.
    `Charitable choice' has proven to be a thorny proposition to 
implement. Problems with the faith-based initiative in Texas have 
ranged widely from the inherent difficulties that come with co-mingling 
government and church funds, to dangers incurred by relaxing basic 
health and safety standards, to problems posed by preferential 
treatment of applicants promoting specific belief systems.
Lack of Accountability
    In Texas, we have seen a gross lack of standardized accounting 
procedures with `charitable choice' monies. `Charitable choice' grants 
are distributed directly to faith-based programs by state agencies, by 
those agencies' regional and local arms, and oftentimes, faith-based 
organization reissue funds to additional faith-based programs.
    It has been widely reported that the two state agencies 
distributing funds to faith-based organizations have spent $10 million 
to date. However, the Texas Freedom Network Education Fund has 
identified an additional $3.5 million in grants to faith-based programs 
made through local government entities. Compiling data of faith-based 
or community-based programs that receive funding under `charitable 
choice' initiatives has been very ineffective, as the state does not 
track the amount of `charitable choice' funds granted. Furthermore, 
since the state does not differentiate between religiously-affiliated 
institutions that proselytize the people they are serving and those 
that do not, it is impossible to say how many proselytizing `faith-
based' program have been funded.
Lack of Demand
    One of the difficulties in implementing `charitable choice' has 
been wholly unexpected: neither proponents nor adversaries of the 
`charitable choice' program would have predicted five years ago the 
surprising lack of interest in the program. Texas affords us a fine 
opportunity to examine this phenomenon, since the implementation of 
`charitable choice' there was high profile and aggressive.
    State records document 2369 faith-based organizations as 
participants in the Texas `charitable choice' program. But the vast 
majority of these faith-based programs--at least 2000--are categorized 
as `informal' contracts, meaning that they receive no public funds. Of 
those that are funded, most--such as Catholic Charities, the Salvation 
Army, and Lutheran Social Services--are religiously-affiliated programs 
that were already receiving government funds prior to establishment of 
the `charitable choice' program.
    In the `charitable choice' program's efforts to lessen regulations 
on faith-based providers, the same lack of interest holds. There are 
2008 faith-based child care and child placing facilities licensed by 
the state, compared to a paltry 8 who have elected to pursue the 
`charitable choice' Alternative Accreditation option. After five years 
of aggressive outreach to the religious community, the only applicants 
represent a small constituency of groups that were unable to partner 
with the government by establishing a separate, not-for-profit entity 
and exercise prudent separation and standards.
Co-mingling of funds
    Direct grants to these few religious groups have resulted in a lack 
of accountability over taxpayer funds and a violation of the 
Constitutional separation between church and state. In Texas, it has 
become apparent that there is simply no way to ensure that taxpayer 
funds are not co-mingled with church funds or spent on overtly 
religious activities.
    The Jobs Partnership of Washington County won a state contract 
through `charitable choice', receiving $8,000 of its $20,000 annual 
budget from the Texas Department of Human Services (DHS). The program's 
budget and curriculum show that Jobs Partnership of Washington County 
used state money to buy Bibles, and that the program focused a great 
deal of its efforts on Bible study. In fact, religion--specifically 
Christianity--permeated nearly every aspect of this program which is 
belied by the stated mission of the program to help clients ``find 
employment through a relationship with Jesus Christ''. Instructors 
readily acknowledged that they were trying to change students' beliefs 
and put Jesus at the center of their lives. They say that the religious 
and moral aspects of the curriculum were crucial in helping program 
participants change themselves from the inside out.
    The religious message seemed to have a coercive impact on clients. 
About one-third of the participants said in the program evaluation that 
they felt pressure to join the host church, Grace Fellowship Baptist 
Church. Moreover, the only other job-training program in the area was 
located miles away in the next county, making it an implausible 
alternative for many of the low-income clients. Thus, for many area 
people looking for a job training program, their only viable option was 
the Jobs Partnership of Washington County.
    Currently there is a lawsuit against the Jobs Partnership of 
Washington County and the Department of Human Services on appeal in the 
5th circuit court of appeals. The outcome of the suit is of 
particular importance as DHS continues to fund faith-based programs, 
and as Jobs Partnership of Washington County has shown, it is 
incredibly difficult for programs to separate out the religious aspects 
of a program from the non-religious.
Preferential Treatment
    Another difficulty in implementing `charitable choice' is the 
subjective nature of the bidding process, which opens the door for 
inefficient and discriminatory practices by the state agencies and 
administrators distributing public funds. In another example of how 
`charitable choice' has not been administered in a cost-effective or 
fair manner in Texas, there is evidence that preferential treatment has 
been given to religious providers in contracting opportunities with the 
state.
    In response to a Texas Workforce Commission contract opportunity 
for fatherhood responsibility and employment initiatives, two 
nationally recognized groups--the Institute for Responsible Fatherhood 
(IRF) and Lockheed Martin (in conjunction with the Ray Marshall Center 
of the University of Texas at Austin)--submitted proposals.
    The past track records and proposal costs for these two groups 
differed greatly. The Lockheed/ Ray Marshall group, combined, had 
placed over 125,000 individuals in jobs and currently has contracts 
with the State of Texas to provide services to 13 local workforce 
development boards. On the other hand, the Institute for Responsible 
Fatherhood had placed just 436 individuals, at a cost of $4.4 million. 
Additionally, Lockheed Martin had been working with state agencies 
since 1963, while the Institute for Responsible Fatherhood had only 
been working with state agencies since 1988 and a pilot project in 
Corpus Christi constituted the whole of their experience in Texas.
    In the two-year period immediately preceding the proposal 
submissions, the Institute for Responsible Fatherhood served a total of 
676 people. During that same period of time, just one of Lockheed 
Martin's 43 national programs served over 10,000 TANF recipients. 
Moreover, the program directors for the two proposed programs differed 
greatly in their experiences--the Lockheed Martin director had 20 years 
experience directing and managing social service programs, at many 
different levels, while the IRF's program directors had little 
experience in social service programs, one director's overwhelming 
resume experience was 12 years in property rental management.
    For this grant request, the Institute for Responsible Fatherhood 
submitted a proposal for the maximum amount allowed for this particular 
bid--$1.5 million--and the Lockheed Martin group set forth a $930,000 
proposal. The Institute for Responsible Fatherhood was awarded the 
Texas Work Force Commission grant.
    The significant differences in measurable factors seemed to have 
been outweighed by subjective criteria that played into the evaluation 
of these two organizations. The Institute for Responsible Fatherhood 
grant proposal clearly indicated a faith-based teaching structure. The 
program mission and implementation steps described lay the groundwork 
for a prescribed spiritual path. On the other hand, the Lockheed Martin 
proposal presents a work program that speaks directly to job training 
and placement by practical application, without set spiritual elements.
    The application of a spiritual philosophy on program participants 
appears to have played a greater role in determining the outcome of the 
grant decision than did the actual budget proposal or the experiences 
of the organizations. In this instance, the playing field was not 
level. Instead, the implementation of a faith-based philosophy 
outweighed the organizations track record, experience and cost 
effectiveness.
Relaxing Regulations
    There has been much talk recently about removing `unnecessary 
barriers' which prevent religious institutions from serving those in 
need. In the name of `leveling the playing field' for faith-based 
programs, Texas passed laws relaxing regulations over faith-based 
programs. There is no question that eliminating basic health and safety 
safeguards made operations easier for a few faith-based programs. 
Unfortunately, this aspect of `charitable choice' has also jeopardized 
the well-being of the people being served by these facilities.
    Deregulation of faith-based service providers is essential to the 
concept of `charitable choice', which strives to divert the flow of 
government funds to religious groups without forcing them to adhere to 
the government regulations they would otherwise be required to follow. 
While lessening regulations for faith-based programs is one of the most 
critical aspects of `charitable choice', it is also the aspect that has 
received the least attention.
    One rationale for removing health and safety regulations from these 
faith-based providers was that these groups seemed to be so effective. 
Nationally known drug treatment program, Teen Challenge, has encouraged 
this notion by claiming success rates ranging from seventy to eighty-
six percent. But these figures dramatically distort the truth, as they 
represent the successful treatment rate of only those participants who 
do not drop out of the program before completion, which includes less 
than one-fifth (18%) of the total number of students who actually 
participated.
    Another rationale for loosening regulations over faith-based 
programs has been what `charitable choice' supporters call the ``faith 
factor''--the expressly religious component that is the power behind 
these religious programs and--supporters believe--should not be 
hampered by government red-tape. In Texas, many of the faith-based 
service providers taking advantage of `charitable choice' went a step 
further, expressing contempt and hostility towards basic health and 
safety laws. The architect of `charitable choice', Marvin Olasky, 
articulated this hostility, held by the fringe element of religious 
social service providers, when he commented this Spring that faith-
based drug treatment counselors ``should not be forced to undergo 170 
hours of training in a religion that is not their own.''
    Teen Challenge is a faith-based residential drug treatment program 
with three branches in Texas and more than 150 sites across the 
country--all of which rely solely on faith-based methods to treat drug 
abuse. The treatment program, which has no medical component, centers 
instead around prayer, Bible study, and religious conversion.
    In 1995, the Texas Commission on Alcohol and Drug Abuse (TCADA) 
found the San Antonio branch of Teen Challenge in violation of state 
procedures, health and safety regulations and licensure standards. 
Program counselors did not meet training requirements and Teen 
Challenge disregarded state law by releasing confidential treatment 
records. Due to these infractions, Teen Challenge had their license 
suspended by the state in June of 1995. In response, then-Governor 
George W. Bush intervened on Teen Challenge's behalf and pushed through 
legislation to exempt religious-based drug treatment centers from state 
licensing and regulation.
    Under Texas' new, permissive regulatory structure, faith-based drug 
treatment centers must simply register their religious status with the 
state to be exempt from virtually all health and safety measures 
required of the vast majority of treatment facilities, including: state 
licensing, employee training requirements, abuse and neglect prevention 
training, licensed personnel requirements, provisions protecting 
clients' rights, and reporting requirements of abuse, neglect, 
emergencies or medication errors.
    To date, 102 faith-based drug treatment facilities have registered 
with the state under this system and their impact may have dangerous 
consequences in Texas.
Protecting Religious Autonomy Through Alternative Accreditation
    Another alarming example of the dangerous consequences of 
`charitable choice' is exemplified through the dramatic story of the 
Roloff Homes.
    For three decades, the Roloff Homes--a group of faith-based homes 
for troubled teens in Corpus Christi, Texas--have been the subject of 
high-profile allegations of physical abuse and neglect. After the U.S. 
Supreme Court ruled that they must accept state licensing and 
regulation, the Roloff Homes closed down and moved to Missouri rather 
than accept state oversight in Texas.
    In 1997, Roloff attorneys were the only witnesses to testify in 
favor of legislation to establish an alternative, private accreditation 
process in lieu of state licensing for religious childcare facilities. 
The first facility to apply for and receive accreditation from the 
Texas Association of Christian Child Care Agencies (TACCCA) was the 
Roloff Homes. In April 2000, serious allegations of abuse surfaced once 
again at the homes. Yet, within weeks of resulting arrests, TACCCA re-
accredited the Roloff Homes.
    In theory, Texas' Alternative Accreditation program for faith-based 
providers of childcare and child placement services was supposed to 
enforce the same standards as the state of Texas. In reality, the state 
is unable to force TACCCA to exercise proper oversight. Unless formal 
allegations of abuse and neglect are filed by TACCCA against a facility 
it accredits, the state has no authority to do site visits of 
alternatively-accredited facilities
    The rate of confirmed cases of abuse and neglect at alternatively 
accredited facilities in Texas is more than 10 times that of state-
licensed facilities. TACCCA's own documentation shows that they have 
not conducted proper oversight of the facilities they accredit. 
Moreover, TACCCA was remiss in its oversight role because it never 
conducted an unannounced inspection of its facilities, as required by 
state law.
    As a buffer between faith-based organizations and the state, 
Alternative Accreditation protected the faith-based organizations from 
oversight, but left the children in their care vulnerable.
Conclusion
    `Charitable choice' was conceived of by one Texan, Marvin Olasky, 
and aggressively implemented by another, Gov. George W. Bush. After 
five years of aggressively implementing government-funded faith-based 
programs in Texas, positive results have proven to be impossible to 
document or measure. Evidence points instead to a system that is 
unmanageable, unregulated, prone to favoritism and co-mingling of 
funds, and even dangerous to the very people it is supposed to serve. 
Sadly, Texas' efforts to fund religious activity have proven to be a 
treacherous enterprise for churches, taxpayers, and people in need 
alike.
    So treacherous, in fact, that even the very legislators who once 
promoted `charitable choice' in Texas have now abandoned the idea, 
choosing not to renew the `Alternative Accreditation' plan this year. 
In the state that has moved the farthest along in the faith-based 
initiative experiment, Texas' move to shut down one of the lynchpins of 
`charitable choice' signifies a dramatic rollback of this initiative.
    Supporters of ``charitable choice'' point to Texas as a role model 
for the nation--and I agree with them. I urge you to consider Texas' 
record of difficulties in implementation and lack of demand for this 
program before moving forward. After five years of aggressive 
implementation in Texas, taxpayers have virtually no accountability 
over how their funds are spent, people in need have no guarantee that 
they will be delivered services that do not jeopardize their health and 
safety or violate their freedom of religion. The state lawmakers on the 
front lines of this program, having witnessed its troubled record, have 
begun to reverse the state's involvement in charitable choice.

                                

    Chairman Herger. Thank you very much, Ms. Smoot.
    Ms. Smoot. Thank you.
    Chairman Herger. And I want to thank each of our witnesses 
for your patience. It has been a long day. Again, I thank you.
    And with that, this Joint Committee on Human Resources and 
Select Revenue Measures stands adjourned. Thank you.
    [Whereupon, at 2:29 p.m., the hearing was adjourned.]
    [Questions submitted from Chairman Herger to the panel, and 
their responses follow:]

          Indiana Family and Social Services Administration
                                        Indianapolis, Indiana 46204
Wally Herger
Chairman, Human Resources Subcommittee
Ways and Means Committee
U.S. House of Representatives
Washington, DC 20515

    Q. Why is Indiana one of only a handful of States that have taken 
the initiative to promote greater involvement in providing social 
services by the faith-based community?
    A. One of the most significant events that contributed to the State 
of Indiana's early support of faith-based organizations' involvement in 
the provision of social services was the early implementation of 
welfare reform. Former Governor Evan Bayh implemented several waivers 
to the Aid to Families with Dependent Children (AFDC) program in June 
of 1995, long before the Personal Responsibility and Work Opportunities 
Reconciliation Act (PROWRA) 1996 became Federal law. As these waivers 
were implemented, Indiana experienced the largest cash assistance 
caseload decline in the country--a 38% decline between January 1994 and 
December of 1996. The hard-to-serve population became a more 
significant portion of the caseload and the State of Indiana actively 
sought to expand the pool of social service providers to include more 
community-based, neighborhood organizations that could address the 
extensive and diverse needs of the new cash assistance caseload. This 
focus blended well with supporting faith-based organizations' efforts 
to improve their provision of services to families in their 
communities. Therefore, in the fall 1999, Governor Frank O'Bannon 
established FaithWorks Indiana to support faith-based and community-
based organizations' ability to provide social services and access 
financial resources for those services.
    Q. Several witnesses have raised concerns about charitable choice, 
for example, that it will lead to discrimination in hiring, or that 
beneficiaries will be forced to participate in sectarian activities, or 
that there will not be alternative providers available, especially in 
rural areas. Has the implementation in Indiana substantiated any of 
these concerns? What would you say to those who argue that charitable 
choice provisions should be repealed?
    A. Thus far, Indiana has not received any complaints regarding the 
promotion of sectarian activities or discrimination in hiring. Provider 
contracts include language that prohibits the use of TANF funds for 
sectarian activities, and monitoring is conducted to ensure that the 
provider is in compliance with all contract provisions. Clients are 
informed of their choice between faith-based and non-faith-based 
providers when developing their Self-Sufficiency Plan with their Family 
Case Coordinator. They are always offered a choice of providers that 
offer services in their community.
    Although FaithWorks Indiana is a relatively new initiative, we have 
found the process of promoting the availability of funds for social 
services to faith-based and community-based organizations within the 
scope of our normal performance-based contracting and monitoring 
procedures to be working well.
    Q. One of the key issues with charitable choice relates to 
outcomes, especially whether we can determine if faith-based 
organizations do a better job of providing services than traditional 
providers. Are you conducting any studies that would add to our 
knowledge on this issue regarding charitable choice programs operating 
in Indiana?
    A. Our faith-based providers are still completing their first year 
of contracts; therefore, it is impossible to provide an assessment of 
their performance. They do, however, compete equally in our procurement 
process and are chosen on the same criteria as all other providers--
ability to deliver quality services, organizational capacity, and so 
forth. In addition, their reimbursement for services is based on 
performance-based contracts. For these reasons, we believe their 
performance will meet our standards. Although the State of Indiana is 
not conducting a study of the performance of faith-based providers in 
comparison to traditional providers, researchers at Indiana University 
and the University of Massachusetts are conducting a 3-year study 
regarding charitable choice implementation that will include three 
states--Indiana, Massachusetts and North Carolina.
    Q. How have faith-based providers responded to the performance 
requirements and oversight from the State? Do they have the capacity to 
provide the outcome information the State requires?
    A. The State of Indiana has not experienced any significant 
difficulties in faith-based providers' ability to comply with 
performance-based contracting. Faith-based and community-based 
organizations that express an interest in government funding receive 
technical assistance that includes detailed information regarding 
administrative compliance issues, such as reporting requirements and 
fiscal accountability, etc. The State of Indiana has a responsibility 
to be accountable with taxpayer dollars and to provide quality services 
to families in a safe, non-discriminatory environment. Organizations 
are made aware of these requirements so that they may determine whether 
public funding is the right source of support for their services.
    Some organizations have the capacity to handle these requirements, 
others do not; however, if they are to enter into a contractual 
arrangement with the State to provide social services, they must comply 
with the requirements required by the funding source. If they decide 
that public funding is not the right match for their organization, 
technical assistance also may point them to private sources of funding 
and resources for grants from foundations and other private entities. 
Technical assistance is offered to interested organizations and 
detailed information about requirements is given up front to ensure 
that the highest quality services are made available to our families.
            Sincerely,
                                        Katherine Humphreys
                                                          Secretary

                                

                                            Nueva Esperanza
                           Philadelphia, Pennsylvania 19140
                                                      June 28, 2001
Hon. Wally Herger
Chairman
Committee on the Ways and Means
Subcommittee on Human Resources
US House of Representatives
Washington, DC 20515

    Dear Mr. Chairman:

