November 01, 2001

New Directions for Public Aid to Faith-Based Housing Activities? (2001, 15:06)

New Directions for Public Aid to Faith-Based Housing Activities?

Probate and Property, November/December 2001, Volume 15, Number 6

By Myra H. Barron and Jerome A. Barron

Public funding for faith-based housing activities is not new. The Department of Housing and Urban Development (HUD) has provided funds to religiously affiliated organizations on a limited basis for some time. The role of religious entities will greatly expand, however, if the Charitable Choice provision of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, Pub. L. No. 104-193, Title I, § 104, 42 U.S.C. § 604a (Supp. V 1999), is extended to the housing field, as suggested in recent initiatives proposed by President Bush. This article discusses some of the issues raised by these initiatives.

Myra H. Barron is of counsel to Weinberg & Jacobs, LLP, Rockville, Maryland, and is Co-Chair of the Nonprofit Practice Division of the ABA’s Forum on Affordable Housing and Community Development Law.
Jerome A. Barron is the Harold P. Greene Professor of Law at George Washington University Law School, Washington, D.C.

Public funding for faith-based housing activities is not new. The Department of Housing and Urban Development (HUD) has provided funds to religiously affiliated organizations on a limited basis for some time. The role of religious entities will greatly expand, however, if the Charitable Choice provision of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, Pub. L. No. 104-193, Title I, § 104, 42 U.S.C. § 604a (Supp. V 1999), is extended to the housing field, as suggested in recent initiatives proposed by President Bush. This article discusses some of the issues raised by these initiatives.

Charitable Choice—A New Model for Housing?

Charitable Choice is a legally more aggressive approach to religious participation in governmental aid than has been seen to date. Passed as part of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, also known as the “Welfare Reform Act,” Charitable Choice provides for distribution of federal block grant funds to states for temporary social services assistance for the needy. 42 U.S.C. § 604a (Supp. V 1999). If the state itself does not directly provide the services, it has two options. A state can contract directly with service providers or it can distribute the funds through vouchers, certificates, and the like to beneficiaries to use where they so choose. Currently, this law applies only to the social services provided through welfare reform, but the Bush Administration has proposed legislation that would expand the Charitable Choice concept to the housing field.

Under Charitable Choice, federal public assistance under the Welfare Reform Act can go directly from the states to religious entities such as churches, synagogues, and mosques. What is most unusual about this program, however, is that the recipient entity is not required to separate its religious aspects from the program operations. Id. § 604a(d). Charitable Choice funds are not restricted to special purpose nonprofits or broader-based national faith-based nonprofits that provide services. Thus religious entities do not have to create separate nonprofit affiliates in order to receive social services funds under welfare programs. Although Charitable Choice funds may not be used for sectarian worship, instruction, or proselytization, a religious entity receiving funds under Charitable Choice is entitled to retain its independence from government, including maintaining control over its practices and expression of religious beliefs. Id. Religious organizations need not remove religious art, icons, scriptures, or other symbols from their facilities. Id. Nor is the entity required to change its employment practices. The Civil Rights Act of 1964 makes an exception for a religious entity to hire on the basis of religious preferences if that employment is connected “with the carrying on . . . of its activities.” 42 U.S.C. § 2000e-1(a) (1994). Under Charitable Choice, religious entities may operate under this exemption for employment practices by limiting hiring to persons of their own faith when carrying out program activities. 42 U.S.C. § 604a(f) (Supp. V 1999).

 Charitable Choice deviates considerably from current HUD programs, which have regulations that try to separate out completely any type of religious influence in program operations. For example, regulations in two major HUD programs—Community Development Block Grant (CDBG) and HOME Investment Partnerships Program (HOME)—limit direct funding of religious entities and require religiously affiliated  recipient entities to agree not to limit hiring only to those of their own faith. See 24 C.F.R. § 570.200(j) (2001) ; id. § 92.257.

Charitable Choice’s expansion of faith-based services is balanced by two novel provisions. First, for beneficiaries who object to the religious character of the service provider or the service, states must provide an alternative nonreligious service provider equally accessible, of equal value, and in a reasonable time after receiving the objection. 42 U.S.C. § 604a(e) (Supp. V 1999). Second, Charitable Choice provides for a limited approach to government fiscal monitoring. Id. § 604a(h). Only the program funds, rather than all assets of a religious organization receiving public assistance, will be subject to audit, so long as those program funds have been segregated in separate accounts. Id.

Recent Federal Initiatives for Faith-Based Entities

The Bush Administration’s support for public aid for religious organizations is evident in two executive orders issued on January 29, 2001, and in several bills introduced in the spring of 2001. One of the executive orders sets up the White House Office of Faith-Based and Community Initiatives to develop and expand the Administration’s policy agenda affecting faith-based and other community programs and initiatives. Exec. Order No. 13199, 66 Fed. Reg. 8,499 (Jan. 29, 2001). Its role is to coordinate governmental policy, promote support for the initiatives through education and charitable giving, and eliminate unnecessary legislative, regulatory, and other barriers to faith-based and other community efforts. The second executive order establishes Centers for Faith-Based and Community Initiatives, similar to HUD’s Center for Community and Interfaith Partnerships, at five federal agencies: Justice, Education, Labor, Health and Human Services (HHS), and HUD. Exec. Order No. 13198, 66 Fed. Reg. 8,497 (Jan. 29, 2001). The agencies’ task, like that of the White House Office, is to identify and suggest initiatives to eliminate barriers to faith-based and community organizations’ receiving social services from them and to report periodically to the White House. The order also requires Labor and HHS to incorporate Charitable Choice.

