Discretionary grants do pose a threat. Such grants give government officials great power by allowing them to discriminate subtly and unsubtly among grant applicants. Discretionary grants to faith- based organizations should not pay for overhead costs or the core facilities of an organization. Also, such grants should not pay for salaries of persons employed by faith-based organizations. That is the road to government power over key hiring or firing decisions.
Formula grants offer the best protection, while offering the most aid.
There are historical reasons for this amendment, principally the attempt by the British empire in the 18th century to impose Anglicanism on the colonies. But over the last forty years in an attempt to avoid violating this amendment, America has established atheism. Only programs that exclude worship, prayer or evangelism from their official activities are eligible for government funds. This therefore excludes many very effective programs. It also has given federal tax dollars to programs that simply did not work.