    Thank you for the opportunity to testify before your Subcommittee 
on H.R. 7. It was an honor for me to participate then, as it is now to 
respond to your four questions.
    I note that religious preference is not a concern in your hiring. 
Do you know whether that is true for most faith-based community 
providers?
    Religious preference is not at the focus of our hiring. While I 
cannot speak for all faith-based groups, nor do I have research to 
support my observations, I do know that for many faith-based providers 
religious preference is not a concern. Accommodation and respect for 
the general principles, ethos and mission is. A genuine commitment for 
the service that is going to be provided and an examination for 
compatibility, respect for the religious aspects of the community are 
important. For example, we have at least three Muslims on a staff of 36 
people. Since we do not proselytize and since they respect the ethos of 
our service and moral values, their religious preference is not an 
issue. If a staff person were alienated from or did not believe in our 
mission of service, or if they were consistently disrespectful of the 
values we hold dear, the core values of Western--European civilization, 
we could not have them on a staff motivated to serve those less 
fortunate.
    What practices if any, would you change if H.R. 7 were passed and 
were signed into law?
    Not many practices would change; rather we would be able to 
maintain our integrity without having to fear persecution. We have a 
religious symbol in our conference room and we have three other visible 
signs of our faith in a 30,000 square foot office. Today, these items 
are not visible to the general public. We would be allowed to move them 
into a more prominent setting.
    Would you seek to expand the type or breadth of the social services 
you currently provide? Which ones? Would you hire new individuals to 
perform these services? Who would you be most likely to hire--
individuals from your community, for example?
    Our services would expand in several particular areas: work with 
delinquent youth, more services to children after school and weekends 
is a service area we could augment. Access to programs at the 
Department of Labor will assist us in development of programs and 
service to the unemployed in our community. Justice programs would 
assist us in augmenting prison visitation and service programs that 
already exist, as well as work with the children and spouses of those 
in prison. Health and Human Services could be accessed to unleash the 
potential of hundreds of volunteers to address issues of health 
education in poverty communities throughout the United States attacking 
diabetes and asthma the major health issues that effect Latino 
communities. In many cases there would be new people hired, to either 
coordinate volunteers, provide training, direct service and to direct 
and manage programs.
    Nueva Esperanza prefers to hire people from the local geographic 
community. We currently advertise all available positions first in a 
community newspaper with 250,000 circulation and then in the 
Philadelphia Daily News with its 2 million circulation.
    I note your point that if charitable choice is expanded ``We can do 
a better job of reaching those that Federal programs are designed to 
serve. I know we can do better because we have done so already.'' 
Please provide us with examples of what you mean?
    Government currently funds local entities to provide housing 
counseling. In our community, Nueva Esperanza has served more families 
in housing counseling more efficiently than the city. Nueva Esperanza 
has taken more children from our community to overnight summer camp 
with a program tailored to the needs of our local children for fewer 
dollars than local government has in their program. Nueva Esperanza has 
built new homes for low-income home ownership, better constructed homes 
and financed for lower cost than both the city and private for-profit 
companies have in our community. We educate children through our public 
charter high school for less money with better results than the local 
public school. Nueva Esperanza provides private college education at a 
lower cost than any other private college in the city. We are only one 
of two institutions that provide college courses in Spanish 
transitioning students into English. All these services are performed 
at higher standards and lower cost than other providers--local 
government, other non-profits or private agencies.
    You state (page 4) ``It is faith-based 501(c) 3 agencies like 
Nueva--founded by clergy, run by a pastor, connected to and trusted by 
the community--that have the best chance at succeeding where 
traditional agencies have failed.'' Please tell us what you mean by how 
``traditional agencies have failed''. Is one issue here that, unless we 
open these programs to charitable organizations, certain essential 
services simply won't be offered, because government cannot or will not 
offer those? What are some examples?
    The issue is not that government cannot or will not offer certain 
services. The issue is that the services provided do not reach those in 
our community they intended to serve, hence the ``traditional agencies 
have failed.'' Millions of dollars have been targeted for the Hispanic 
community by the Federal government for poverty reduction and a variety 
of social services. Many of those dollars never reach the agencies best 
equipped to address the problems of the Hispanic community the faith-
based institutions and congregations that are best networked to 
neighborhood families. The result is that the problems of poverty 
remain untouched--and millions of dollars misspent or spent 
inefficiently.
    That traditional agencies don't work is evidenced in Philadelphia's 
Hispanic community where we have a 40% male high school drop-out rate 
and a 38% teen pregnancy rate. Our charter high school is a national 
model but only 2 years old and can only accommodate 200 students in a 
community desperate to reach thousands. We are hopeful that the 
President's initiative will allow Nueva's proposed abstinence program 
will be funded so we can begin to address the teen pregnancy issue
    Traditional social service agencies claim to represent the Hispanic 
communities yet they are rarely community based and have few contacts 
in the community. The role of the Hispanic congregation in America is 
at its core as it is one of the few, if not the only, institution that 
permeates all Hispanic communities and neighborhoods. The resources for 
fighting poverty are distributed around us to external neighborhood 
social-service agencies and local government, while we (Hispanic faith-
based and community based-organizations) are rarely empowered by these 
resources directly. Despite millions of dollars invested to create 
substantive improvement in our neighborhoods, we are overlooked though 
we are many times in the best setting to develop and implement programs 
and community improvement strategies.
    Congregations because of their levels of trust can serve as 
springboards for substantive individual and neighborhood improvement. 
Instead universities, hospitals, research and think tanks and 
monolithic national intermediaries receive the funding to develop and 
implement their programs targeted for our communities--communities of 
which they have limited if any direct experience and understanding. 
Nueva Esperanza has been ``called in'' dozens of times to assist groups 
working on such Federally funded projects--colleges, universities, 
external (non--community based) non-profits and local government. These 
are feeble attempts to get us to provide free consultant services for a 
project that was funded to serve our community. This is extremely 
frustrating as we provide what expertise we can in frequently ill-
conceived studies and programs that, if we had been involved from the 
beginning, could provide real assistance or solid information.
    There is an unfortunate pattern that exists of non-profit agencies 
competing for funds first and learning about an issue once the funds 
are awarded. Agencies who have received funds in the past are often 
rewarded with new program funds whether or not they have experience 
with the particular issue or community or type of service. A good grant 
writer can secure funds for new programs based on an agency's track 
record in other areas. Often, the faith--based community is called in 
to assist in the development and performance of the service--as 
volunteers. These programs frequently suffer from a lukewarm commitment 
from the serving institution as they lack appreciation of the issue 
being studied. It is unfortunate that this cycle continues as a result 
of government regulation that does not allow agencies to compete 
because they are faith-based or community-based organizations. H.R. 7 
and the President's faith-based initiative has the potential to change 
all this--and to sincerely address the issues of poverty facing our 
communities.
    We have shown that we have the capacity to put together proposals, 
hire the professionals and be accountable for results. We have to 
provide positive results or we answer to our neighborhood, external 
institutions have traditionally answered to no one. H.R. 7 is an 
opportunity to allow for the empowerment of poverty communities.
    Thank you, again, Chairman Herger for this opportunity to respond 
to your questions.
            Respectfully submitted,
                                  Reverend Luis Cortes, Jr.
                                                          President

                                

                       Texas Freedom Network Education Fund
                                        Austin, Texas 78767
                                                      June 28, 2001
Hon. Wally Herger
Chairman, Subcommittee on Human Resources
U.S. House Committee on Ways and Means
B-317 Rayburn Building
Washington, DC 20515

    Dear Chairman Herger:

    I appreciate the opportunity to continue our dialog with your 
Committee on H.R. 7. I have enclosed the following information in 
response to your questions regarding my testimony before your 
Committee.
    1. Have you looked at other contractors for the same programs?
    By the very nature of the `charitable choice' initiative, many of 
the problems mentioned in my testimony--government funds being spent on 
religious activities and materials, preferential treatment given to 
faith-based programs in government contracting opportunities, and 
loosened regulations over faith-based programs--are unique to faith-
based contractors. Thus, there is no such comparison for these problems 
among non-faith-based contractors.
    The Texas Freedom Network Education Fund has examined comparative 
data on secular and faith-based providers of childcare and child 
placement services--the only area where adequate comparative data is 
available.
    As part of `charitable choice' in Texas, faith-based childcare 
facilities were allowed to pursue alternative, private accreditation in 
lieu of state licensing. Data on the faith-based childcare providers 
that pursued alternative accreditation provides ample evidence that 
these providers are plagued by more problems than state-licensed 
facilities.
    The Texas Department of Protective and Regulatory Services (TDPRS) 
has investigated 1,868 complaints against the 34,165 state-licensed 
childcare and child-placing facilities operating in Texas, resulting in 
one complaint for roughly every 18 state-licensed facilities.
    TDPRS has received and investigated 4 complaints against the 8 
alternatively accredited childcare facilities in Texas--one complaint 
for every two alternatively accredited facilities.
    2. What in H.R. 7 or existing charitable choice laws would allow 
these providers to be ``deregulated''? Isn't it correct that States 
could loosen regulations on faith-based providers on their own even 
without the passage of any Federal legislation?
    States may currently act alone to deregulate faith-based providers; 
this is precisely what then-Governor Bush led the state of Texas to do. 
Further, President Bush's Executive Order establishing the White House 
Office of Faith-Based and Community Initiatives declared that half the 
mission of that office was to offer ``regulatory relief'' for faith-
based providers, and he has already directed five Federal agencies to 
compile lists of regulations that may be considered ``barriers to the 
participation of faith-based'' providers. President Bush has made clear 
his intention to lessen these regulations, much like his effort in 
Texas.
    In this context of unfolding deregulation at both the Federal and 
the state levels, H.R. 7 proposes to radically expand the number and 
scope of faith-based programs eligible for public funds.
    Moreover, H.R. 7 loosens regulatory efforts in two concrete ways.
    First, H.R. 7 explicitly loosens some regulations over faith-based 
providers to which they have been subject in the past. H.R. 7 will 
expand the `charitable choice' initiative to additional areas of the 
government's social service programs, thus loosening regulations for 
religious institutions in several new departmental grant opportunities. 
For example, a religious group will no longer have to establish a 
501(c)(3) in order to receive grants under the Work force Investment 
Act 1998, Child Care Development Block Grant Act 1990, or Juvenile 
Justice and Delinquency Prevention Act 1974. Whereas, to contract with 
Federal agencies under these programs today, religious institutions 
must establish a separate 501(c)(3). Thus, faith-based social service 
providers will be subject to fewer regulations than they are today if 
H.R. 7 is enacted into law.
    Furthermore, H.R. 7 grants faith-based providers additional 
regulatory exemptions with which their secular counterparts must 
comply. H.R. 7 expands the Title VII religious exemption by adding new 
language to specifically authorize discrimination based not only on 
``religion'', but also on an employer's ``religious practices''--such 
as not hiring unmarried, pregnant women or gays and lesbians. This 
further loosens a regulation for faith-based providers that other, non-
faith-based providers must abide by.
    Based on our experience in Texas, it is clear that loosening 
regulations over faith-based providers is inherent in `charitable 
choice'. Given that H.R 7 would lift regulations over religious 
institutions that they are currently required to follow if contracting 
with the government, it too is infused with the idea of deregulation. 
Furthermore, unless it explicitly directs Federal agencies and states 
not to loosen regulations over faith-based programs, H.R. 7 is a green 
light for further deregulation.
    3. Since the law [on commingling funds and accounting for funds] is 
specific, are you saying that religious providers don't or won't obey 
it?
    We appreciate that H.R. 7 specifically addresses the issue of 
commingling government and church funds. However, we've seen in Texas 
that there are distinct ``commingling'' problems presented by 
charitable choice--one of which is not explicitly addressed in this 
legislation. ``Commingling'' can refer not only to placing government 
and church funds in the same bank account, but also to spending 
government funds--whether segregated or not--on religious activities or 
materials.
    H.R. 7 explicitly prohibits the first type of ``commingling''. Yet 
in Texas, the prohibition against ``commingling'' was clearly violated 
when taxpayer funds were spent on religious materials and on religious 
practice. I referred in my written testimony to clear evidence of 
commingling at one `charitable choice' funds recipient in Texas, the 
Jobs Partnership of Washington County.
    The very nature of--and, in many cases, the primary reason for the 
success of--faith-based programs is that the religious component 
permeates all aspects of the program, making it often impossible to 
separate funds in a way that guarantees taxpayer dollars will be spent 
only on secular activities. Consider the mission statement of the Jobs 
Partnership of Washington County: ``find employment through a 
relationship with Jesus Christ.'' When a program is, as the Supreme 
Court has termed it, `pervasively sectarian', there is often no 
untangling of the activities infused with religious practice from those 
that are not.
    Regarding the use of standardized accounting procedures, again we 
commend the authors of H.R. 7 for their attempt to address this issue. 
However, our experience in Texas shows that this provision in H.R. 7 
will not be adequate to address the problems that arise. Our experience 
with new, community-based service providers that take over a role 
traditionally performed by the government--such as faith-based groups 
providing social services or community-run charter schools providing 
public education, for example--is that these community-based 
institutions are often not equipped with the training and expertise 
necessary to meet adequate reporting and accounting requirements. Based 
on the Texas record, it is not our opinion that religious groups will 
intentionally or maliciously overstep legal boundaries, but that a lack 
of training and expertise in these matters will result in violations of 
the law.
    H.R. 7 does not provide for or require any training of personnel at 
these faith-based programs that would be receiving government funds. 
History shows that this training is necessary to prevent commingling of 
funds, improper use of taxpayer dollars and inadequate accounting of 
those funds.
    H.R. 7 also lacks any penalty for noncompliance with the bill's 
directive to segregate funds and use adequate accounting measures.
    As our testimony was intended to share the Texas experience with 
the committee, we stand firm by our warning of the problems inherent in 
the `charitable choice' concept that lend themselves to thorny 
implementation issues.
    Thank you again for the opportunity to testify, and for your work 
on this important issue. If there is any way we may be of assistance on 
this issue as the Committee continues to debate this important 
legislation, please contact me.
            Sincerely,
                                             Samantha Smoot
                                                 Executive Director

                                

    [Submissions for the Record follow:]
  Statement of Carl H. Esbeck, Senior Counsel to the Deputy Attorney 
                  General, U.S. Department of Justice

                              Introduction

    By letter of May 22, 2001, the House Subcommittee on the 
Constitution, Committee on the Judiciary, invited the views of the U.S. 
Department of Justice concerning statutory and constitutional issues 
raised by Sec. 1994A (charitable choice) of H.R. 7, The Community 
Solutions Act of 2001. Thank you for the invitation. This document is 
the Department's response to the Subcommittee's letter.
    Charitable choice is already part of three federal social service 
programs. The provision first appeared in the Personal Responsibility 
and Work Opportunity Reconciliation Act of 1996 (PRWORA),\1\ two years 
later it was incorporated into the Community Services Block Grant Act 
of 1998,\2\ and last year it was made part of the reauthorization of 
funding for the Substance Abuse and Mental Health Services 
Administration (SAMHSA).\3\ Each of these programs has the overarching 
goal of helping those in poverty or treating those suffering from 
chemical dependency, and the programs seek to achieve their purpose by 
providing resources in the most effective and efficient means 
available. The object of charitable choice, then, is not to support or 
sponsor religion or the participating religious providers. Rather, the 
goal is secular, namely, to secure assistance for the poor and 
individuals with needs, and to do so by leveling the playing field for 
providers of these services who are faith-based.
---------------------------------------------------------------------------
    \1\ 42 U.S.C. Sec. 604a (Supp. 1996). Charitable choice appeared as 
Sec. 104 of the Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996, Pub. L. No. 104-193, 110 Stat. 2105, 2161 
(1996). Section 604a applies to two federal revenue streams: Temporary 
Assistance to Needy Families and Welfare to Work monies. Welfare to 
Work funds were made subject to PRWORA in the 1997 Balanced Budget Act.
    \2\ 42 U.S.C. Sec. 9920 (Supp. 1998). Charitable choice appeared as 
Sec. 679 of the Community Services Block Grant Act, which was Title II 
of the Coats' Human Services Reauthorization Act of 1998, Pub. L. No. 
105-285, 112 Stat. 2702, 2749 (Oct. 27, 1998).
    \3\ 42 U.S.C. Sec. 300x-65 (Supp. 2000). SAMHSA concerns 
expenditures for substance abuse treatment and prevention under Titles 
V and XIX of the Public Health Services Act. The charitable choice 
provision pertaining to SAMHSA, signed by President Clinton on October 
17, 2000, appeared as Title XXXIII, Sec. 3305 of the Children's Health 
Act of 2000, Pub. L. No. 106-310, 114 Stat. 1212 (2000). SAMHSA 
substance abuse treatment and prevention expenditures were again made 
subject to a charitable choice provision in the Community Renewal Tax 
Relief Act of 2000, signed by President Clinton on December 21, 2000. 
See 42 U.S.C. Sec. 290kk (Supp. 2000). This Act was incorporated by 
reference in the Consolidated Appropriation Act of 2001, Pub. L. No. 
106-554.
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    Charitable choice is often portrayed as a source of new federal 
financial assistance made available to--indeed earmarked for--religious 
charities. It is not. Rather, charitable choice is a set of grant rules 
altering the terms by which federal funds are disbursed under existing 
programs of aid. As such, charitable choice interweaves three 
fundamental principles, and each principle receives prominence in the 
legislation.
    First, charitable choice imposes on both government and 
participating FBOs the duty to not abridge certain enumerated rights of 
the ultimate beneficiaries of these welfare programs. The statute 
rightly protects these individuals from religious discrimination by 
FBOs, as well as from compulsion to engage in sectarian practices 
against their will.
    Second, the statute imposes on government the duty to not intrude 
into the institutional autonomy of faith-based providers. Charitable 
choice extends a guarantee to each participating faith-based 
organization [FBO] that, notwithstanding the receipt of federal grant 
monies, the organization ``shall retain its independence from Federal, 
State, and local governments, including such organization's control 
over the definition, development, practice, and expression of its 
religious beliefs.'' \4\ In addition to this broadly worded safeguard, 
there are more focused prohibitions on specific types of governmental 
interference such as demands to strip religious symbols from the walls 
of FBOs and directives to remake the governing boards of these 
providers.\5\ A private right of action gives ready means of 
enforcement to these protections of institutional autonomy.\6\
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    \4\ 42 U.S.C. Sec. 604a(d)(1). The parallel subsection in H.R. 7 is 
Sec. 1994A(d)(1).
    \5\ 42 U.S.C. Sec. 604a(d)(2). The parallel subsection in H.R. 7 is 
Sec. 1994A(d)(2).
    \6\ 42 U.S.C. Sec. 604a(i). The parallel subsection in H.R. 7 is 
Sec. 1994A(l).
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    Third, the statute reinforces the government's duty to not 
discriminate with respect to religion when determining the eligibility 
of private-sector providers to deliver social services.\7\ In the past, 
an organization's ``religiosity,'' obviously a matter of degree not 
reducible to bright--lines, was said to disqualify providers found to 
be ``pervasively sectarian.'' That inquiry was always fraught with 
difficulties. Now, rather than probing into whether a service provider 
is thought to be ``too religious'' as opposed to ``secular enough,'' 
charitable choice focuses on the nature of the desired services and the 
means by which they are to be provided. Accordingly, the relevant 
question is no longer ``Who are you?'' but ``What can you do?'' So long 
as a provider is prepared to operate in line with all statutory and 
constitutional parameters, then an organization's degree of 
``religiosity'' is no longer relevant.
---------------------------------------------------------------------------
    \7\ 42 U.S.C. Sec. 604a(b) and (c). The parallel subsection in H.R. 
7 is Sec. 1994A(c)(1).
---------------------------------------------------------------------------
    Because they are a useful way of framing the most pertinent 
statutory and constitutional questions, we expand on these three 
principles below. Moreover, as will be discussed, the Department of 
Justice recommends certain amendments to Sec. 1994A of H.R. 7.

                     I. The Rights of Beneficiaries

    In programs subject to charitable choice, when funding goes 
directly to a social service provider the ultimate beneficiaries are 
empowered with a choice.\8\ Beneficiaries who want to receive services 
from an FBO may do so, assuming, of course, that at least one FBO has 
received funding.\9\ On the other hand, if a beneficiary has a 
religious objection to receiving services at an FBO, then the 
government is required to provide an equivalent alternative.\10\ This 
is the ``choice'' in charitable choice. Moreover, some beneficiaries, 
for any number of reasons, will inevitably think their needs better met 
by an FBO. This possibility of choosing to receive their services at an 
FBO is as important a matter as is the right not to be assigned to a 
religious provider. There is much concern voiced by civil libertarians 
about the latter choice, whereas the former is often overlooked. 
Supporters of charitable choice regard both of these choices--to avoid 
an FBO or to seek one out--as important.
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    \8\ Charitable choice contemplates both direct and indirect forms 
of aid. 42 U.S.C. Sec. 604a(a)(1). This is most apparent in H.R. 7 by 
comparing the subparts of Sec. 1994A(g). If the means of funding is 
indirect, as with, for example, federal child-care certificates, then 
choice is intrinsic to the beneficiary's selection of a child care 
center at which to ``spend'' his or her certificate.
    \9\ It may be that on some occasions no FBOs successfully compete 
for a grant or cooperative agreement. This is to be expected. 
Charitable choice is not a guarantee that resources will flow to FBOs. 
Rather, charitable choice guarantees only that FBOs will not be 
discriminated against with respect to religion.
    \10\ 42 U.S.C. Sec. 604a(e)(1). The parallel subsection in H.R. 7 
is Sec. 1994A(f)(1). The alternative may be another provider not 
objectionable to the beneficiary, or the government may find it more 
cost efficient to purchase the needed services on the open market.
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    If a beneficiary selects an FBO, the provider cannot discriminate 
against the beneficiary on account of religion or a religious 
belief.\11\ Moreover, the text's explicit protection of ``a refusal to 
actively participate in a religious practice'' insures a beneficiary's 
right to avoid any unwanted sectarian practices.\12\ Hence, 
participation, if any, is voluntary or noncompulsory. When direct 
funding is involved, one recent court decision suggested that this 
``opt-out'' right is required by the first amendment.\13\ Beneficiaries 
are required to be informed of their rights.\14\
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    \11\ 42 U.S.C. Sec. 604a(g) (FBOs may not discriminate against 
beneficiaries ``on the basis of religion [or] a religious belief''). 
The parallel subsection in H.R. 7 is Sec. 1994A(g)(1).
    \12\ 42 U.S.C. Sec. 604a(g) (FBOs may not discriminate or otherwise 
turn away a beneficiary from the organization's program because the 
beneficiary ``refus[es] to actively participate in a religious 
practice''). Thus, a beneficiary cannot be forced into participating in 
sectarian activity. For reasons not apparent, Sec. 1994A(g)(1) of H.R. 
7 omits this right of beneficiaries to avoid unwanted sectarian 
practices. As will be noted below, the Department of Justice recommends 
an amendment to correct this omission.
    By virtue of Sec. 604a(j), any such sectarian practices must be 
privately funded in their entirety and, hence, conducted separate from 
the government-funded program. See Part III, below, discussing the need 
to separate sectarian practices from the government-funded program.
    \13\ See DeStefano v. Emergency Housing Group, Inc., 2001 WL 399241 
* 10-12 (2d Cir. Apr. 20, 2001) (dictum expressing belief that it would 
be violative of Establishment Clause should beneficiaries of state-
funded alcohol treatment program be compelled to attend Alcoholics 
Anonymous sessions, such sessions being deemed religious 
indoctrination).
    \14\ The ``actual notice'' requirement first appeared in the SAMHSA 
reauthorization. See 42 U.S.C. Sec. 300x-65(e)(2). The parallel 
subsection in H.R. 7 is Sec. 1994A(f)(2). Of course, nothing in prior 
versions of charitable choice prevents the government/grantor from 
ensuring actual notice of rights to beneficiaries. Moreover, while it 
may be prudent for the grantor to provide notice of rights whether 
required by the underlying legislation or not, the absence of a 
requirement in older versions of the law hardly rises to the level of a 
constitutional concern.
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    The Department of Justice recommends that Sec. 1994A of H.R. 7 be 
strengthened by amending subsection (i) along the lines indicated in 
the note below.\15\ This proposal has a clearer statement of the 
voluntariness requirement. The provision on separating the government-
funded program from sectarian practices is discussed in Part III, 
below. The suggested Certificate of Compliance has the purpose of 
impressing upon both the government/grantor and the FBO the importance 
of both voluntariness and the need to separate sectarian practices.
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    \15\ (i) Limitations on Use of Funds; Voluntariness.--No funds 
provided through a grant or cooperative agreement to a religious 
organization to provide assistance under any program described in 
subsection (c)(4) shall be expended for sectarian instruction, worship, 
or proselytization. If the religious organization offers such an 
activity, it shall be voluntary for the individuals receiving services 
and offered separate from the program funded under this subpart. A 
certificate shall be separately signed by religious organizations, and 
filed with the government agency that disbursed the funds, certifying 
that the organization is aware of and will comply with this subsection. 
Failure to comply with the terms of the certification may, in addition 
to other sanctions as provided by law, result in the withholding of the 
funds and the suspension or termination of the agreement.
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               II. The Autonomy of Faith-Based Providers

    Care must be taken that government funding not cause the religious 
autonomy of FBOs to be undermined. Likewise, care must be taken that 
the availability of government funding not cause FBOs to fall under the 
sway of government or silence their prophetic voice. Accordingly, 
charitable choice was drafted to vigorously safeguard the ``religious 
character'' of FBOs, explicitly reserving to these organizations 
``control over the definition, development, practice, and expression'' 
of religious belief.\16\ Additionally, congressional protection for the 
institutional autonomy of FBOs was secured so as to leave them free to 
succeed at what they do well, namely reaching under-served communities. 
Finally, protecting institutional autonomy was thought necessary to 
draw reluctant FBOs into participating in government programs, 
something many FBOs are unlikely to do if they face invasive or 
compromising controls.
---------------------------------------------------------------------------
    \16\ Religious organizations often serve a useful role as moral 
critics of culture and, in particular, the actions of government. The 
mention of ``control over . . . expression'' in 42 U.S.C. 
Sec. 604a(d)(1), prohibits government from using the threat of denial 
of a grant, or withholding monies due under an existing grant, as a 
means of ``chilling'' the prophetic voice of the FBO.
---------------------------------------------------------------------------
    One of the most important guarantees of institutional 
autonomy is an FBO's ability to select its own staff in a 
manner that takes into account its faith. Many FBOs believe 
that they cannot maintain their religious vision over a 
sustained time period without the ability to replenish their 
staff with individuals who share the tenets and doctrines of 
the association. The guarantee is central to each 
organization's freedom to define its own mission according to 
the dictates of its faith. It was for this reason that Congress 
wrote an exemption from religious discrimination by religious 
employers into Title VII of the Civil Rights Act of 1964. And 
charitable choice specifically provides that FBOs retain this 
limited exemption from federal employment nondiscrimination 
laws.\17\ While it is essential that FBOs be permitted to make 
employment decisions based on religious considerations, FBOs 
must, along with secular providers, follow federal civil rights 
laws prohibiting discrimination on the bases of race, color, 
national origin, gender, age, and disability.\18\
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    \17\ 42 U.S.C. Sec. 604a(f). The parallel subsection in H.R. 7 is 
Sec. 1994A(e)(2). In order that these employment protections be more 
clear to all concerned, while still achieving the intended purpose, the 
Department of Justice recommends that the ``Employment Practices'' 
subsection to Sec. 1994A be amended as set out below:

          (e) Employment Practices.--
          (1) In general.--In order to aid in the preservation of its 
        religious character and autonomy, a religious organization that 
        provides assistance under a program described in subsection 
        (c)(4) may, notwithstanding any other federal law pertaining to 
        religious discrimination in employment, take into account the 
        religion of the members of the organization when hiring, 
        promoting, transferring, or discharging an employee.
          (2) Title vii.--The exemption of a religious organization 
        under section 702(a), and the exemption of an educational 
        institution under section 703(e)(2) of the Civil Rights Act of 
        1964 (42 U.S.C. Sec. 2000e-1(a), 2000e-2(e)(2)), shall not be 
        affected by the organization's or institution's provision of 
        assistance, or receipt of funds, pursuant to a program 
        described in subsection (c)(4). Nothing in this section alters 
        the duty of a religious organization to otherwise comply with 
        the nondiscrimination provisions in title VII of the Civil 
        Rights Act of 1964 (42 U.S.C. Sec. 2000e et seq.).

    This proposed amendment would ensure that FBOs may continue to 
staff on a religious basis. However, in this proposal religious 
considerations may not affect the terms of the compensation package. 
Hence, there is no intended ``religious override'' of minimum wage 
laws, or matters like social security or unemployment compensation. 
Additionally, under this proposal any employment nondiscrimination 
provisions imbedded in the underlying federal program legislation 
cannot affect an FBO's right to staff on a religious basis. Finally, 
the Sec. Sec. 702(a), 703(e)(2) exceptions in Title VII, while not 
broadened in any respect, are expressly preserved.
    \18\ In addition to Title VII of the Civil Rights Act of 1964, see, 
e.g., Title VI of the Civil Rights Act of 1964, 42 U.S.C. Sec. 2000d et 
seq. (1994) (prohibiting discrimination on the bases of race, color, 
and national origin); Title IX of the Educational Amendments of 1972, 
20 U.S.C. Sec. Sec. 1681-1688 (1994) prohibiting discrimination in 
educational programs and activities on the bases of sex and visual 
impairment); Section 504 of the Rehabilitation Act of 1973, 29 U.S.C. 
Sec. 794 (1994) prohibiting discrimination against otherwise qualified 
disabled individuals, including individuals with a contagious disease 
or an infection such as HIV); The Age Discrimination Act of 1975, 29 
U.S.C. Sec. 706(8)(c) (1994) (prohibiting discrimination on the basis 
of age).

    Opponents of charitable choice have charged that it permits 
a form of ``government-funded job discrimination.'' We do not 
believe this is the case for the following reasons. First, 
there is a certain illogic to the claim that charitable choice 
is ``funding job discrimination.'' The purpose of charitable 
choice, and the underlying federal programs, is not the 
creation or funding of jobs. Rather, the purpose is to fund 
social services. The FBO's employment decisions are wholly 
private. Because the government is not involved with an FBO's 
internal staffing decisions, there is no causal link between 
the government's singular and very public act of funding and an 
FBO's numerous and very private acts related to its staffing. 
Importantly, these internal employment decisions are manifestly 
not ``state or governmental action'' for purposes of the Fifth 
and Fourteenth Amendments.\19\ Hence, because the Constitution 
restrains only ``governmental action,'' these private acts of 
religious staffing cannot be said to run afoul of 
constitutional norms.\20\
---------------------------------------------------------------------------
    \19\ See Blum v. Yaretsky, 457 U.S. 991 (1982) (holding that 
pervasive regulation and the receipt of government funding at a private 
nursing home does not, without more, constitute state action); Rendell-
Baker v. Kohn, 457 U.S. 830 (1982) (holding that a private school 
heavily funded by the state is not thereby state actor); Flagg 
Brothers, Inc. v. Brooks, 436 U.S. 149, 164 (1978) (holding that the 
enactment of a law whereby the state acquiesces in the private acts of 
a commercial warehouse does not thereby convert the acts of the 
warehouse into those of the state).
    \20\ That an act of religious staffing is not attributable to the 
government and thus not subject to Establishment Clause norms 
restraining actions by government has already been ruled on by the 
Supreme Court. See Corporation of the Presiding Bishop v. Amos, 483 
U.S. 327, 337 (1987) (``A law is not unconstitutional simply because it 
allows churches to advance religion, which is their very purpose. . . . 
[I]t must be fair to say that the government itself has advanced 
religion through its own activities and influence.''); id. at 337 n.15 
(``Undoubtedly, [the employee's] freedom of choice in religious matters 
was impinged upon, but it was the Church . . . and not the Government, 
who put him to the choice of changing his religious practices or losing 
his job.'').
---------------------------------------------------------------------------
    Second, critics of charitable choice are wrong when they 
claim to have detected a contradiction. Why, they ask, is it 
important to staff on a religious basis when the FBOs cannot 
engage in religious indoctrination within a government-funded 
program? Since there can be no such indoctrination, they go on, 
what possible difference could it make that employees share the 
FBO's faith? There is no contradiction, however, once this line 
of argumentation is seen as failing to account for the FBO's 
perspective. From the government's perspective, to feed the 
hungry or house the destitute is secular work. But from the 
perspective of the FBO, to operate a soup kitchen or open a 
shelter for the homeless are acts of mercy and thus spiritual 
service. In his concurring opinion in Corporation of the 
Presiding Bishop v. Amos, Justice William Brennan, remembered 
as one of the Court's foremost civil libertarians, saw this 
immediately when he wrote that what government characterizes as 
social services, religious organizations view as the 
fulfillment of religious duty, as service in grateful response 
to unmerited favor, as good works that give definition and 
focus to the community of faithful, or as a visible witness and 
example to the larger society.\21\ All of which is to observe 
that even when not engaged in ``religious indoctrination'' such 
as proselytizing or worship, FBOs view what they are doing as 
religiously motivated and thus may desire that such acts of 
mercy and love be performed by those of like-minded creed.\22\
---------------------------------------------------------------------------
    \21\ 483 U.S. at 342-44 (Brennan, J., concurring).
    \22\ We acknowledge that many FBOs do not staff on a religious 
basis, nor do they desire to do so. But many others do, and desire to 
continue doing so. Further, many FBOs that staff on a religious basis 
do so with respect to some jobs but not others. Finally, many FBOs do 
not staff on the basis of religion in any affirmative sense, but they 
do require that employees not be in open defiance of the organization's 
creed. The employment practices of FBOs, as well as their religious 
motives, are varied and complex, yet another reason for government to 
eschew attempts to regulate the subject matter.
---------------------------------------------------------------------------
    Third, it is not always appreciated that private acts of 
religious staffing are not motivated by prejudice or malice. In 
no way is religious staffing by FBOs comparable to the 
invidious stereotyping, even outright malice, widely associated 
with racial and ethnic discrimination. Rather, the FBO is 
acting--and understandably so--in accord with the dictates of 
its sincerely held religious convictions. Justice William 
Brennan, once again, was quick to recognize the importance of 
such civil rights exemptions to the autonomy of faith-based 
organizations:
          Determining that certain activities are in furtherance of an 
        organization's religious mission, and that only those committed 
        to that mission should conduct them, is thus a means by which a 
        religious community defines itself. Solicitude for a church's 
        ability to do so reflects the idea that furtherance of the 
        autonomy of religious organizations often furthers individual 
        religious freedom as well.\23\
---------------------------------------------------------------------------
    \23\ 483 U.S. at 342-43 (Brennan, J., concurring).
---------------------------------------------------------------------------
    Which is to say, not all discrimination is malevolent.\24\ A 
religious organization favoring the employment of those of like-minded 
faith is comparable to an environmental organization staffing only with 
employees devoted to preserving the environment, a feminist 
organization hiring only those devoted to the cause of expanded 
opportunities for women, or a teacher's union hiring only those opposed 
to school vouchers. To bar a religious organization from hiring on a 
religious basis is to assail the very animating cause for which the 
organization was formed in the first place. If these FBOs cannot 
operate in accord with their own sense of self-understanding and 
mission, then many will decline to compete for charitable choice 
funding. If that happens, the loss will be borne most acutely by the 
poor and needy.
---------------------------------------------------------------------------
    \24\ Cf. op-ed column by Nathan J. Diament, A Slander Against Our 
Sacred Institutions, Washington Post p. A23 (May 28, 2001) (``Their 
assumption is that faith-based hiring by institutions of faith is equal 
in nature to every other despicable act of discrimination in all other 
contexts. This is simply not true.'').
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    Fourth, in a very real sense Congress already made a decision to 
protect religious staffing by FBOs back in 1964, and then to expand on 
its scope in 1972.\25\ Section 702(a) of Title VII of the Civil Rights 
Act of 1964 \26\ exempts religious organizations from Title VII 
liability for employment decisions based on religion.\27\ Opponents 
claim that the Sec. 702(a) exemption is waived when an FBO becomes a 
federally funded provider of social services. The law is to the 
contrary. Waiver of rights is disfavored in the law, and, as would be 
expected, the case law holds that the Sec. 702(a) exemption is not 
forfeited when an FBO becomes a provider of publicly funded 
services.\28\ Indeed, charitable choice expressly states that the 
Sec. 702(a) exemption is preserved.\29\ In light of the fact that the 
statutory language makes clear to FBOs that they will not be 
``impair[ed]'' in their ``religious character'' if they participate in 
charitable choice, it is wholly contradictory to then suggest that FBOs 
have impliedly waived this valuable autonomy right.
---------------------------------------------------------------------------
    \25\ The nature and history of this expansion in the Equal 
Employment Opportunity Act of 1972 is set forth in Amos, 483 U.S. at 
332-33. A co-sponsor of the 1972 expansion, Senator Sam Ervin, 
explained its purpose in terms of reinforcing the separation of church 
and state. The aim said Senator Ervin, was to ``take the political 
hands of Caesar off the institutions of God, where they have no place 
to be.'' 118 Cong. Rec. 4503 (1972).
    \26\ 42 U.S.C. Sec. 2000e-1(a) (1994). Religious educational 
institutions are separately exempt under 42 U.S.C. Sec. 2000e-2(e)(2) 
(1994).
    \27\ The Title VII religious exemption was upheld in Corporation of 
the Presiding Bishop v. Amos, 483 U.S. 327 (1987). Amos held that the 
exemption was not a religious preference violative of the Establishment 
Clause. Moreover, the Establishment Clause permits Congress to enact 
exemptions from regulatory burdens not compelled by the Free Exercise 
Clause, as well as regulatory exemptions that accommodate only 
religious practices and organizations. Id. at 334, 338.
    \28\ See Hall v. Baptist Memorial Health Care Corp., 215 F.3d 618, 
625 6th Cir. 2000) (dismissing religious discrimination claim filed by 
employee against religious organization because organization was exempt 
from Title VII and the receipt of substantial government funding did 
not bring about a waiver of the exemption); Siegel v. Truett-McConnell 
College, 13 F. Supp.2d 1335, 1343-45 (N.D. Ga. 1994), aff'd, 73 F.3d 
1108 (11th Cir. 1995) (table) (dismissing religious discrimination 
claim filed by faculty member against religious college because was 
exempt from Title VII and the receipt of substantial government funding 
did not bring about a waiver of the exemption or violate the 
Establishment Clause); Young v. Shawnee Mission Medical Center, 1988 
U.S. Dist. LEXIS 12248 (D. Kan. Oct. 21, 1988) (holding that religious 
hospital did not lose Title VII exemption merely because it received 
federal Medicare payments); see Little v. Wuerl, 929 F.2d 944, 951 (3d 
Cir. 1991) (exemption to Title VII for religious staffing by a 
religious organization is not waivable); Arriaga v. Loma Linda 
University, 10 Cal.App.4th 1556, 13 Cal. Rptr.2d 619 (1992) (religious 
exemption in state employment nondiscrimination law was not lost merely 
because religious college received state funding); Saucier v. 
Employment Security Dept., 954 P.2d 285 (Wash. Ct. App. 1998) 
(Salvation Army's religious exemption from state unemployment 
compensation tax does not violate Establishment Clause merely because 
the job of a former employee in question, a drug abuse counselor, was 
funded by federal and state grants).
    \29\ 42 U.S.C. Sec. 604a(f). The parallel subdivision in H.R. 7 is 
Sec. 1994A(e)(2).
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    Charitable choice affirmatively enables and requires government to 
stop ``picking and choosing'' between groups on the basis of religion. 
No longer can there be wholesale elimination of able and willing 
providers found by regulators or civil magistrates to be ``too 
religious,'' a constitutionally intrusive and analytically problematic 
determination.\30\ With charitable choice, religion is irrelevant 
during the grant awarding process. Nor does the government, in making 
awards, need to sort out those groups thought ``genuinely'' religious 
from those deemed pseudo-religious. This means that, contrary to the 
critics' fears, charitable choice leads to less, rather than more, 
regulation of religion.
---------------------------------------------------------------------------
    \30\ In regard to the constitutional and practical difficulties 
with sorting out, and then barring from program participation, those 
FBOs thought to fit that slippery category of ``pervasively 
sectarian,'' the plurality in Mitchell v. Helms, 120 S. Ct. 2530 
(2000), said as follows:
    [T]he inquiry into the recipient's religious views required by a 
focus on whether a school is pervasively sectarian is not 
onlyunnecessary but also offensive. It is well established, in numerous 
other contexts, that courts should refrain from trolling through a 
person's or institution's religious beliefs. . . . Although the dissent 
welcomes such probing . . . we find it profoundly troubling.--Id. at 
2551 (citations omitted).
    The problem is more thoroughly addressed at Vol. 42 Wm & Mary L. 
Rev. 883, 907-14 (2001) (collecting cases suggesting that to require 
distinguishing between pervasively and non-pervasively sectarian 
organizations is inconsistent with the Court's case law elsewhere 
holding that civil authorities should refrain from probing the inner 
workings of religious organizations.
---------------------------------------------------------------------------
    Additionally, welfare beneficiaries have greater choice when 
selecting their service provider. For those beneficiaries who, out of 
spiritual interests or otherwise, believe they will be better served by 
an FBO, such choices will now be available in greater number. Expanding 
the variety of choices available to needy individuals in turn reduces 
the government's influence over how those individual choices are made.

                     III. The Neutrality Principle

    When discussing Establishment Clause restraints on a government's 
program of aid, a rule of equal-treatment or nondiscrimination among 
providers, be they secular or religious, is termed ``neutrality'' or 
the ``neutrality principle.'' Charitable choice is consistent with 
neutrality, but courts need not wholly embrace the neutrality principle 
to sustain the constitutionality of charitable choice.
    The U.S. Supreme Court distinguishes, as a threshold matter, 
between direct and indirect aid.\31\ For any given program, charitable 
choice allows, at the government's option, for direct or indirect forms 
of funding, or both. Indirect aid is where the ultimate beneficiary is 
given a coupon, or other means of free agency, such that he or she has 
the power to select from among qualified providers at which the coupon 
may be ``redeemed'' and the services rendered. In a series of cases, 
and in more recent commentary contrasting indirect aid with direct-aid 
cases, the Supreme Court has consistently upheld the constitutionality 
of mechanisms providing for indirect means of aid distributed without 
regard to religion.\32\ The Child Care and Development Block Grant 
Program of 1990,\33\ for example, has been providing low income parents 
indirect aid for child care via ``certificates'' redeemable at, inter 
alia, churches and other FBOs. The act has never been so much as even 
challenged in the courts as unconstitutional.
---------------------------------------------------------------------------
    \31\ See Mitchell v. Helms, 120 S. Ct. 2530, 2558-59 (2000) 
(O'Connor, J., concurring in the judgment).
    \32\ See Zobrest v. Catalina Foothills Sch. Dist., 509 U.S. 1 
(1993) (providing special education services to Catholic high school 
student not prohibited by Establishment Clause); Witters v. Washington 
Dept. of Servs. For the Blind, 474 U.S. 481 (1986) (upholding a state 
vocational rehabilitation grant to disabled student that elected to use 
the grant to obtain training as a youth pastor); Mueller v. Allen, 463 
U.S. 388 (1983) (upholding a state income tax deduction for parents 
paying school tuition at religious schools); see also Rosenberger v. 
Rector and Visitors, 515 U.S. 819, 878-79 (1995) (Souter, J., 
dissenting) (distinguishing cases upholding indirect funding to 
individuals, admitted to be the law of the Court, from direct funding 
to religious organizations).
    \33\ 42 U.S.C. Sec. Sec. 9858--9858q (1994).
---------------------------------------------------------------------------
    In the context of direct aid, the Supreme Court decision that has 
most recently addressed the neutrality principle is Mitchell v. 
Helms.\34\ The four-Justice plurality, written by Justice Thomas, and 
joined by the Chief Justice, and Justices Scalia and Kennedy, embraced, 
without reservation, the neutrality principle. In the sense of positive 
law, however, Justice O'Connor's opinion concurring in the judgment is 
controlling in the lower courts and on legislative bodies.\35\
---------------------------------------------------------------------------
    \34\ 120 S. Ct. 2530 (2000) (plurality opinion).
    \35\ Id. at 2556 (O'Connor, J., concurring in the judgment). Her 
opinion was joined by Justice Breyer. See Marks v. United States, 430 
U.S. 188, 193 (1977) (when Supreme Court fails to issue a majority 
opinion, the opinion of the members who concurred in the judgment on 
narrowest grounds is controlling).
---------------------------------------------------------------------------
    Before proceeding in greater detail, the controlling principle 
coming from Mitchell v. Helms can be briefly stated: A government 
program of aid that directly assists the delivery of social services at 
a faith-based provider, one selected by the government without regard 
to religion, is constitutional, but real and meaningful controls must 
be built into the program so that the aid is not diverted and spent on 
religious indoctrination.\36\
---------------------------------------------------------------------------
    \36\ Mitchell does not speak--except in the most general way--to 
the scope of the Establishment Clause when it comes to other issues 
such as religious exemptions in regulatory or tax laws, religious 
symbols on public property, or religious expression by government 
officials. In that regard, Mitchell continues the splintering of legal 
doctrine leading to different Establishment Clause tests for different 
contexts.
---------------------------------------------------------------------------
    Based on Justice O'Connor's opinion, when combined with the four 
Justices comprising the plurality, it can be said that: (1) neutral, 
indirect aid to a religious organization does not violate the 
Establishment Clause; \37\ and (2) neutral, direct aid to a religious 
organization does not, without more, violate the Establishment 
Clause.\38\ Having indicated that program neutrality is an important 
but not sufficient factor in determining the constitutionality of 
direct aid, Justice O'Connor went on to say that: (a) Meek v. Pittenger 
\39\ and Wolman v. Walter \40\ should be overruled; (b) the Court 
should do away with all presumptions of unconstitutionality; (c) proof 
of actual diversion of government aid to religious indoctrination would 
be violative of the Establishment Clause; and (d) while adequate 
safeguards to prevent diversion are called for, an intrusive and 
pervasive governmental monitoring of FBOs is not required.
---------------------------------------------------------------------------
    \37\ Id. at 2558-59
    \38\ Id. at 2557. Justice O'Connor explained that by ``neutral'' 
program of aid she meant ``whether the aid program defines its 
recipients by reference to religion.'' Id. at 2560. To be ``neutral'' 
in this sense, a grant program must be facially nondiscriminatory with 
respect to religion, and, where there is discretion in awarding a 
grant, nondiscriminatory as applied.
    \39\ Id. at 2556, 2563-66. Meek v. Pittenger, 421 U.S. 349 (1975) 
(plurality in part), had struck down loans to religious schools of 
maps, photos, films, projectors, recorders, and lab equipment, as well 
as disallowed services for counseling, remedial and accelerated 
teaching, and psychological, speech, and hearing therapy.
    \40\ 120 S. Ct. at 2556, 2563-66. Wolman v. Walter, 433 U.S. 229 
(1977) (plurality in part), had struck down use of public school 
personnel to provide guidance, remedial and therapeutic speech and 
hearing services away from the religious school campus, disallowed the 
loan of instructional materials to religious schools, and disallowed 
transportation for field trips by religious school students.
---------------------------------------------------------------------------
    The federal program in Mitchell entailed aid to K-12 schools, 
public and private, secular and religious, allocated on a per-student 
basis. The same principles apply, presumably, to social service and 
health care programs, albeit, historically the Court has scrutinized 
far more closely direct aid to K-12 schools compared to social welfare 
and health care programs.\41\
---------------------------------------------------------------------------
    \41\ See Bowen v. Kendrick, 487 U.S. 589 (1989) (upholding, on its 
face, religiously neutral funding of teenage sexuality counseling 
centers); Bradfield v. Roberts, 175 U.S. 291 (1899) (upholding use of 
federal funds for construction at a religious hospital). In sharp 
contrast, the Court has been ``particularly vigilant'' in monitoring 
compliance with the Establishment Clause in K-12 schools, where the 
government exerts ``great authority and coercive power'' over students 
through a mandatory attendance requirement. Edwards v. Aguillard, 482 
U.S. 578, 583-84 (1987).
---------------------------------------------------------------------------
    In cases involving programs of direct aid to K-12 schools, Justice 
O'Connor started by announcing that she will follow the analysis first 
used in Agostini v. Felton.\42\ She began with the two-prong Lemon test 
as modified in Agostini: is there a secular purpose and is the primary 
effect to advance religion? Plaintiffs did not contend that the program 
failed to have a secular purpose, thus she moved on to the second part 
of the Lemon/Agostini test.\43\ Drawing on Agostini, Justice O'Connor 
noted that the primary-effect prong is guided by three criteria. The 
first two inquiries are whether the government aid is actually diverted 
to the indoctrination of religion and whether the program of aid is 
neutral with respect to religion. The third criterion is whether the 
program creates excessive administrative entanglement,\44\ now clearly 
downgraded to just one more factor to weigh under the primary-effect 
prong.\45\
---------------------------------------------------------------------------
    \42\ Mitchell, 120 S. Ct. at 2556, 2560. Agostini v. Felton, 521 
U.S. 203 (1997), upheld a program whereby public school teachers go 
into K-12 schools, including religious schools, to deliver remedial 
educational services.
    \43\ Mitchell, 120 S. Ct. at 2560. Plaintiffs were well counseled 
not to argue that the program lacked a secular purpose. The secular-
purpose prong of the test is easily satisfied. See, e.g., Bowen v. 
Kendrick, 487 U.S. 589, 602 (1988) (``a court may invalidate a statute 
only if it is motivated wholly by an impermissible purpose'').
    \44\ In Mitchell, plaintiffs did not contend that the program 
created excessive administrative entanglement. 120 S. Ct. at 2560. 
Prior to Agostini, entanglement analysis was a separate, third prong to 
the Lemon test.
    The Supreme Court has long since stopped using ``political 
divisiveness'' inquiry as a separate aspect of entanglement analysis. 
See, e.g., Bowen v. Kendrick, 487 U.S. 589, 617 n.14 (1988) (rejecting 
political divisiveness alone as a basis for invalidating governmental 
aid program). Hence, neither the plurality nor Justice O'Connor gave 
even passing mention to ``political divisiveness.'' We follow their 
lead.
    \45\ Alternatively, the same evidence shifted under the effect 
prong of Lemon/Agostini can be examined pursuant to Justice O'Connor's 
no-endorsement test. Mitchell, 120 S. Ct. at 2560. The no-endorsement 
test asks whether an ``objective observer'' would feel civic alienation 
upon examining the program of aid and learning that some of the grants 
are awarded to FBOs. A finding of government endorsement of religion is 
unlikely unless a facially neutral program, when applied, singles out 
religion for favoritism. In Mitchell, Justice O'Connor did not utilize 
the alternative no-endorsement test when doing the Lemon/Agostini 
analysis. We follow her lead. She did, however, use the no-endorsement 
test for another purpose. See id. at 2559 (explaining why she thought 
the plurality was wrong to abandon the direct-aid/indirect-aid 
distinction).
---------------------------------------------------------------------------
    After outlining for the reader the Court's Lemon/Agostini approach, 
Justice O'Connor then inquired into whether the aid was actually 
diverted, in a manner attributable to the government, and whether 
program eligibility was religion neutral. Because the federal K-12 
educational program under review in Mitchell was facially neutral, and 
administered evenhandedly, as to religion,\46\ she spent most of her 
analysis on the remaining factor, namely, diversion of grant assistance 
to religious indoctrination. Justice O'Connor noted that the 
educational aid in question was, by the terms of the statute, required 
to supplement rather than to supplant monies received from other 
sources,\47\ that the nature of the aid was such that it could not 
reach the ``coffers'' of places for religious inculcation, and that the 
use of the aid was statutorily restricted to ``secular, neutral, and 
nonideological'' purposes.\48\ Concerning the form of the assistance, 
she noted that the aid consisted of educational materials and equipment 
rather than cash, and that the materials were on loan to the religious 
schools.\49\
---------------------------------------------------------------------------
    \46\ Religious neutrality, explained Justice O'Connor, ensures that 
an aid program does not provide a financial incentive for the 
individuals intended to ultimately benefit from the aid ``to undertake 
religious indoctrination.'' Mitchell, 120 S. Ct. at 2561 (quoting 
Agostini).
    \47\ One of the aims of charitable choice is that faith-based and 
other community organizations be able to expand their capacity to 
provided for the social service needs of under-served neighborhoods. In 
that sense, then, charitable choice is supplemental. For many neutral 
programs of aid, application of the supplement/not-supplant factor 
would, if allowed to be controlling, conflict with long-settled 
precedent. For example, the Court has long since allowed state-provided 
textbooks and bussing for religious schools. See Cochran v. Louisiana 
State Bd. of Educ., 281 U.S. 370 (1930) (textbooks); Everson v. Board 
of Educ., 330 U.S. 1 (1947) (bussing). Once the government provided 
textbooks and bussing, monies in a school's budget could be shifted to 
other uses, including sectarian uses. Yet such aid is in apparent 
conflict with the admonition to supplement/not-supplant. See also 
Committee for Public Education v. Regan, 444 U.S. 646, 661-62 (1980), 
where the Court upheld aid that ``supplanted'' expenses otherwise borne 
by religious schools for state-required testing. Even the dissent in 
Mitchell concedes that reconciliation between Regan and an absolute 
prohibition on aid that supplants rather than supplements ``is not 
easily explained.'' 120 S. Ct. at 2588 n.17 (Souter, J., dissenting). 
Regan suggests that no ``blanket rule'' exists. Id. at 2544 n.7 
(plurality).
    The Supreme Court's past practice is to trace the government funds 
to the point of expenditure, rejecting any requirement whereby 
government funds must not be provided where the public funds thereby 
``free up'' private money which then might be diverted to religious 
indoctrination. See Regan, 444 U.S. at 658 (``The Court has not 
accepted the recurrent argument that all aid is forbidden because aid 
to one aspect of an institution frees it to spend its other resources 
on religious ends.''); New York v. Cathedral Academy, 434 U.S. 125, 134 
(1977) (``this Court has never held that freeing private funds for 
sectarian uses invalidates otherwise secular aide to religious 
institutions'').
    \48\ 120 S. Ct. at 2557, 2562
    \49\ Id. at 2562. On at least one occasion the Supreme Court upheld 
direct cash payments to religious K-12 schools. See Committee for 
Public Education v. Regan, 444 U.S. 646 (1980). The payments were in 
reimbursement for state-required testing. Rejecting a rule that cash 
was never permitted, the Regan Court explained:
    We decline to embrace a formalistic dichotomy that bears so little 
relationship either to common sense or the realities of school finance. 
None of our cases requires us to invalidate these reimbursements simply 
because they involve [direct] payments in cash.--Id. at 658. See also 
Mitchell, 120 S. Ct. at 2546 n.8 (plurality noting that monetary 
assistance is not ``per se bad,'' just a factor calling for more care).
    Justice O'Connor explained that monetary aid is of concern because 
it ``falls precariously close to the original object of the 
Establishment Clause prohibition.'' Mitchell, 120 S. Ct. at 2566. Part 
of that history, explicated in Everson v. Board of Educ., 330 U.S. 1 
(1947), was the defeat spearheaded in Virginia by James Madison of a 
proposed tax. As more precisely explained by Justice Thomas, the 
legislation defeated in Virginia was a tax ear-marked for the support 
of clergy. Rosenberger v. Rector and Visitors, 515 U.S. 819, 852 (1995) 
(Thomas, J., concurring). Opposition to a tax ear-marked for explicitly 
religious purposes indeed does go to the heart of the adoption of the 
Establishment Clause. Charitable choice monies, however, come from 
general tax revenues, are awarded in a manner that is neutral as to 
religion, and do not fund sectarian practices.
---------------------------------------------------------------------------
    Justice O'Connor proceeded to reject a rule of unconstitutionality 
where the character of the aid is merely capable of diversion to 
religious indoctrination, hence overruling Meek and Wolman.\50\ As the 
Court did in Agostini, Justice O'Connor rejected employing presumptions 
of unconstitutionality and indicated that henceforth she will require 
proof that the government aid was actually diverted to 
indoctrination.\51\ Because the ``pervasively sectarian'' test is such 
a presumption, indeed, an irrebutable presumption (i.e., any direct aid 
to a highly religious organization is deemed to advance sectarian 
objectives),\52\ Justice O'Connor is best understood to have rendered 
the ``pervasively sectarian'' test no longer relevant when assessing 
neutral programs of aid.\53\
---------------------------------------------------------------------------
    \50\ 120 S. Ct. at 2557, 2562.
    \51\ Justice O'Connor's statement sidelining future reliance on 
presumptions that employees of highly religious organizations cannot or 
will not follow legal restraints on the expenditure of government funds 
is as follows:
    I believe that our definitive rejection of [the] presumption [in 
Agostini] also stood for--or at least strongly pointed to--the broader 
proposition that such presumptions of religious indoctrination are 
normally inappropriate when evaluating neutral school-aid programs 
under the Establishment Clause.--Id. at 2567.
    \52\ See id. at 2561 (noting that Agostini rejected a presumption 
drawn from Meek and later Aguilar); id. at 2563-64 (quoting from Meek 
the ``pervasively sectarian'' rationale and noting it created an 
irrebutable presumption which Justice O'Connor later rejects); id. at 
2567 (requiring proof of actual diversion, thus rendering ``pervasively 
sectarian'' test irrelevant); id. at 2568 (rejecting presumption that 
teachers employed by religious schools cannot follow statutory 
requirement that aid be used only for secular purposes); and id. at 
2570 (rejecting presumption of bad faith on the part of religious 
school officials).
    \53\ While Justice O'Connor did not join in the plurality's 
denunciation of the ``pervasively sectarian'' doctrine as bigoted, her 
opinion made plain that the doctrine has lost relevance. Thus, while 
not taking issue with the plurality's condemnation of the doctrine as 
anti-Catholic, she in fact explicitly joined in overruling the specific 
portions of Meek that set forth the operative core of the ``pervasively 
sectarian'' concept. 120 S. Ct. at 2563.
---------------------------------------------------------------------------
    Justice O'Connor requires that no government funds be diverted to 
``religious indoctrination,'' thus religious organizations receiving 
direct funding will have to separate their social service program from 
their sectarian practices.\54\ If the federal assistance is utilized 
for educational functions without attendant sectarian activities, then 
there is no problem. If the aid flows into the entirety of an 
educational program and some ``religious indoctrination [is] taking 
place therein,'' then the indoctrination ``would be directly 
attributable to the government.'' \55\ Hence, if any part of an FBO's 
activities involve ``religious indoctrination,'' such activities must 
be set apart from the government-funded program and, hence, are 
privately funded.
---------------------------------------------------------------------------
    \54\ Id. at 2568.
    \55\ Id. A lower court recently applied this principle by striking 
down direct monetary payments, unrestricted as to use, to reimburse 
schools, including religious schools, to reimburse them for the cost of 
Internet access. See Freedom From Religion Foundation v. Bugher, 2001 
WL 476595 (7th Cir. Apr. 27, 2001). Once received, the money went into 
general revenues and could later be used for sectarian purposes. On the 
other hand, the lower trial court decision in the same case upheld a 
parallel program whereby the state provided a below-cost Internet link 
to schools, including religious schools. Hence, the aid could not be 
diverted to sectarian use. 55 F. Supp.2d 962 (W.D. Wis. 1999). While on 
appeal, the plaintiffs' challenge to this parallel program was dropped 
when, in the interim, Mitchell v. Helms was handed down.
---------------------------------------------------------------------------
    A welfare-to-work program operated by a church in Philadelphia 
illustrates how this can be done successfully. Teachers in the program 
conduct readiness-to-work classes in the church basement weekdays 
pursuant to a government grant. During a free-time period the pastor of 
the church holds a voluntary Bible study in her office up on the ground 
floor. The sectarian instruction is privately funded and separated in 
both time and location from the welfare to work classes.
    In the final part of her opinion, Justice O'Connor explained why 
safeguards in the federal educational program at issue in Mitchell 
reassured her that the program, as applied, was not violative of the 
Establishment Clause. A neutral program of aid need not be failsafe, 
nor does every program require pervasive monitoring.\56\ The statute 
limited aid to ``secular, neutral, and nonideological'' assistance and 
expressly prohibited use of the aid for ``religious worship or 
instruction.'' \57\ State educational authorities required religious 
schools to sign Assurances of Compliance with the above-quoted spending 
prohibitions being express terms in the grant agreement.\58\ The state 
conducted monitoring visits, albeit infrequently, and did a random 
review of government-purchased library books for their sectarian 
content.\59\ There was also monitoring of religious schools by local 
public school districts, including a review of project proposals 
submitted by the religious schools and annual program-review visits to 
each recipient school.\60\ The monitoring did catch instances of actual 
diversion, albeit not a substantial number, and Justice O'Connor was 
encouraged that when problems were detected they were timely 
corrected.\61\
---------------------------------------------------------------------------
    \56\ 120 S. Ct. at 2569.
    \57\ Id.
    \58\ Id.
    \59\ Id.
    \60\ Id. at 2569-70.
    \61\ Id. at 2571-72.
---------------------------------------------------------------------------
    Justice O'Connor said that various diversion-prevention factors 
such as supplement/not-supplant, aid not reaching religious coffers, 
and the aid being in-kind rather than monetary are not talismanic. She 
made a point not to elevate them to the level of constitutional 
requirements.\62\ Rather, effectiveness of these diversion-prevention 
factors, and other devices doing this preventative task, are to be 
sifted and weighed given the overall context of, and experience with, 
the government's program.\63\
---------------------------------------------------------------------------
    \62\ Id. at 2572 (''[r]egardless of whether these factors are 
constitutional requirements . . .'').
    \63\ Monetary payments are just a factor to consider, not 
controlling. This makes sense given Justice O'Connor's concurring 
opinion in Bowen v. Kendrick, wherein she joined in approving cash 
grants to religious organizations, even in the particularly 
``sensitive'' area of teenage sexual behavior, as long as there is no 
actual ``use of public funds to promote religious doctrines.'' Bowen v. 
Kendrick, 487 U.S. 589, 623 (1988) (O'Connor, J., concurring). See also 
supra note 49.
---------------------------------------------------------------------------
    Charitable choice is responsive to the Lemon/Agostini test and 
Justice O'Connor's opinion in Mitchell v. Helms:
    1. The legislation gives rise to neutral programs of aid and 
expressly prohibits diversion of the aid to ``sectarian worship, 
instruction, or proselytization.'' Thus, sectarian aspects of an FBO's 
activities would have to be segmented off and, if continued, privately 
funded. An amendment recommended by the Department of Justice is set 
out in the note below.\64\ Under this proposal, direct monetary funding 
is allowed where an FBO, by structure and operation, will not permit 
diversion of government funds to religious indoctrination.\65\ Some 
FBOs, of course, will be unable or unwilling to separate their program 
in the required fashion. Charitable choice is not for such providers. 
Those FBOs who do not qualify for direct funding should be considered 
candidates for indirect means of aid.
---------------------------------------------------------------------------
    \64\ The Department of Justice recommends that H.R. 7 be clarified 
by the following amendment:
    (i) Limitations on Use of Funds; Voluntariness.--No funds provided 
through a grant or cooperative agreement to a religious organization to 
provide assistance under any program described in subsection (c)(4) 
shall be expended for sectarian instruction, worship, or 
proselytization. If the religious organization offers such an activity, 
it shall be voluntary for the individuals receiving services and 
offered separate from the program funded under this subpart. A 
certificate shall be separately signed by religious organizations, and 
filed with the government agency that disbursed the funds, certifying 
that the organization is aware of and will comply with this subsection. 
Failure to comply with the terms of the certification may, in addition 
to other sanctions as provided by law, result in the withholding of the 
funds and the suspension or termination of the agreement.
    \65\ Justice O'Connor nowhere defined what she meant by ``religious 
indoctrination.'' However, elsewhere the Supreme Court has found that 
prayer, devotional Bible reading, veneration of the Ten Commandments, 
classes in confessional religion, and the biblical creation story 
taught as science are all inherently religious. 42 Wm & Mary, supra 
note 30, at 915 (collecting cases).
---------------------------------------------------------------------------
    2. Participation by beneficiaries is voluntary or noncompulsory. A 
beneficiary assigned to an FBO has a right to demand an alternative 
provider. Having elected to receive services at an FBO, a beneficiary 
has the additional right to ``refuse to participate in a religious 
practice.'' See discussion in Part I, above.
    3. Government-source funds are kept in accounts separate from an 
FBO's private-source funds, and the government may audit, at any time, 
those accounts that receive government funds.\66\ Thus, charitable 
choice does take special care, because the aid is in the form of 
monetary grants, in two ways: separate accounts for government funds 
are established, hence, preventing the diversion of ``cash to church 
coffers;'' \67\ and direct monetary grants are restricted to program 
services, hence, must not be diverted to sectarian practices.\68\
---------------------------------------------------------------------------
    \66\ In the Substance Abuse and Mental Health Services 
Administration reauthorization the segregation of accounts is required. 
42 U.S.C. Sec. 300x-65(g)(2). This improves accountability, especially 
in helping to avoid diversion to ``religious coffers,'' with little 
loss of organizational autonomy. The parallel subsection in H.R. 7 is 
Sec. 1994A(h)(1).
    \67\ See 42 U.S.C. 300x-65(g)(1).
    \68\ See 42 U.S.C. 300x-65(i).
---------------------------------------------------------------------------
    4. For larger grantees, the government requires regular audits by a 
certified public accountant. The results are to be submitted to the 
government, along with a plan of correction if any variances that are 
uncovered.\69\
---------------------------------------------------------------------------
    \69\ All federal programs involving financial assistance to 
nonprofit institutions require annual audits by a certified public 
accountant whenever the institution receives more than $300,000 a year 
in total federal awards. Executive Office of the President of the 
United States, Office of Management and Budget, Circular A-133, Audits 
of States, Local Governments, and Non-Profit Organizations, 62 Fed. 
Reg. 35289 to 35302 (June 30, 1997). The independent audit is not just 
over financial expenditures, but includes a review for program 
compliance.
---------------------------------------------------------------------------
          Nothing in charitable choice prevents officials from 
        implementing reasonable and prudent procurement regulations, 
        such as requiring providers to sign a Certification of 
        Compliance promising attention to essential statutory 
        duties.\70\ Additionally, it is not uncommon for program 
        policies to require of providers periodic compliance self-
        audits. Any discrepancies uncovered in a self-audit must be 
        promptly reported to the government along with a plan to timely 
        correct any deficiencies.\71\ The Department of Justice 
        believes it prudent to add these additional provisions to 
        Sec. 1994A of H.R. 7.
---------------------------------------------------------------------------
    \70\ See notes 15 and 64, supra, for an example of a 
``Certification of Compliance'' requirement drafted into the charitable 
choice provision.
    \71\ A self-audit subpart for insertion into H.R. 7 at 
Sec. 1994A(h)(3), would read as follows: ``An organization providing 
services under a program described in this section shall conduct 
annually a self audit for compliance with its duties under this section 
and submit a copy of the self audit to the appropriate Federal, State, 
or local government agency, along with a plan to timely correct 
variances, if any, identified in the self audit.''
---------------------------------------------------------------------------

                               CONCLUSION

    Charitable choice facially satisfies the constitutional parameters 
of the Lemon/Agostini test, including Justice O'Connor's application of 
that test in Mitchell v. Helms. Adoption of the Department of Justice's 
recommendations in notes 15, 17, 64, and 71, above, will further 
clarify and strengthen Sec. 1994A's provisions, as well as ease its 
scrutiny in the courts. Moreover, for many cooperating FBOs, those 
willing to properly structure their programs and be diligent with their 
operating practices, it appears that charitable choice can be applied 
in accord with the applicable statutory and constitutional parameters.

                                

                                      June 15, 2001
The Honorable William M. Thomas
Chairman
Committee on Ways and Means
1102 Longworth Building
    Dear Chairman Thomas:
    When the Committee on Ways and Means takes up charitable giving tax 
incentives, including the incentives considered at the June 14, 2001, 
combined Select Revenue Measures Subcommittee and Human Resources 
Subcommittee hearing, we would urge you to include a proposal to remove 
the special limitations that apply under current law with respect to 
charitable contributions of appreciated property.
    We believe that the current-law limits on gifts of appreciated 
property are set far too low. While individuals making charitable 
contributions may generally deduct amounts up to 50 percent of their 
incomes (30 percent for gifts to private foundations), deductions for 
gifts of capital gains property are limited to 30 percent of income (20 
percent for gifts to private foundations).
    As Congressman Philip Crane noted at the June 14 hearing, the lower 
contribution limits for gifts of appreciated property add complexity 
and discourage charitable gifts by those who are among the most 
generous. Potential donors discouraged by the current limits include 
people who are in a position to make the large gifts that serve as the 
bedrock of support for many charitable organizations. The limits also 
discourage gifts by seniors who are no longer in their peak earning 
years but who wish to make charitable gifts out of savings.
    We support allowing contributions of appreciated property to be 
deductible within the same percentage limits that apply to other 
charitable gifts. This proposal would be complementary to other 
important charitable giving proposals that have been submitted to the 
Congress by President Bush. We note that this same proposal was 
included in the budget that the Clinton Administration submitted to 
Congress last year, and was estimated by the Joint Committee on 
Taxation to have a ten-year cost of $412 million.
    We thank you for your longstanding support of the charitable 
community and for your willingness to consider this significant 
incentive for charitable giving.
                                             American Arts Alliance
                                    American Association of Museums
                                       American Library Association
                                 American Symphony Orchestra League
         Americans for the Arts Association of Art Museum Directors
                          Association of Performing Arts Presenters
                                            College Art Association
                          Council of Literary Magazines and Presses
                                                          Dance/USA
                                                   Literary Network
                                         Museum Trustee Association
                           National Assembly of State Arts Agencies
                                                          OMB Watch
                                                      Opera America
                                       Theatre Communications Group

                                

   Statement of Richard T. Foltin, Legislative Director and Counsel, 
    Office of Government and International Affairs, American Jewish 
                               Committee
    My name is Richard Foltin. I am Legislative Director and Counsel in 
the Office of Government and International Affairs of the American 
Jewish Committee, the nation's premier human relations organization 
with over 100,000 members and supporters and chapters in 32 cities 
across the United States. I submit this statement on behalf of the 
American Jewish Committee to the joint hearing of the House Ways and 
Means Subcommittee on Human Resources and Subcommittee on Select 
Revenue Measures in order to present AJC's perspective on certain of 
the issues presented by H.R.7, the ``Community Solutions Act of 2001.''
    As members of the Subcommittees well know, on January 29, 2001, 
President George W. Bush issued two executive orders that began 
implementation of one of his major policy priorities, expansion of the 
involvement of ``faith-based organizations'' in the provision of 
government-funded social services. The first executive order created a 
new White House Office of Faith-Based and Community Initiatives, tasked 
with establishing policies, priorities, and objectives in promoting 
this policy. The second directive, coordinated with the provisions of 
the first, charged each of five designated Cabinet departments to set 
up an in-house office in order to identify ``barriers'' to the 
participation of faith-based organizations in the delivery of social 
services provided under the aegis of that department, barriers that 
could include the department's standing regulations and practices, and 
make recommendations for reforms to remove those barriers. This process 
of review and recommendation is expected to be completed in the coming 
weeks.
    The President's unveiling of his faith-based initiative has given 
rise to a storm of controversy, with concerns expressed by advocates on 
both the right and left as to the implications of this approach for 
church-state separation, civil-rights policy, and the autonomy of 
religious institutions. This controversy has taken place, however, with 
much still unclear as to the specifics of how President Bush's vision 
of an expanded partnership of government and religious institutions 
will operate. But even if we do not know the details of the President's 
program, many of its likely elements are to be found in the 
``charitable choice'' construct first enacted as part of the 1996 
welfare reform law,\1\ an approach subsequently passed by Congress and 
signed into law by President Clinton in several other social services 
bills \2\ and included, in somewhat altered form, in H.R.7.
---------------------------------------------------------------------------
    \1\ Personal Responsibility and Work Opportunity Reconciliation 
Act. Public Law 104-193 (1996).
    \2\ Community Services Block Grant Act, Public Law 105-285 (1998); 
Children's Health Act of 2000, Public Law 106-310 (2000); and New 
Markets Venture Capital Program Act, Public Law 106-554 (2000).
---------------------------------------------------------------------------
    We share and commend the desire to deal constructively with 
society's ills that has led President Bush to develop his faith-based 
initiative and that, no less, has motivated Representatives Watts and 
Hall to introduce H.R.7. But the ``charitable choice'' approach to 
government funding of social services is, in our view, an 
unconstitutional breach of the principle of separation of church and 
state and just plain bad public policy.
The Problems with ``Charitable Choice''
    The history of social services in this country began with religious 
institutions, and the partnership between religiously affiliated 
institutions and government in the provision of those services is a 
venerable one. Catholic Charities, not to mention many Jewish agencies 
across this land, have been engaged in such public-private partnerships 
for many years. The norm has been for these 501(c)(3) organizations to 
provide government-funded, secular social services in a fashion that 
does not involve proselytization, does not require religious worship, 
and does not discriminate on the basis of religion with respect to the 
employees they hire to provide their services or the recipients of 
those services. And these religiously-affiliated organizations have 
been able to do so without divesting themselves of their religious 
identities, while continuing to make available privately-funded, 
separately offered religious activities. Thus, Catholic hospitals, 
which receive public funds, have crosses on their premises, and Jewish 
homes for the elderly, which also receive public funds, have mezuzoth 
on the doors and hold Shabbat services on Saturday mornings.
    Far from objecting to this history of partnership, the American 
Jewish Committee, in its 1990 Report on Sectarian Social Services and 
Public Funding, termed the involvement of the religious sector in 
publicly-funded social service provision as ``desirable to the extent 
it is consistent with the Establishment Clause. It creates options for 
those who wish to receive the services, involves agencies and 
individuals motivated to provide the services, and helps to avoid 
making the government the sole provider of social benefits.''
    Our concerns about ``charitable choice,'' then, do not reflect any 
lack of high regard for the important work that religious institutions 
do in providing social services nor an effort to erect an impassible 
barrier to cooperation between these institutions and the government in 
the provision of those services. Rather, we are opposed to ``charitable 
choice'' because it eliminates long-standing and important church-state 
and anti-discrimination safeguards that have historically been in place 
when religiously affiliated organizations are engaged in provision of 
government-subvented services.
    Contrary to long-standing practice and judicial precedent, 
``charitable choice'' permits houses of worship and other pervasively 
religious institutions to receive taxpayer dollars for provision of 
social services. In 1988, in Bowen v. Kendrick, even as the United 
States Supreme Court upheld as constitutional the participation of 
religiously affiliated organizations that are not themselves 
pervasively sectarian in a federally funded program on the assumption 
that the program would be implemented ``in a lawful, secular manner,'' 
\3\ the Court cited precedents holding that aid flowing to 
``pervasively sectarian'' organizations ``normally may be thought to 
have a primary effect of advancing religion'' because ``there is a risk 
that government funding, even if it is designated for specific secular 
purposes, may nonetheless advance the pervasively sectarian 
institution's `religious mission.'' \4\ The Court's reference to risks 
attendant on government funding of pervasively religious institutions 
was grounded in a core concern to which the First Amendment's 
prohibition on government establishment of religion was addressed, that 
the state not be allowed to utilize its taxing authority to fund 
religion.
---------------------------------------------------------------------------
    \3\ 487 U.S. 589 (1988).
    \4\ Id. at 610 (citations omitted).
---------------------------------------------------------------------------
    The principle articulated in Bowen v. Kendrick remains in place. As 
recently as last year, a majority of the Court in Mitchell v. Helms 
\5\--two Justices who concurred in the holding allowing the loan of 
federally-funded computers to religious schools, joined by three 
dissenting Justices--reaffirmed that there are special concerns 
associated with the flow of government funds to pervasively religious 
organizations. As Justice O'Connor noted in her concurring opinion, 
``Our concern with direct monetary aid [to religious schools] is based 
on more than just [concern about] diversion [of tax-funded aid to 
religious use]. In fact, the most important reason for according 
special treatment to direct money grants is that this form of aid falls 
precariously close to the original object of the Establishment Clause's 
prohibition.'' \6\
---------------------------------------------------------------------------
    \5\ 530 U.S. 793 (2000).
    \6\ Id. at 856.
---------------------------------------------------------------------------
    And, beyond those concerns, always applicable when government funds 
flow to pervasively religious institutions, ``charitable choice'' 
presents an additional problem: When institutions with a thoroughly 
religious environment provide social services, recipients of those 
services may well be coerced, either explicitly or tacitly, to take 
part in religious activities as a price of receiving help. Proponents 
of ``charitable choice'' have pointed to several provisions usually 
found in the construct, as affording sufficient protection against such 
coercion occurring. These include prohibitions on the use of program 
funds for ``sectarian worship, instruction or proselytization'' and on 
discrimination against beneficiaries on the basis of religion, as well 
as the requirement that beneficiaries of social services shall be 
entitled to have those services provided by a secular agency if they so 
desire. But none of these ``protections'' are sufficient.
    As to the prohibitions on use of funds for sectarian purposes and 
on discrimination, it is not reasonable to expect, in the context of 
pervasively religious institutions, a separation between the provision 
of secular social services for which taxpayer dollars are used and the 
religion-teaching activities of those organizations. Moreover, nothing 
in ``charitable choice'' precludes privately funded religious 
activities from taking place in and around the services paid for with 
public funds in a fashion that will suggest strongly to beneficiaries 
that these are activities in which they ought to be engaged. And, as to 
the requirement that there be available alternative secular providers, 
it is, frankly, difficult to believe that those alternative providers 
will always be reasonably available, if available at all, particularly 
in rural or homogenous areas. It is important to recall as well, with 
respect to these ``protections'' that the recipients of services 
provided under ``charitable choice'' are often in extremis. They may 
not clearly understand their options and their rights, and, even if 
they do so understand, they may be reluctant to take steps that might 
delay or obstruct their receipt of badly needed services.
    These concerns were reinforced when, early this year, the press 
reported the statement of Administration officials that, under the 
President's plan, ``programs funded by faith-based organizations could 
include religious content--such as Bible reading--so long as taxpayer 
money was used for lights, chairs or other nonreligious expenses,'' \7\ 
suggesting that the prohibition on the use of public funds for 
religious purposes was regarded as nothing more than a bookkeeping 
formality. Even more troubling were the reports on testimony offered at 
a House Government Reform subcommittee hearing on ``charitable choice'' 
held on May 23rd. At that hearing, John Castellani, executive director 
of Teen Challenge, a religiously infused Christian substance abuse 
program, is said to have stated that some Jews participating in the 
program returned to the Jewish faith while others had become 
``completed Jews,'' i.e., had accepted Jesus.\8\ Aside from the sheer 
offensiveness of the suggestion that Jews who have remained true to 
their own faith are somehow not ``complete,'' this testimony underlines 
the alarms we have raised--that, whatever the technical restrictions on 
their operations, pervasively religious groups receiving government 
funds, like Teen Challenge, will simply be unable or unwilling to 
disassociate their religion-teaching mission from the provision of the 
social services for which they are receiving government funds. There 
could be no clearer a violation of core constitutional concerns than 
for taxpayer dollars to flow to a program that includes such 
proselytizing.
---------------------------------------------------------------------------
    \7\ ``Bush's Limits Set on Faith-Based Plan: Religious Aspects 
Still Face Criticism,'' Washington Post, Jan. 31, 2001, p. A4
    \8\ ``A Reference to Jews Heats Up Aid Debate,'' New York Times, 
May 25, 2001, p. A19, col. 1.
---------------------------------------------------------------------------
    ``Charitable choice'' also presents a significant potential for 
fostering divisiveness among various faith groups as they compete for 
public funding, a potential that will only be multiplied as government 
officials charged with determining with whom to contract or renew 
contracts are placed in the role of deciding which religion ``works 
better'' in dealing with the social problems to which public programs 
are addressed. It seems almost inevitable that, whatever claims may be 
made that contracts will be allocated on the basis of merit, in any 
given community the religious groups most likely to receive funds will 
be those associated with ``mainstream'' faiths. And, even if the 
contracts are allocated on a totally objective basis, there is likely 
to be sharp distrust and suspicion that this is not the case.
    ``Charitable choice'' allows religious providers to make employment 
decisions based on religion with respect to the employees hired to 
provide taxpayer-funded services. Religious institutions are 
appropriately permitted to prefer co-religionists in hiring decisions, 
a limited exemption from the provisions of Title VII of the Civil 
Rights Act of 1964 that recognizes the powerful religious liberty 
interests involved. But the explicit extension of that exemption to 
cover employees providing publicly funded services, as part of a 
program premised on substantial expansion of the role of pervasively 
religious organizations in social services provision, runs counter to 
fundamental civil rights principles.\9\ And H.R.7 goes even further in 
this problematic direction through its inclusion of a vague and broad 
provision--seemingly applicable even to religious organizations not 
eligible for the aforementioned exemption afforded by Title VII--that 
``a religious organization that provides assistance under [designated 
federal programs] . . . may, notwithstanding any other provision of 
law, require that its employees adhere to the religious practices of 
the organization.'' In addition, the concern that beneficiaries will 
feel compelled to participate in religious activities to which they are 
not otherwise inclined can only be heightened when government-funded 
social services are provided only by persons of the same faith as the 
religious institution operating the program.
---------------------------------------------------------------------------
    \9\ In addition, allowing pervasively religious organizations to 
have the benefit of the Title VII exemption while receiving taxpayer 
funds to provide social services may have the paradoxical effect of 
reducing, not increasing, the autonomy of religious organizations. In 
deciding how to interpret the leeway in hiring and firing that present 
civil rights law affords religious organizations, the courts have been 
faced with a tension between religious liberty interests that call for 
broadly defining the existing exemptions and anti-discrimination 
concerns that incline toward interpreting that exemption narrowly. The 
latter interest has palpably greater weight in the context of programs 
that are publicly funded, lest the government appear to be subsiding 
discrimination. In dealing with that tension, the courts may be 
inclined to define narrowly the types of organizations that qualify as 
``religious,'' and therefore eligible for the Title VII exemption, and 
read narrowly, as well, the extent to which religious organizations may 
require that an employee adhere to the tenets and teachings of the 
faith. Thus, implementation of ``charitable choice'' (assuming that it 
is upheld as constitutional) could well lead the courts to interpret 
the exemption the law currently--and appropriately--grants to religious 
organizations more narrowly than is currently the case, with impact not 
only on programs for which government funding is received, but for 
religious organizations generally.
---------------------------------------------------------------------------
    Further, despite its provisions intended to protect the religious 
character of institutions that receive funding, it is hard to see how 
``charitable choice'' will not ultimately lead to an undermining of the 
distinctiveness, indeed the very mission, of religious institutions. 
With government dollars comes government oversight; faith-based 
organizations will inevitably be held accountable for the use of the 
dollars they receive just as any other recipient of government funds 
would be. This intrusion into the affairs of churches and other 
pervasively religious organizations is exactly the type of entanglement 
of religion and state against which the Constitution guards. Moreover, 
if the provisions of ``charitable choice'' invoked by some proponents 
as sufficient safeguards against coercion or misuse of government funds 
for religious purposes are to be taken seriously, we will see a degree 
of entanglement of government in the affairs of the church (or the 
synagogue) in a fashion we have not seen before. Pervasively religious 
organizations will be subject to all manner of intrusive examination to 
ensure that the services they are providing are not ``too religious'' 
or that the funds they receive are not somehow diverted to prohibited 
activities.
Better Approaches
    We have spoken of the paradigm that preceded ``charitable 
choice''--provision of government-funded social services through 
religiously affiliated (and, of course, secular) organizations, along 
with other long-standing safeguards--as a preferable approach, indeed 
one so preferable that it can fairly be said that ``charitable choice'' 
is a solution in search of a problem. But there are other ways in which 
government can cooperate with religious organizations, including those 
which are pervasively religious, to address our pressing social needs.
    On February 27, 2001, AJC and the Feinstein Center for American 
Jewish History at Temple University issued a landmark report, ``In Good 
Faith: A Dialogue on Government Funding of Faith-Based Social 
Services,'' that grew out of a two-year initiative funded by the Pew 
Charitable Trusts aimed at finding common ground among diverse 
religious and public interest groups on government funding of social 
services provided by religious organizations. The report was initially 
signed by seventeen groups (others have since joined on as well), many 
of which had participated in the lengthy process, including 
organizations representing Jews, Baptists, Evangelicals, Catholics and 
Muslims.
    While there were important areas of agreement concerning the 
parameters for government funding of religious organizations that 
provide social services, at the end the groups remained deeply divided 
on ``charitable choice'' and the report reflected that division. 
Nevertheless, the report pointed to nonfinancial modes of support the 
government can afford religious organizations, such as, among other 
things, providing information to the public about available programs, 
affording organizations access to education and training opportunities, 
creation of community-wide task forces, and encouraging charitable 
contributions through appropriate tax relief. This last approach, one 
supported by many groups on both sides of the ``charitable choice'' 
debate, is reflected in portions of President Bush's faith-based 
initiative and in Title I of H.R.7.
    The ``In Good Faith'' report also included some important points of 
agreement as to the considerations that should apply when government 
funds social services, again against the background of disagreement on 
``charitable choice'' itself, and a discussion of how non-government 
community support can be provided to the work of faith-based 
organizations. A copy of the report is appended for your information.
Conclusion
    In conclusion, there is a conceptual paradox at the heart of 
``charitable choice.'' It is an approach that seeks to allow government 
to utilize the spiritual ministry of churches, synagogues and other 
pervasively religious institutions as a tool in the provision of social 
services while, at the same time, assuring that the programs are 
administered in a fashion that protects beneficiaries of these services 
from religious coercion and protects religious institutions from undue 
interference by the state. This is an approach to social services 
provision that is untenable because of the practical--to say nothing of 
the constitutional--problems posed by any effort to reconcile these 
inconsistent goals. And, given all of these problems that ``charitable 
choice'' presents, the irony is that it is an approach that is simply 
unnecessary.
    [The attachments are being retained in Committee files.]

                                

  Statement of Douglas O'Brien, Director, Public Policy and Research, 
              America's Second Harvest, Chicago, Illinois
    Chairman Herger, Chairman McCrery and distinguished members of the 
Ways and Means Committee, on behalf of the nation's food banks and 
other hunger relief charities that comprise America's Second Harvest, I 
am submitting written testimony for the record for the hearing on H.R. 
7, the Community Solutions Act of 2001.
    America's Second Harvest is the nation's largest private hunger 
relief charity and one of the largest non-profit organizations in the 
United States.\1\ We are a national network of more than 200 regional 
food banks and food rescue organizations providing hunger relief and 
other services to 50,000 local private charities operating more than 
90,000 community food assistance programs. Our network provides 
domestic hunger relief services in all 50 states, the District of 
Columbia, and Puerto Rico.
---------------------------------------------------------------------------
    \1\ For more information on America's Second Harvest, please see 
the attached fact sheet at the conclusion of the written testimony or 
visit our website at www.secondharvest,org.
---------------------------------------------------------------------------
    Those food banks and other non-profit charitable organizations that 
comprise the America's Second Harvest network provide more than 1.5 
billion pounds, or 750,000 tons of food and grocery products annually, 
with an estimated dollar value of more than $2 billion. This food 
reaches approximately 25.7 million low-income Americans, including 21 
million needy people at emergency feeding sites.\2\ Those emergency 
feeding sites include church food pantries, soup kitchens and 
congregate meal sites for the elderly poor, and emergency shelters for 
the homeless, battered women and other needy people seeking short-term 
housing.
---------------------------------------------------------------------------
    \2\ The estimated dollar value of donated food and grocery products 
distributed by America's Second Harvest network affiliates is 
determined as part of our independent annual audit conducted by the 
accounting firm of KPMG, LLP, August 18, 2000. For more information, 
please see page 25 of the America's Second Harvest 2000 Annual Report: 
A Community Ending Hunger.
---------------------------------------------------------------------------
    America's Second Harvest is a private charitable network which has 
emerged in nearly every American community to meet the basic food needs 
of the most vulnerable and needy of our neighbors. Despite the 
recognized efficiency and comprehensive nature of the private 
charitable system, we often find ourselves in a situation where 
requests for aid are exceeding available resources. The trend toward 
greater reliance on charitable food assistance has generally grown over 
the last decade, with most of the growth occurring over the last four 
years.
    Nearly all of our network food banks and the local hunger relief 
charities they serve have experienced in recent years a startling 
paradox of need for hunger relief services in a time of nearly 
unprecedented American prosperity. Despite the generally strong 
economy, low-unemployment, and falling welfare and food stamp 
caseloads, demand for emergency food assistance has been consistently 
rising in most communities.
    In 1998, America's Second Harvest released a comprehensive national 
study on the nation's charitable response to hunger and the demographic 
make-up of the needy people we serve. Our study of more than 28,000 
emergency food recipients found that 90 percent have household incomes 
at or below 150 percent of the poverty line, and better than one-in-ten 
people we serve have no income at all. The study found that children 
make up a substantial number of emergency food recipients, representing 
nearly 38 percent of all emergency food clients. Another 16 percent of 
emergency food recipients were elderly Americans. Furthermore, 38 
percent of all households served by food banks included someone who was 
working and of those households, nearly half were employed full-time. 
Other troubling statistics also emerged from the research, including 
the pervasive presence of children and working single parents being 
served at soup kitchens.\3\ Our research showed that one in five people 
in a soup kitchen line is now a child, a feeding site that has 
historically served mostly homeless, chronically unemployed adult 
males.
---------------------------------------------------------------------------
    \3\ HUNGER 1997: The Faces & Facts, America's Second Harvest, 1998.
---------------------------------------------------------------------------
    The independent research we released three years ago provides 
compelling supporting data to similar research conducted by the federal 
government, state and municipal governments, academics and non-profit 
research organizations on the food security status of low-income 
households and demand for emergency food assistance.
    The most recent of these studies includes the U.S. Conference of 
Mayors Annual Report on Hunger and Homelessness released last December. 
The Mayor's study found a 17 percent increase in request in emergency 
food in the US cities surveyed. The number of families with children 
requesting food aid increased by 16 percent and one-third of adults 
requesting food assistance were employed.\4\ For example, Figure 1, a 
national review of multiple studies--including various local or 
municipal studies of hunger relief charities to state and national 
studies of the same--conducted by the Tufts University, Center on 
Hunger and Poverty shows increased requests for food aid throughout the 
country ranging from a low of 14 percent to a high of 38 percent.\5\
---------------------------------------------------------------------------
    \4\ A Status Report on Hunger and Homelessness in America's Cities 
2000, U.S. Conference of Mayors, December 2000.
    \5\ Venner, et al., Paradox of Our Times: Hunger in a Strong 
Economy, Center on Hunger and Poverty, Tufts University, January 2000.

[GRAPHIC] [TIFF OMITTED] T4524K.001

---------------------------------------------------------------------------
            National                      State/Local

    Note: These studies were conducted at different points in time 
using different methodologies.

    In addition, the General Accounting Office (GAO) in 1999 released a 
study of declining food stamp participation and stated that ``. . . 
[D]emand for food assistance by low-income families has increased in 
recent years . . . the need for food assistance has not diminished; 
rather needy individuals are relying on sources of assistance other 
than food stamps.'' \6\ The GAO's finding of needy people turning to 
other sources, such as charities for food assistance, is again 
reflected in the U.S. Department of Agriculture's annual food security 
study conducted as part of the Census Bureau's Current Population 
Survey. USDA-Census figures show that approximately 31 million 
Americans are food insecure, that is they are hungry or at risk of 
hunger, a number that has been nearly unchanged over the period 1995 
through 1998, despite the strong economy and falling food assistance 
caseloads.\7\
---------------------------------------------------------------------------
    \6\ Food Stamp Program: Various Factors Have Led to Declining 
Participation, (Letter Report, GAO/RCED 99-185), General Accounting 
Office, July 2, 1999.
    \7\ Andrews, Margaret, et al., Household Food Security in the 
United states, 1999, U.S. Department of Agriculture, Economic Research 
Service-Food Assistance and Nutrition Research Report No. 8, fall 2000.
---------------------------------------------------------------------------
    Unfortunately, the growing demand for emergency food assistance has 
in too many instances outstripped the food resources of local 
charities. Our study of network food banks indicated that between 
115,000 and 800,000 low-income people were denied emergency food 
assistance at local charities because the charity they turned to for 
help lacked adequate food, representing roughly 6.5 percent of all 
requests.\8\ Similarly, the U.S. Conference of Mayors reported last 
year that 13 percent of requests for emergency food assistance in 
cities surveyed went unmet due to a lack of food resources.\9\
---------------------------------------------------------------------------
    \8\ HUNGER 1997: The Faces & Facts, p.77.
    \9\ U.S. Conference of Mayors, 2000
---------------------------------------------------------------------------
    America's Second Harvest estimates that our network would need to 
increase donations by nearly 100 percent to meet local hunger relief 
agency needs for food distribution. According to agency surveys, our 
network alone experiences an annual shortfall of in-kind food donations 
of nearly one billion pounds.\10\ This significant shortfall of food 
donations has led to local hunger relief charities turning away low-
income people at the moment of their greatest need.
---------------------------------------------------------------------------
    \10\ HUNGER 1997: The Faces & Facts, p.82.
---------------------------------------------------------------------------
    To address this shortfall in domestic hunger assistance, 
Congressmen Tony Hall and Richard Baker and a bipartisan group of their 
colleagues in the House, introduced H.R. 990, the Good Samaritan Hunger 
Relief Tax Incentive Act and Mr. Hall and Congressman J.C. Watts have 
included the same tax provisions in Section 103 of H.R. 7 the Community 
Solutions Act of 2001 to help spur greater donations of food from the 
private sector. Similar legislation, S. 37, has been introduced in the 
Senate by Senators Richard Lugar and Patrick Leahy.
    Section 103 of the Community Solutions Act and its identical 
language in the Good Samaritan Hunger Relief Tax Incentive Act has 
three provisions that when taken together, provide a greater incentive 
for businesses to donate food for local humanitarian purposes.
    First, the legislation expands the class of taxpayers eligible for 
the ``special rule deduction'' under section 170(e)(3) of the Internal 
Revenue Code currently enjoyed only by regular corporations, or Chapter 
C Corporations, to all business taxpayers. That would include farmers, 
small businesses, fishermen, franchise owners, and restaurateurs. This 
expansion of the special rule deduction is limited to the in-kind 
donation of food to a 501(c)(3) charitable organization for the express 
purpose of hunger relief for needy people. This is an important tax 
equity issue. For example, under current law, if a major food company 
makes a donation of cheese, the corporation is eligible for the special 
rule deduction under section 170(e)(3). If, however, a dairy farmer 
made the same donation of cheese to a local hunger relief agency, the 
farmer is denied the deduction under current law because the farmer is 
not typically organized as a regular C corporation under Internal 
Revenue Code definitions. Figure 2 shows how the proposed change would 
affect a farmer, a restaurant owner, and a food manufacturer in the 
donation of food for hunger relief activities.

     FIGURE 2.--ESTIMATED BENEFITS UNDER ``GOOD SAMARITAN TAX ACT'')
------------------------------------------------------------------------
                                                    H.R. 7 &
            Example             Current Deduction    S. 37    Difference
------------------------------------------------------------------------
Farmer donates one bushel of    No access to           $5.50      +$5.50
 apples *.                       special
                                 deduction IRC
                                 Sec. 170(e)(s).
Restaurant donates a pan of     No access to          $25.00     +$25.00
 lasagna feeding 10-12 people    special
 *.                              deduction IRC
                                 Sec. 170(e)(s).
Grocery manufacturer donates a  $0.63............      $0.74      +$0.11
 package of dry ice.
------------------------------------------------------------------------
* In the instance of the farmer and restaurant owner in the preceding
  table, it is assumed that both are formed as small business, as is
  often, and not Regular C corporations.

    The limitation of the special rule deduction of section 170(e)(3) 
is a significant barrier to food donations, particularly from 
restaurants, small businesses, and farmers. In some instances it is 
actually more cost effective for a farmer to dump surplus food products 
than to donate it to a local hunger relief charity. To struggling 
farmers, the act of donating can, and often does, represent a financial 
loss. The Section 103--of the Community Solutions Act and the Good 
Samaritan Hunger Relief Tax Incentive Act (H.R. 990) helps rectify that 
situation by allowing the grower to recoup at least some of his or her 
investment through the tax code.
    The Section 103 provisions of H.R. 7 addresses this inequity in the 
code by allowing all taxpayers engaged in business or trade to be 
eligible for the deduction when making an in-kind donation of food.
    Second, the legislation enhances the deduction from the current 
deduction formula to the fair market value of the product in most 
instances, not to exceed twice the cost or basis. For farmers and other 
businesses using the ``cash method'' of accounting, the deduction is 
expanded to the basis of any qualified contribution at 50 percent of 
the fair market value. This simplified deduction formula and enhanced 
deduction level provides an incentive for businesses, farmers, and 
fishermen to donate wholesome, edible food that might otherwise go to 
waste. Further, the complicated nature of the current formula sometimes 
precludes even large food manufacturing companies from seeking a 
deduction for which they are eligible when donating. By simplifying the 
deduction formula and enhancing the deduction's value, businesses have 
an incentive to donate rather than dump the surplus product.
    Lastly, the legislation codifies the notion that the taxpayer, not 
the Internal Revenue Service, should--with substantiation of fair 
market value--make the determination of the value of the donated food. 
The issue of valuation of food inventory has been an issue of dispute 
between food companies and the IRS for many years. In 1995, a Federal 
Tax Court sided with Lucky Stores, a grocery concern, in one such 
dispute. The Court held that the value of surplus bread inventory 
donated to a local food bank by Lucky Stores and claimed at the full 
retail price of the bread was indeed valued by the taxpayer properly, 
rather than half the retail price as the IRS claimed.\11\ As the 
nation's largest recipient of donated food from major food concerns, we 
especially see the codification of the Lucky Stores principle as 
critical to our ability to gain food donations for hungry people, and 
provide some level of comfort to businesses partnering with us in 
socially responsible ways without some future tax reprisal for their 
generosity. Again, this level of taxpayer protection is necessary to 
keep simple and effective incentives for businesses to donate surplus 
inventories of food for local charitable hunger relief activities.
---------------------------------------------------------------------------
    \11\ Lucky Stores, Inc. v. Commissioner; (105 T.C. 420, 1995)
---------------------------------------------------------------------------
    Members of the Ways and Means Committee, the United States 
Department of Agriculture estimates that 96 billion pounds of edible 
food is wasted and dumped in landfills each year.\12\ Through enactment 
of Section 103 of the Community Solutions Act, if even one percent of 
that food was re-directed from landfills to local charities instead, it 
would nearly double the entire food distribution throughout our network 
to people in need.
---------------------------------------------------------------------------
    \12\ Kantor, et al., Estimating and Addressing America's Food 
Losses, 1997, USDA-Economic Research Service.
---------------------------------------------------------------------------
    Section 103 of the Community Solutions Act and the Good Samaritan 
Hunger Relief Tax Incentive Act (H.R. 990) provides a responsible, 
cost-effective bottom-line incentive for America's private sector to 
re-direct surplus food to the hungry in their communities. It provides 
a win-win for farmers, small businesses, restaurants, hunger relief 
charities, and most importantly, to hungry Americans in need of help.

    Attachment 1.--Comparison of the Good Samaritan Hunger Relief Tax
                      Incentive Act (S. 37/HR 990)
------------------------------------------------------------------------
     Current Law--IRC Sec.  170(e)                 S. 37/HR 990
------------------------------------------------------------------------
Allows ``special rule deduction'' for    Expands ``special rule
 regular corporations in the donation     deduction'' to all business
 of in-kind gifts to charities for the    taxpayers for in-kind
 care of the ill, needy, or infants.      donations of food inventory.
Allowable deduction = cost (basis) + \1/ Deduction = full FMV not to
 2\ fair market value (FMV), not to       exceed 2 x cost (basis). For
 exceed twice cost (basis).               farmers and other taxpayers
                                          using the cash method of
                                          accounting, the basis of any
                                          qualified contribution shall
                                          be deemed at 50% of the
                                          product's FMV.
Determination of FMV of in-kind gift     Allows business taxpayer to
 subject to substantiation by taxpayer    take FMV into account to the
 of market price and other factors.       price the food inventory would
                                          have been sold without regard
                                          to internal standards, lack of
                                          market, or similar
                                          circumstances.
------------------------------------------------------------------------

Background Narrative
    Current Federal tax law. Under current law, regular corporations 
are allowed a ``special rule deduction'' under Sec. 170(e)(3) of the 
Internal Revenue Code (IRC), for contributions of in-kind gifts or 
inventory to charities or similar non-profits provided that such 
contributions are used by the charity for the care of the ill, the 
needy, or infants and when several other statutory requirements are 
met. The ``special rule deduction'' allows a regular corporate taxpayer 
a deduction of cost or basis plus one half the appreciated fair market 
value of the property except to the extent one half of the appreciation 
exceeds twice the basis of the property donated. Further, the fair 
market value (FMV) is the price at which the property would have change 
hands between a willing buyer and a willing seller.
    Lucky Stores, Inc. v. Commissioner (105 T.C. 420 (1995)). Lucky 
Stores made donations of surplus bread inventory to food banks which 
qualified as permissible charitable donees under IRC Sec. 170(e)(3)(A), 
and claimed charitable contributions based upon the full retail prices 
for the bread. The Internal Revenue Service disputed claimed deductions 
determining that the FMV of the contributions to be approximately 50 
percent of full retail prices. The Tax Court held for Lucky Stores 
claim of full market value and stated that Sec. 170(e)(3) ``should not 
be interpreted in such a restrictive way as to unnecessarily inhibit 
donations of the type Congress meant to encourage [in the 1976 Tax 
Reform Act], and certainly petitioner's bread donations are of that 
types.'' \13\
---------------------------------------------------------------------------
    \13\ Lucky Stores, Inc. v. Commissioner, (105 T.C. 420, (1995) 
p.435.)
---------------------------------------------------------------------------
    The Good Samaritan Hunger Relief Tax Incentive Act (S. 37/H.R. 990) 
expands the special rule deduction of Sec. 170(e)(3) to all business 
tax payers (corporate and non-corporate) in regard to contributions of 
food, and provides a higher deduction for the donation of food 
inventory in order to mitigate the effect of business tax rates which 
typically reduce the allowable deduction below actual costs of 
manufacturing or producing the product. The bill also has the effect of 
codifying the Lucky Stores decision.
           ATTACHMENT 2.--AMERICA'S SECOND HARVEST FACT SHEET
    America's Second Harvest is the largest domestic hunger-relief 
organization in the United States. The America's Second Harvest mission 
is to feed hungry people by soliciting and distributing food and 
grocery products through a nationwide network of certified affiliate 
food banks and food rescue programs to educate the public about the 
nature of and solutions to the problem of hunger in America.
    In 1999, the Chronicle of Philanthropy calculated an efficiency 
rating for America's Second Harvest of 99.3%. This means that 99.3% of 
all product and money donations received by America's Second Harvest go 
directly towards feeding hungry people.
    Operations--The America's Second Harvest network of more than 200 
regional food banks and food--rescue programs serves all 50 states and 
Puerto Rico by distributing food and grocery products to approximately 
50,000 local charitable hunger-relief agencies, including food 
pantries, soup kitchens, women's shelters, Kids Cafes, Community 
Kitchens and other organizations that provide emergency food 
assistance.
    Donations--America's Second Harvest works with more than 500 
national grocery and food service companies (food growers, processors, 
manufacturers, distributors and retailers) to secure surplus food and 
grocery products. The list, which reads like a ``Who's Who'' in 
corporate America, includes such donors as Kraft Foods, Inc., General 
Mills, Inc., Nabisco, Inc., The Procter & Gamble Company, The Kellogg 
Company, The Pillsbury Company, ConAgra Foods, and hundreds more.
    Funding--America's Second Harvest depends entirely on the support 
of individuals, corporations and charitable foundations. For every $1 
received, America's Second Harvest distributes 30 pounds of food and 
grocery products to network food banks.
    History--America's Second Harvest was founded in 1979. In its first 
year, the organization distributed 2.5 million pounds of food through a 
network of 13 food banks. The America's Second Harvest network now 
constitutes more than 200 regional food banks and food rescue programs 
that annually distribute 1.5 billion pounds of donated food and grocery 
products, providing food assistance to more than 26 million hungry 
Americans, including eight million children and four million seniors.
    Hunger--America's Second Harvest defines hunger as the inability to 
purchase enough food to meet basic nutritional needs. Hunger does not 
discriminate on the basis of age, race or sex. It affects the elderly, 
the unemployed, the disabled, the homeless, the working poor and 
victims of natural disaster. America's Second Harvest released the most 
comprehensive research study on emergency food providers and recipients 
ever undertaken. Hunger 1997: The Faces & Facts provides thorough data 
and analysis on the nonprofit charitable sector's response to hunger. 
Key findings of this study include: of the 26 million Americans served 
each year by the America's Second Harvest network, 39% are from 
households with working individuals, 62% are female, 38% are children 
(17 and under), and 16% are seniors (over 65).
    For More Information: To learn more about America's Second Harvest 
and how to help fight domestic hunger, please visit our Web site, 
www.secondharvest.org, or call 800-532-FOOD.

                                

          Statement of the Association of Art Museum Directors
    The Statement for the Record is submitted on behalf of the 
Association of Art Museum Directors (AAMD). AAMD urges inclusion into 
H.R. 7 of H.R. 1598 the ``Artists' Contribution to American Heritage 
Act of 2001'' introduced by Representatives Amo Houghton and Ben 
Cardin. The Senate passed an identical companion bill (S 694) last 
month. The legislation will allow artists, writers and composers to 
take a fair-market-value deduction for works of their own creation, 
which they donate to an appropriate non-profit institution. As a result 
of the 1969 repeal of the law, artists, writers and composers now can 
only deduct the cost of materials should they choose to contribute a 
work of art to a cultural institution.
    Since the 1969 repeal, many works of art, which would have been 
contributed to American institutions, have been sold into private 
collections or abroad, in effect depriving the public of these works. 
For example, Igor Stravkinsky planned to donate his papers to the Music 
Division of the Library of Congress the month the Tax Reform Act of 
1969 was signed into law. Instead, the papers were sold to a private 
foundation in Switzerland.
    The Library of Congress itself was determined to suffer the 
greatest loss of gifts. In the few years prior to 1969, the Library of 
Congress received annually about 15 to 20 large gifts of manuscripts 
from authors; in the four years ended 1974 it received a total of only 
one such gift.
    A change in the law would encourage artists to make donations of 
their creative works to appropriate charitable institutions and also 
motivate charitable institutions to actively seek contributions of 
works from artists. The public would benefit by having important 
creative works available in their institutions. The benefit that would 
be achieved through the enrichment of charitable institutions by 
providing an incentive to visual artists, writers and composers to make 
such gifts cannot be overemphasized. Finally, by encouraging visual 
artists, writers and composers to donate works to appropriate public 
charities located in the United States, more of the cultural patrimony 
of the United States would be kept in the country and made accessible 
to the American public instead of going to foreign collectors or 
museums.
    H.R. 1598 has been carefully structured to safeguard the American 
public against excessive valuation or abuse. The safeguards include:
          Works of art must be created at least 18 months prior to the 
        date of contribution by the artist.
          The artist must have previously publicly sold, performed or 
        exhibited similar works.
          The artist must obtain a written appraisal of the fair-market 
        value of the work by a qualified appraiser, and the appraisal 
        must be attached to the artists' tax return.
          The use of the work of art shall be related to the purpose of 
        the institution that receives it. (For example, a painter could 
        not contribute a painting to a non-profit hospital and take a 
        fair-market-value deduction.)
          The artist can only take a deduction against income earned 
        and related to the art. (For example, a painter who earns a 
        substantial portion of his/her income as a musician, can only 
        deduct the fair-market value of a painting donated to a museum, 
        from the income earned from painting or a related activity, 
        such as teaching art, but not from the income earned as a 
        musician.)
          The artist can only take a deduction against the income 
        earned in the year the gift is made.
    Important regional, ethnic or culturally specific institutions 
cannot ask artists doing significant work in an area important to the 
collections of their institutions to donate works of art. Most artists 
earn very little and cannot afford to donate. And museums, libraries 
and archives, in most instances, do not have funds to acquire such 
works; they must rely on donations. As a result, they are losing works 
important to their public.
    H.R. 7 the ``Community Solutions Act of 2001'' is an appropriate 
vehicle to include H.R. 1598 the ``Artists' Contribution to American 
Heritage Act of 2001'' since it already includes several important 
bills offering tax incentives to increase charitable giving. The 
inclusion of H.R.1598 extends to America's cultural institutions the 
possibility of significant contributions from living artists at very 
modest cost.
    The Joint Committee on Taxation, in a letter received by 
Representative Houghton on May 23, 2001, estimates that the cost of 
H.R. 1598 will be $50 million over 10 years. The gain to the nation 
will be inestimable.
    We urge you to include H.R. 1598 in the ``Community Solutions Act 
of 2001''.
    We thank you for your kind consideration.

                                

    Statement of Leo J. O'Donovan, President, Georgetown University
    Chairmen Herger and McCrery. Please allow me to thank you and the 
Committee for convening this hearing as the Congress considers H. R. 7, 
the Community Solutions Act of 2001, and related legislation. Your 
consideration of legislative proposals designed to encourage charitable 
giving is very important at this particular juncture. I know that the 
Congress is working to achieve a balance between direct government 
support and reliance on non-governmental organizations, including 
universities like Georgetown, to meet compelling societal needs. 
Inclusion of the provisions of H. R. 774, the Crane-Neal Charitable IRA 
Rollover Act, in the next piece of tax legislation to be reported by 
the Ways and Means Committee is a key component in reaching the right 
balance. This legislation is very important to Georgetown University 
and other institutions of higher education because it will assist us in 
securing maximum private support to sustain educational excellence and 
accessibility.
    Current tax law discourages prospective donors from making 
``indirect'' or ``planned'' gifts from their IRA's to non-profit 
organizations, like colleges and universities that promote the common 
good. That is the case because, in moving funds from an IRA to a 
charitable remainder trust, a taxpayer is subjected to ordinary income 
tax on the bulk of his or her IRA withdrawal despite the fact that a 
charitable gift is being made. That clearly is not consistent with 
other aspects of tax policy, which are designed to provide incentives 
for charitable giving.
    Please allow me to emphasize that prospective donors often are most 
interested in making gifts through such indirect, planned arrangements. 
In fact, using the planned giving approach to these conversions enables 
donors to make charitable gifts while maintaining access to their IRA 
resources for the remainder of one's life and that of the spouse. By 
allowing this innovative form of charitable giving without negative tax 
consequences, the intended purpose of the IRA would be preserved and 
any withdrawals for other purposes, of course, would be subject to 
taxation, as is currently the case.
    I can tell you that planned gifts are a critical component of 
Georgetown's efforts to strengthen our endowment. At Georgetown, and 
generally throughout the charitable community, planned gifts typically 
represent about 40% of the total charitable gifts received from 
individual donors. Furthermore, I can testify to the fact that the 
current state of the tax code in this regard has most definitely 
prevented significant contributions that otherwise would have come to 
our University. While it would be impossible to provide the 
Subcommittee a precise amount of contributions that has been put in 
abeyance or lost outright because of the current tax treatment of such 
conversions, I can say with considerable certainty that several million 
dollars in planned giving donations, possibly reaching as high as $10 
million, could realistically be anticipated in the case of Georgetown 
University alone in the first year of this change taking effect. 
Unleashing the giving potential of our prospective donors would be of 
tremendous help as we work to strengthen academic quality at Georgetown 
and to maintain our commitment to need-based, full-need financial aid. 
It would similarly help other colleges, universities, schools and 
communities across the nation.
    In closing, let me say that I was pleased that the Senate 
incorporated provisions based on H. R. 774 and its Senate counterpart, 
S. 205 in its version of the tax legislation adopted by the Congress 
last month. Unfortunately, in the process of working to fit the Senate 
tax legislation into the framework of the budget resolution, the 
provisions concerning Charitable IRA Rollover opportunities were back 
loaded to take effect in 2010. Of course, subsequently, this was one of 
the provisions that were dropped from the bill in the House-Senate 
conference. That was very disappointing to those of us who understand 
what a tremendous difference this legislation can make in terms of 
encouraging charitable giving. As the House shifts its attention to 
other tax legislation specifically focused on charitable giving, I 
strongly encourage members of the Ways and Means Committee to approve 
this important reform effective immediately. While the Senate's policy 
in this regard was absolutely on target, the delay in its 
implementation no doubt would have resulted in the holding back of 
much-needed financial support for universities and other charitable 
entities. As this Committee moves legislation designed to enhance 
charitable giving, I encourage you to do the right thing, incorporate 
the provisions of H. R. 774 in their entirety in the next tax bill and 
make them effective immediately.
    I appreciate the work of these Subcommittees and having this 
opportunity to make the case for the immediate adoption of the 
Charitable IRA Rollover proposal introduced by Representatives Crane 
and Neal. Thank you for your consideration.

                                

  Statement of Dan Kostenbauder, General Tax Counsel, Hewlett-Packard 
                     Company, Palo Alto, California
    Hewlett-Packard Company commends Chairman Herger and Chairman 
McCrery for holding hearings on a bill that would encourage charitable 
contributions by businesses and individuals.
    HP submits this testimony to urge the repeal of section 
170(e)(4)(C) of the Internal Revenue Code. Section 170(e)(4)(C) limits 
the incentives of sections 170(e)(4) and (e)(6) to products 
``constructed'' by the taxpayer. Section 170(e)(4)(C) should be 
repealed because:
    * Section 170(e)(4)(C) serves no policy objective and is 
inconsistent with the Congressional goal of encouraging taxpayers to 
donate computers and other scientific equipment to schools and 
universities;
    * The ``constructed by the taxpayer'' requirement imposes 
significant administrative burdens of taxpayers without any useful 
purpose;
    * Section 170(e)(4)(C), when applied to 170(e)(6), places greater 
limits on new equipment than on used equipment; and
    * Section 170(e)(4)(C), when applied to 170(e)(6), imposes unfair 
burdens on donations to public schools.
Background
    HP is a leading global provider of computing and imaging solutions 
and services for business and home, and is focused on capitalizing on 
the opportunities of the Internet and the emergence of next-generation 
appliances, e-services and infrastructure. During its fiscal year 
ending in October 2000, HP had net revenue of almost $49 billion.
    Good citizenship is one of HP's seven corporate objectives. One 
avenue for achieving this objective is corporate philanthropy. 
Following in the footsteps of our founders, Dave Packard and Bill 
Hewlett, HP has given significantly to philanthropic causes, 
particularly U.S. universities. For example, last year HP made 
charitable contributions of almost $52 million worldwide, with over $29 
million in the United States.
    Congress has encouraged philanthropy by allowing charitable 
contribution deductions against income and other taxes. Over the years, 
Congress has identified three particular areas where it provides 
certain donors an enhanced tax deduction (cost plus one-half of gross 
profit, limited to two times cost). The three areas relate to care of 
the ill, needy and infants (section 170(e)(3) adopted in 1976), 
scientific equipment for US universities (section 170(e)(4) adopted in 
1981), and PC's for K-12 (section 170(e)(6) adopted in 1997).
    To be eligible for the incentives under sections 170(e)(4) relating 
to contributions of scientific equipment to US universities, 
subparagraph 170(e)(4)(B)(ii) requires that scientific equipment or 
apparatus donated by a corporation must be ``constructed'' by the 
taxpayer. To be eligible for the incentives under sections 170(e)(6) 
relating to the special rule for contributions of computer technology 
for elementary or secondary school purposes, section 170(e)(6)(D) 
provides that the ``constructed by the taxpayer'' requirement of 
170(e)(4)(C) must be satisfied.
            Section 170(e)(4)(C) provides as follows:
          (C) Construction of Property by Taxpayer.--For purposes of 
        this paragraph, property shall be treated as constructed by the 
        taxpayer only if the cost of the parts used in the construction 
        of such property (other than parts manufactured by the taxpayer 
        or a related person) do not exceed 50 percent of the taxpayer's 
        basis in such property.
    Section 170(e)(4)(C) should be repealed because it serves no useful 
policy objective while imposing tremendous administrative and 
compliance burdens on taxpayers that respond to the incentives under 
section 170(e)(4) and 170(e)(6).
Section 170(e)(4)(C) serves no policy objective
    Section 170(e)(4)(C) serves no useful policy objective. The 
objective of both section 170(e)(4) and 170(e)(6) is to encourage 
modern scientific and computer equipment to be donated to U.S. schools. 
There is no need to limit such incentives to companies that 
``construct'' equipment within this peculiar definition. Sections 
170(e)(4) and (6) have other provisions that ensure that the only 
eligible property is new inventory used first by the donee.
    Furthermore, an overly restrictive reading of the requirements of 
section 170(e)(4)(C) could lead to the conclusion that almost no 
scientific or computer equipment is ``constructed'' by anyone. This is 
because today's sophisticated equipment and computers are full of 
integrated circuits, circuit boards, and other components that are 
purchased from a wide variety of suppliers. If these were all 
considered ``parts'' for purposes of section 170(e)(4)(C), it is 
possible that their value would exceed 50% of the taxpayer's basis 
(manufacturing cost) of the product. Since most manufacturers of 
computers, in particular, buy their computer chips and other components 
(hard drives, monitors, keyboards, memory, floppy drives, CD-drives, 
etc.) from the same group of unrelated suppliers, it is conceivable 
that no manufacturer of computers would qualify as constructing 
computers under the definition set forth in 170(e)(4)(C).
    The legislative history of sections 170(e)(4) and 170(e)(6) 
provides no explanation whatsoever for the inclusion of the 
``constructed by the taxpayer'' requirement. See Ways and Means 
Committee Report, p.120, and Senate Finance Committee Report, p. 140, 
on the Economic Recovery Tax Act of 1981, and Ways and Means Committee 
Report, p. 38, Conference Committee Report, pp. pp373-374 on H.R.2014 
(1997).
Section 170(e)(4)(C) imposes inordinate administrative burdens
    In addition to having no identifiable policy objective, section 
170(e)(4)(C) imposes inordinate administrative and compliance burdens 
on taxpayers. These burdens can be demonstrated by reference to HP's 
procedures for complying with section 170(e)(4)(C).
    During any year, HP donates at least one unit of hundreds of 
different models of scientific equipment or computers that would 
otherwise be eligible for the enhanced deductions under sections 
170(e)(4) or (6). This means that for each of these hundreds of models, 
HP needs to determine whether it has ``constructed'' the model for 
purposes of 170(e)(4)(C) before it can claim the enhanced deduction 
under sections 170(e)(4) or (e)(6). To do this, HP must create a list 
of each of these different models that has been donated during the 
year, separated by the division that supplies each of these products 
(PC's, printers, scanners, servers, etc.). This list is then 
distributed by the HP tax department to the controllers of each of 
those divisions. This request is distributed so broadly because the 
detailed cost data required to perform the analysis for purposes of 
170(e)(4)(C) is not available centrally. The request for this 
information is accompanied by instructions about how to determine 
whether or not a product is ``constructed'' within the meaning of 
170(e)(4)(C). The controllers then forward this request to the 
appropriate financial staff, usually cost accountants, who then do a 
detailed analysis of each product. Since the rules for doing this 
computation are unfamiliar to the individuals doing this analysis, 
there are often questions to be answered by HP's tax department. There 
is always a need for regular follow-up to ensure that all product 
divisions complete their responses in a timely way. When the analysis 
is complete, it is transferred to the HP Corporate Philanthropy 
department, which enters all models that do not qualify in a table 
located within a computer program for computing the enhanced tax 
deductions under section 170(e)(3), (4), and (6). As the enhanced 
deduction is computed for each product, there is a query from the 
system to the table to determine whether or not a product is 
disqualified from the enhanced deduction because it fails to satisfy 
the requirements of 170(e)(4)(C). In addition, the background material 
developed for this effort must be retained in a special fashion. This 
is because there is no routine business need to keep the detailed cost 
data needed to make the section 170(e)(4)(C) analysis as long as could 
be necessary in the event that the Internal Revenue Service requires it 
for purposes of their audit of HP, which covers every year. This 
process is extremely time-consuming and complex. Corresponding audit 
burdens are also placed on the IRS by section 170(e)(4)(C).
    In addition to its extremely factual nature, making a valid 
assessment of whether a product qualifies under section 170(e)(4)(C) is 
made more difficult because no regulations have ever been issued with 
regard to this provision, even though it was enacted in 1981. Some of 
the inherent difficulties of applying section 170(e)(4)(C) relate to 
the fact that a number of its terms are not widely used elsewhere in 
the Internal Revenue Code.
    Of critical importance is the meaning of the word ``parts.'' In the 
context of high-tech electronic equipment and computers, however, it is 
not nearly as clear as one might think. For example, many of the 
purchases that a computer manufacturer makes in order to build a 
computer might be called: components, assemblies, sub-assemblies, 
boards, integrated circuits, motherboards, memory boards, memory 
modules, floppy disk drives, hard drives, CD-drives, CD-writers, 
keyboards, monitors, batteries, cables, etc. In common parlance, these 
might all be called ``parts.'' If they were all treated as ``parts'' 
for purposes of section 170(e)(4)(C), however, then it might be argued 
that there in no company on the planet that ``constructs'' computers 
within the meaning of that section. Such a result would clearly be 
inconsistent with the intent of Congress to provide an incentive for 
donations of high-tech equipment and PC's to the US educational system, 
from kindergarten through universities. This lack of clarity as to the 
meaning of ``parts'' adds to the administrative and compliance burden 
on taxpayers in their effort to ensure that they satisfy the 
requirements of section 170(e)(4)(C).
    There are several other challenges in interpreting section 
170(e)(4)(C). It treats parts purchased from ``related parties'' in a 
favorable way. It is not clear exactly which suppliers would be 
considered ``related parties'' for this purpose. Also, it is not clear 
whether a finished product purchased from a related party would qualify 
as ``constructed'' by the taxpayer. If all of the parts were purchased 
from the related party by the taxpayer and assembled, they would meet 
the test. Why should the test not be satisfied if the finished product 
is purchased from the taxpayer? The other question inherent in any 
effort to apply the ``constructed by the taxpayer'' test under section 
170(e)(4)(C) is the degree to which ``parts'' purchased by one 
operation of a taxpayer and processed further and then passed on to 
still another operation of the taxpayer must be traced back to the 
original purchase from an unrelated party. An expansive tracing 
requirement would magnify the administrative effort described above 
immensely.
Section 170(e)(4)(C), when applied to 170(e)(6), places greater limits 
        on new equipment than on used equipment
    Section 170(e)(6)(D) provides that the rules of section 
170(e)(4)(C) apply to section 170(e)(6). This requirement should be 
eliminated from Section 170(e)(6) because it both limits and 
complicates the incentive. Section 170(e)(6) applies not only to 
property constructed by the donor, but also to inventory acquired for 
resale and property used in a donor's business. However, the 
requirements of section 170(e)(4)(C) apply only in the case of new 
inventory supplied by the manufacturer, and not to used computers 
purchased from a manufacturer. There is no policy rationale that would 
justify imposing a more onerous substantive and administrative 
requirement on donations of new, as opposed to used, computers.
Donations to public schools are treated unfairly
    Section 170(e)(6)(D) provides that the rules of section 
170(e)(4)(C) apply to section 170(e)(6). Therefore, the burden of 
complying with section 170(e)(4)(C) clearly applies to the incentives 
under for section 170(e)(6). The burden, however, would only apply to 
donations to public schools at the K-12 level. This is because 
donations to private schools could be eligible for an equivalent 
enhanced deduction under section 170(e)(3), relating to the care of the 
ill, needy and infants, which does not have the ``constructed by the 
taxpayer'' requirement. See, for example, LTR 9528022.
Sections 170(e)(4)(B)(ii) and 170(e)(6)(D) should be repealed as 
        conforming amendments
    If section 170(e)(4)(C) is repealed, then sections 170(e)(4)(B)(ii) 
and 170(e)(6)(D) should also be repealed, since they are the two 
provisions that impose the requirements of section 170(e)(4)(C) on 
170(e)(4) and (6) contributions, respectively.
Conclusion
    Hewlett-Packard Company greatly appreciates the opportunity to 
offer its views on this matter and is available to provide further 
information or to answer such questions as Members of the Committee may 
have.

                                

     Statement of Joint Venture: Silicon Valley Network, San Jose, 
                               California
    Our comments are divided into two categories:
          1) Technical Corrections, and
          2) Enhancements.

                         Technical Corrections

    We recommend the following four changes:
    1. Clarify terminology: IRC Section 170(e)(6) uses the following 
terms to refer to the donee: ``educational organization,'' ``entity,'' 
and ``donee.'' Use of multiple words could lead to confusion in 
applying the requirements for an enhanced deduction at IRC Section 
170(e)(6)(B)(i) to (vii). For example, Section 170(e)(6)(B)(i) provides 
that donations must be made to either ``(I) an educational 
organization'' or ``(II) an entity described in section 501(c)(3).'' 
IRC Section 170(e)(6)(B)(vii) states that the ``entity's use and 
disposition of the property will be in accordance with the provisions 
of clauses (iv) and (v).'' ``Entity'' is also used at IRC Section 
170(e)(6)(B)(vi) with reference to the ``entity's education plan.'' 
Other requirements at IRC Section 170(e)(6), such as (iii) and (v), use 
the term ``donee'' rather than ``entity.'' And, (iv) refers to 
``organization or entity.'' Thus, while it would seem that the 
requirements at (B)(i) through (vii) should be met with respect to a 
contribution to either an educational organization or a Section 
501(c)(3) entity, a literal reading of the requirements indicates that 
some only apply if the donee is a Section 501(c)(3) entity.
    Recommendation: Clarify that requirements (ii) through (vii) at IRC 
Section 170(e)(6)(B) apply whether the donee is an educational 
organization or a Section 501(c)(3) entity. This clarification could be 
made by only using the term ``donee'' at (iii) through (vii), and 
adding a definition of ``donee'' at Section 170(e)(6)(E), which could 
read: ``As used in paragraph (6)(B), the term ``donee'' means an 
organization described at paragraph (e)(6)(B)(i)(I) or (II).''
    2. Split Section 170(e)(6)(B)(v) into two separate requirements: 
IRC Section 170(e)(6)(B)(v) states: ``the property is not transferred 
by the donee in exchange for money, other property, or services, except 
for shipping, installation and transfer costs.'' This provision is 
difficult to understand. The problem stems from the fact that it 
combines two separate requirements when it would be easier to 
understand if they were separated.
    The first part--''the property is not transferred by the donee in 
exchange for money, other property, or services''--is similar to 
language used in the other enhanced deduction provisions at Section 
170(e)(3)(A)(ii) and Section 170(e)(4)(B)(vi). The second part--
''except for shipping, installation and transfer costs''--comes from 
the legislative history to the Taxpayer Relief Act of 1997. Per the 
House Committee Report: ``The bill permits payment by the donee 
organization of shipping, transfer, and installation costs.''
    Recommendation: Split Section 170(e)(6)(B)(v) into two requirements 
as follows (and renumber the requirements to be (i) through (viii)):
    (v) the property is not transferred by the donee in exchange for 
money, other property, or services,
    (vi) no payment is made by the donee to the donor (although it is 
permissible for the donee to pay shipping, transfer, and installation 
costs),
    3. Clarify that refurbished property is qualified property: IRC 
Section 170(e)(6) requires that the property be acquired or constructed 
by the donor, and that the original use of the property be with either 
the donor or donee. These requirements may exclude property refurbished 
by the taxpayer. For example, a potential donor (such as a manufacturer 
or retailer) may sell a computer only to have it returned because the 
customer wanted a different model or features, or the equipment had a 
defect. The potential donor can upgrade, repair, or modify the 
equipment and then sell it or donate it. Likewise, a manufacturer or 
retailer may accept trade-ins of equipment, which are then refurbished 
to new standards and then sold or donated. However, because the 
original use was with the customer, even though it has been restored to 
new by the potential donor, the donor will not obtain an enhanced 
deduction. Given that Section 170(e)(6) is not limited to donations of 
new equipment, but also applies to used equipment (provided it is 
donated within two years of acquisition), the terms ``constructed'' and 
``original use'' should be clarified to ensure that the provision also 
applies to refurbished equipment (which is likely to be better quality 
and newer than ``used'' equipment). There should be no concern that 
this clarification will result in donations of out-dated refurbished 
equipment because the fair market value of such equipment is likely to 
be lower than its basis and thus, would not qualify for an enhanced 
deduction (the deduction would be limited to the lower fair market 
value).
    Recommendation: The following definition should be added at IRC 
Section 170(e)(6)(E): ``For purposes of this paragraph, refurbished 
property is treated as newly acquired or newly constructed by the 
taxpayer.'' This clarification addresses the ``original use'' 
requirement of Section 170(e)(6)(B)(iii) by treating refurbished 
property as originally used by the donee, as well as the ``two-year'' 
requirement of Section 170(e)(6)(B)(ii) by treating refurbished 
property as newly acquired or constructed.
    Committee report language could indicate that such refurbished 
equipment must have a manufacturer's warranty or be regularly sold by 
the manufacturer in order to be treated as newly acquired or 
constructed property and therefore, qualify for the enhanced deduction.
    4. The requirement for manufacturers should not be stricter than 
for other donors: IRC Section 170(e)(6)(D) provides that the rules of 
Section 170(e)(4)(C) apply to Section 170(e)(6). Under Section 
170(e)(4)(C) property is treated as constructed by the taxpayer only if 
the cost of the parts used in its construction (other than parts 
manufactured by the taxpayer or a related person) do not exceed 50 
percent of the taxpayer's basis in the property. This requirement 
should be eliminated from Section 170(e)(6) because it both limits and 
complicates the incentive. Determining whether a manufacturer has 
``constructed'' a PC within the meaning of Section 170(e)(4)(C) is time 
consuming and challenging because of the lack of regulations specifying 
the exact meaning of some of the terms needed to perform this analysis.
    More importantly, the enhanced deduction provision of Section 
170(e)(4) (contributions of scientific property used for research) only 
applies to property constructed by the taxpayer. However, Section 
170(e)(6) applies not only to property constructed by the donor, but 
also to inventory acquired for resale and property used in a donor's 
business. Thus, the special rule for constructed property has no 
relevance to the objectives of new Section 170(e)(6) and will 
unnecessarily limit the number of donations. Furthermore, it seems 
quite anomalous to require new PC's of a manufacturer to meet the 
``constructed by the taxpayer'' test of Section 170(e)(4)(C), while 
purchased or used PC's would not need to meet this requirement.
    Recommendation: Repeal IRC Section 170(e)(6)(D).

                              Enhancements

    The goals of encouraging donations of technology to schools and 
helping students obtain access to technology in the classroom could be 
further enhanced with the following two changes to IRC Section 
170(e)(6).
    1. Send a permanent message: School needs for technology will be 
permanent ones. Schools will continue to need state-of-the-art 
equipment and thus, will always be seeking donations. Because the needs 
to be addressed by the enactment of Section 170(e)(6) are not temporary 
ones, the provision should be made permanent. This would also be 
appropriate given the fact that the other enhanced charitable deduction 
provisions at IRC Section 170(e)(3) and (e)(4) are permanent 
provisions.
    Recommendation: Eliminate IRC Section 170(e)(6)(F) to make this 
incentive provision a permanent one.
    2. Include community colleges as eligible donees: The needs and 
mission of community colleges are similar enough to those of grades K 
to 12 to warrant extending IRC Section 170(e)(6) to include technology 
donations made to such institutions. For example, in California, K to 
12 is ``responsible for academic and general vocational instruction'' 
including preparing students for postsecondary instruction. The mission 
of the California community colleges is similar. Their ``primary 
mission'' is to ``offer academic and vocational instruction at the 
lower division level,'' including offering support to help students 
succeed at the postsecondary level. On the other hand, the California 
state university system's goal is to offer undergraduate and graduate 
instruction.\1\
---------------------------------------------------------------------------
    \1\ California Education Code Sections 6610.3 and 6610.4
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    Recommendation: Following ``grades K-12'' at IRC Section 
170(e)(6)(B)(iv) add, ``or community college.'' A similar change should 
be made to the title of Section 170(e)(6). A community college should 
be defined as an educational organization that does not offer 
Bachelor's or graduate degrees.

                   Joint Venture's Tax Policy Group's

                 Position on Technical Corrections and

                 Enhancements to IRC Section 170(e)(6)

Position
The addition of Section 170(e)(6) to the tax law in 1997 was welcome 
        because it helps schools obtain necessary technology for 
        instruction despite their limited resources. Joint Venture: 
        Silicon Valley Network's Tax Policy Group suggests some 
        technical corrections and enhancements to clarify the provision 
        and further promote its objectives. Specifically, we recommend 
        that:
          1. The term ``donee'' be used throughout Section 170(e)(6), 
        rather than also ``entity'' and ``educational organization;''
          2. Section 170(e)(6)(B)(v) be split into two requirements;
          3. Clarification be made that eligible property includes 
        refurbished property;
          4. Section 170(e)(6)(D) be repealed so that a tougher 
        standard does not apply to manufacturers than to others 
        donating identical equipment by requiring only manufacturers to 
        meet the qualifications of section 170(e)(4)(C);
          5. The incentive be made permanent; and
          6. The incentive be expanded to include donations to 
        community colleges.
Why this issue is important to Joint Venture's Council on Tax and 
        Fiscal Policy
    Joint Venture is a collaboration of public and private sectors. We 
view the public-private partnership approach of new Section 170(e)(6) 
as meeting an important need in assisting schools obtain necessary 
technology. For example, Joint Venture directs the 21st Century 
Education Initiative whose mission is to spark a local educational 
renaissance--a new community commitment to build a world-class 
educational system that enables all students in Silicon Valley to be 
successful, productive citizens in the 21st century. As part of this 
program, we support the objectives of Section 170(e)(6) and want to 
work with members of Congress to ensure that the provision is 
understandable by schools and corporate donors, and available to all 
potential corporate donors with current technology to donate.
More information
    The attached paper explains our specific comments and 
recommendations.
    Joint Venture: Silicon Valley Network (www.jointventure.org) is a 
non-profit dynamic model for regional rejuvenation. Its vision is to 
build a sustainable community collaborating to compete globally. Joint 
Venture brings people together from business, government, education, 
and the community to identify and act on regional issues affecting 
economic vitality and quality of life.
    Joint Venture's Tax Policy Group consists of individuals from high 
tech industry, government, and academia who analyze various state and 
federal tax rules and proposals to consider the impact to local 
governments and high tech industries. The Group's current work 
encompasses international tax reform, worker classification, R&D 
incentives, major federal tax reform, incentives for donations of 
technology to K-14, and sales tax issues of electronic commerce. The 
Group works to promote better understanding of tax and fiscal issues of 
significance to the Silicon Valley economy, through distribution of its 
reports and quarterly Tax and Fiscal Newsletter, sponsorship of 
seminars and discussion forums, and submission of testimony to 
legislators and tax administrators.

                                

              Statement of Harry L. Gutman, JSY Foundation
    I appreciate the opportunity to submit a statement for the record 
on behalf of the JSY Foundation in connection with the Subcommittees' 
examination of H.R.7, the Community Solutions Act of 2001.
    H.R.7 is designed in part ``to provide incentives for charitable 
contributions by individuals . . . [and] to improve the effectiveness 
and efficiency of government program delivery to individuals and 
families in need.'' In this statement I address three additional items 
that, if adopted, would further the objectives of H.R.7. The three 
items are:
          1. Permit a fair market value deduction for charitable 
        contributions of marketable securities to private foundations;
          2. Accord ``public charity'' status to certain medical 
        research organizations whose principal purpose is the support 
        and coordination of research into rare/orphan diseases; and
          3. Repeal or extend the five year limitation period on the 
        carryforward of excess annual charitable contributions.
    I. Permit a fair market value deduction for charitable 
contributions of marketable securities to private foundations.

                                Problem

    Section 170(e)(5) of the Internal Revenue Code (``the Code''), in 
general, permits a fair market value deduction for contributions to a 
private foundation of stock of a corporation for which, as of the date 
of the contribution, (1) market quotations are readily available on an 
established securities market or from at least 5 dealers, and (2) the 
donor would have realized long-term capital gain had the stock been 
sold for fair market value. The Code, however, does not permit a full 
fair market value deduction for contributions to private foundations of 
securities other than stock, even if the contributed securities are 
regularly traded on an established market.

                                Proposal

    To encourage additional charitable contributions to private 
foundations, section 170(e)(5) should be amended to include securities 
for which, as of the date of the contribution, (1) market quotations 
are readily available on an established securities market or from at 
least five dealers, and (2) the donor would have realized long-term 
capital gain had the securities been sold for fair market value.

                                Analysis

    Section 301 of the Deficit Reduction Act of 1984 added Code section 
170(e)(5). Prior to enactment of paragraph (5), section 170(e) 
generally limited the deduction for contributions of appreciated 
capital assets to private foundations to adjusted basis. Section 
170(e)(5) was enacted ``to encourage donations to charitable private 
foundations.'' E.g., S. Rep. No. 104-281, at 43 (1996), reprinted in 
1996 U.S.C.C.A.N. 1474, 1517; H.R. Rep. No. 105-148, at 370 (1997), 
reprinted in 1997 U.S.C.C.A.N. 678, 764. The market quotation 
requirement was intended to limit deductibility to ``situations in 
which the potential for abuse, including overvaluation, is minimized.'' 
H.R. Rep. No. 98-432, pt. 2, at 1464 (1984), reprinted in 1984 
U.S.C.C.A.N. 697, 1107.
    The legislative history of section 170(e)(5) does not provide any 
reason why the provision was limited to corporate stock. Given the 
expressed congressional intent to encourage donations to private 
charitable foundations, the provision should be expanded to include 
other actively traded securities (such as U.S. Treasury and agency 
issuances) securities, so long as there is no opportunity for valuation 
abuse.
    II. Accord ``public charity'' status to certain medical research 
organizations whose principal purpose is the support and coordination 
of research into rare/orphan diseases.

                                Problem

    Section 170(b)(1) of the Code limits the deduction for charitable 
contributions to 50 percent of the donor's contribution base in the 
case of ``public'' charities and certain private foundations described 
in section 170(b)(1)(A) and to 30 percent of the donor's contribution 
base in the case of other private foundations.
    The 50 percent contribution limitation applies with respect to 
contributions to a ``medical research organization directly engaged in 
the continuous active conduct of medical research in conjunction with a 
hospital, and during the calendar year in which the contribution is 
made such organization is committed to spend such contribution for such 
research before January 1 of the fifth calendar year which begins after 
the date such contribution is made.'' Section 170(b)(1)(A)(iii). 
(emphasis added.) The 50 percent limitation also applies with respect 
to contributions to an organization ``which normally receives a 
substantial part of its support . . . from direct or indirect 
contributions from the general public.'' Section 170(b)(1)(A)(ii). 
Finally, the 50 percent limitation applies to contributions to 
``private operating foundations.'' Section 170(b)(1)(A)(vii).
    Certain organizations whose principal purpose is the support and 
coordination of research into rare/orphan diseases may fail to meet the 
technical requirements for qualification under sections 
170(b)(1)(A)(iii), (vi) and (vii), because (1) their research is 
primarily conducted indirectly, (2) a substantial portion of the 
contributions they receive comes from one or a small number of donors, 
or (3) the research cannot realistically be conducted by the 
organization itself.

                                Proposal

    To encourage efficient research into rare/orphan diseases, section 
170(b)(1)(A)(iii) should be amended to include organizations whose 
principal purpose is to directly or indirectly engage in the continuous 
active conduct of medical research into rare/orphan diseases, as 
defined in section 45C(d)(1), without regard to the five year 
expenditure rule.

                                Analysis

    Individuals are most likely to make charitable contributions in 
support of medical research if they, a family member, or a friend has 
suffered from the disease or condition that will be the subject of the 
research. Thus, research into diseases that strike large numbers of 
people is typically better funded, by a broader range of contributors, 
than so-called ``rare/orphan diseases.'' This limited donor base 
creates both practical and tax barriers to effective research into 
rare/orphan diseases.
    In part as a result of fewer research dollars being available, 
fewer researchers are exclusively involved in the study of a particular 
rare/orphan disease. Further, the few researchers who are at least 
partially involved are more likely to be scattered among a number of 
hospitals or other institutions, rather than gathered together at a 
single institution. The disease being researched is not usually 
sufficiently common to warrant a specialty practice within any given 
hospital.
    Effective coordination of research activities into rare/orphan 
diseases requires a ``virtual institution'' to direct the work being 
done in various places. Current income tax rules discourage the 
creation of such ``virtual institutions'' because the 50 percent 
charitable contribution limitation is available under section 
170(b)(1)(A)(iii) only where research is done directly, in the MRO's or 
hospital's own designated facilities. The ``virtual institution'', by 
its nature, must reach across a number of hospitals and institutions to 
conduct, coordinate and consolidate the necessary research. This 
practical reality should be recognized and the beneficial treatment 
accorded other medical research organizations extended to virtual 
research institutions as well.
    The fact that there are many fewer contributors to research into a 
particular rare/orphan disease than contributors to research into more 
common conditions also means that any individual contributor is more 
likely to represent a significant percentage of the funds contributed 
for such research. Consequently, the organizations funding this 
research cannot usually qualify for the increased contribution 
limitation as publicly supported charities.
    The proposal accommodates the policy objective of providing 
realistically targeted incentives to conduct effective, efficiently 
supervised and funded research into rare/orphan diseases. However, one 
additional feature of existing law must also be changed to reflect the 
reality of rare/orphan disease research. Under current law, medical 
research organizations must be committed to spending 3.5% of assets 
annually plus all contributions within five years. Expenditures to fund 
effective rare/orphan disease research do not fit neatly into limited 
time periods. Research progresses erratically and the largest expenses, 
high throughput screens and drug trials, take place late in the 
process, many years after the initial experiments. While it may be the 
case that a five year expenditure requirement does not alter the 
research agenda in some cases, in most cases it surely will. In any 
event, there is little perceived danger in permitting a rare/orphan 
disease research organization to determine the most effective 
expenditure schedule for its contributions, so long as they are 
ultimately used for that purpose. Thus, the proposal includes a 
provision that would eliminate the five year expenditure requirement in 
the case of ``virtual'' medical research organizations.
    III. Repeal or extend the five year limitation period on the 
carryforward of excess annual charitable contributions

                                Problem

    Section 170(d)(1)(A) provides that contributions to charities 
described in section 170(b)(1)(A) [``public charities''] in excess of 
50 percent of the tax payer's contribution base may be carried over to 
each of the five succeeding taxable years pursuant to a specified 
ordering rule. The five year carryforward limitation has the effect of 
disallowing charitable contribution deductions in some cases, despite 
the fact that the charity has received the total contributed amount.

                                Proposal

    Repeal or extend the section 170(d)(1)(A) five year limitation 
period.

                                Analysis

    The five year carryover period was enacted as part of the Revenue 
Act of 1964. Prior to its enactment, charitable contributions that 
exceeded the annual limit were wasted (while excess corporate 
contributions could be carried over to future years). The 1964 Act 
created a carryover provision for excess individual charitable 
contributions in part to put individuals in parity with corporations 
but, in the words of the Senate Finance Committee:
          More important, however, this will make it unnecessary for 
        taxpayers desiring to make contribution of a substantial nature 
        to a charitable organization to carefully divide the gift into 
        parts, contributing each in a separate year, or perhaps giving 
        undivided interests in a property, up to their applicable 
        limitation, to the charitable organization in each of a series 
        of years. Not only is the present practice complicated for the 
        donor but it also creates problems for the charitable or 
        educational organization. Where they are given undivided 
        interests in a property over an extended period of time, they 
        may find it impossible either to sell or to use the property 
        over this same period of time while their interest in it 
        gradually increases from year to year. S. Rep. No. 88-830, at 
        61 (1964), reprinted in 1964 U.S.C.C.A.N. 1673, 1733-34.
    Similar problems continue to exist today, particularly with respect 
to gifts of appreciated property as to which a donor cannot bifurcate 
the contribution without risking future loss of value. More 
fundamentally, there can be no objection in principle to an unlimited 
carryover. After all, the charity has received the property. 
Administrative concerns may dictate some limit on the carryover period, 
but there is no reason to confine it to five years.

                                

Statement of Marina L. Weiss, Senior Vice President, Public Policy and 
                   Government Affairs, March of Dimes

Incentives for Charitable Giving Will Spur Research and Community-Based 
                  Activities To Improve Birth Outcomes

    The 3 million volunteers and 1600 staff members of the March of 
Dimes strongly support providing tax incentives to promote charitable 
giving. The proposals to allow non-itemizers to deduct charitable 
contributions and to permit tax-free withdrawals from individual 
retirement accounts (IRAs) for charitable contributions will encourage 
new contributors to support worthwhile programs and also reward those 
who already give.
    Of particular interest to the March of Dimes is the non-itemizer 
deduction. According to a January 2001 PricewaterhouseCoopers report, 
extending the charitable deduction to the nearly 85 million individuals 
who do not currently itemize their tax returns would provide an 
incentive for new donations of up to $14.6 billion in the first year 
and more than $80 billion over 5 years. The report also projects that 
this change in the tax laws would induce more than 11.7 million new 
donors to contribute.
    The non-itemizer charitable deduction would also benefit current 
donors. For example, the median household income of donors to the March 
of Dimes largest fundraising event, WalkAmerica, is $45,900 and more 
than 1.1 million direct mail donors to the Foundation have incomes of 
less than $50,000. It is interesting to note that the average annual 
donation to the March of Dimes is $20. Clearly, enactment of a bill 
that extends the charitable deduction to non-itemizers will bring 
greater equity to the code and ensure that all taxpayers benefit from 
favorable tax treatment of their donations.
    If enacted, these proposals would benefit the March of Dimes and 
other charities who rely on small donations, by creating incentives for 
current donors and generating millions of new donors. The donations 
stimulated by these changes in the tax code would provide increased 
resources for expanding the Foundation's investment in cutting-edge 
research, widening the distribution of education materials aimed at 
preventing birth defects and infant mortality, and increasing support 
of community-based programs to improve birth outcomes.
    The March of Dimes strongly urges the Committee to approve these 
needed changes to the tax code this year. Extending the charitable 
deduction to non-itemizers and allowing tax-free withdrawals from IRAs 
for charitable giving are proposals that have broad bipartisan support 
in Congress and have been endorsed by the President. March of Dimes 
staff and volunteers across the country stand ready to work with you to 
secure final passage of these important proposals.
    For more information contact Marina L. Weiss or Emil Wigode, March 
of Dimes Office of Government Affairs at (202) 659-1800.
    Founded in 1938 by President Franklin Delano Roosevelt, the March 
of Dimes is a national voluntary health agency whose mission is to 
improve the health of infants and children by preventing birth defects 
and infant mortality.

                                
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