These executive orders pose some difficult legal questions about the extent to which regulations restricting faith-based participation have gone beyond legislative requirements. Can expansion of faith-based participation be achieved through rulemaking alone, or is new legislation needed or permissible?

The bills introduced in Congress in spring 2001 would expand many of Charitable Choice’s more controversial provisions to housing, CDBG, and other federal programs. See H.R. 7, 107th Cong. (2001) (modeled on the existing Charitable Choice law). Passage depends on congressional support for more public aid to religious entities and activities.

The Religion Clauses and Public Aid to Religious Entities

The expanded role that Charitable Choice offers for faith-based groups raises constitutional concerns. To address these concerns fully and to analyze the constitutional effect if the concept of Charitable Choice is expanded to the housing field, it is important to understand the Supreme Court’s approach to public aid in a religious context. 

The religious freedom language of the First Amendment is majestic in its simplicity: “Congress shall make no law respecting an establishment of religion, or prohibit the free exercise thereof . . . .” The stark brevity of this language reveals a certain ambiguity and conflict in the context of government funding for social services. Government cannot establish a religion, but can it fund the activities of religious entities? What activities constitute an establishment of religion?

Supreme Court Decisions

The Supreme Court specifically addressed the government funding issue in the 1971 case of Lemon v. Kurtzman, 403 U.S. 602 (1971). Lemon set forth a three-part test to evaluate whether such government aid violates the Establishment Clause: (1) the government aid must have a secular purpose; (2) the principal or primary effect of the aid must neither advance nor inhibit religion; and (3) the government aid must not result in excessive entanglement in the religious entity. Id. at 612–13.

Currently, there is a division on the Supreme Court between separationists (those who support fairly strict separation between government and religion) and accommodationists (those who would accommodate religion where possible). In recent years, the accommodationists have gained ground. The most striking modification of Lemon occurred in Agostini v. Felton, 521 U.S. 203 (1997), which upheld the use of public school teachers to provide remedial services to disadvantaged parochial school children. The Court indicated that government can provide aid if it is provided according to neutral and secular criteria that neither favor nor disfavor religion and if it is available to religious and secular applicants alike. Id. at 205. Agostini relaxed the rigor of the Court’s approach to what constitutes an impermissible religious effect and excessive entanglement between government and religion.

Increasingly, what remains of the Lemon test is applied today by the Supreme Court to permit rather than to prohibit financial assistance to the secular activities of religious or religiously affiliated institutions. Indirect financial aid for religious institutions—in the form of tax exemptions and tax deductions—has been deemed constitutional. See Walz v. Tax Commission, 397 U.S. 664 (1970) (upholding state tax exemptions for real property used for religious institutions); Mueller v. Allen, 463 U.S. 388 (1983) (upholding state income tax deductions to parents for costs such as tuition, books, and transportation for children of religious and secular private schools).

Direct aid has a more complicated history. In the areas of real estate financing, educational activities, and social services, each of which has features analogous to those in the housing and community development area, the mere presence of a religious influence itself is not necessarily a bar to public aid. Rather, as discussed below, it is the degree of the religious influence on the recipient or on the activity funded that is decisive. A clearer understanding of the law in these contexts helps to underscore what the limits might be if religious entities are to play an expanded role in public aid.

Generally, the Supreme Court has found no constitutional limitation to public construction financing based on the religious connections of the entity receiving that funding. The fund recipient should be a religiously affiliated entity rather than a religious entity per se; the entity must not be “pervasively sectarian”; and the activities for which the buildings are financed must have a secular purpose. As early as 1899, the Court upheld a federal statute authorizing federal money to build religiously affiliated hospitals for poor patients. Bradfield v. Roberts, 175 U.S. 291 (1899). More recently, the Court has upheld government construction grants to church-related colleges for buildings used solely for secular activities, Tilton v. Richardson, 403 U.S. 672 (1971), state revenue bonds for construction financing if the university buildings were not used for religious services and the universities were not pervasively sectarian as to teacher and student qualifications, student admissions, and general operations, Hunt v. McNair, 413 U.S. 734 (1973), and annual state grants from a general tax fund to assist separate secular functions by nonpervasively sectarian, religiously affiliated colleges, Roemer v. Bd. of Pub. Works, 426 U.S. 736 (1976).

The Supreme Court likewise has upheld federal and state funding for parochial and other school activities so long as a secular purpose characterizes the activities funded. In Everson v. Bd. of Educ., 330 U.S. 1 (1947), the Court upheld state-provided bus transportation to parochial and other school children. More recently, in Mitchell v. Helms, 530 U.S. 793 (2000), the Court upheld the use of taxpayer funds by religious schools to buy computer equipment and software. The Court’s plurality opinion emphasized another justification—not only were the activities secular, but aid was awarded on a neutral basis, giving both nonreligious and religious entities an equal opportunity to apply. Id. at 816–17.

Perhaps the area in which the Supreme Court has been most accommodationist is social services. In the landmark case of Bowen v. Kendrick, 487 U.S. 589 (1988), the Court upheld a federal statute providing direct grants to government and private social service agencies, including religiously affiliated agencies, to combat teenage pregnancies. The Court remanded the case to the lower court to determine if certain grants would be unconstitutional because the recipient agency might be pervasively sectarian or use the funds for specifically religious activities. Id. at 591. In Witters v. Wash. Dep’t of Services for the Blind, 474 U.S. 481 (1986), the Court upheld provision of state-funded rehabilitation and training classes for blind students to a ministry student at a religious college. The critical factor was that the recipient, rather than the state, decided whether or not a religious entity would benefit; the government itself was neutral towards religion. Id. at 488. In short, a considerable body of precedent validates the use of public funds for secular purposes by religious entities or affiliates.

State Funding and Religious Entities

Social services under the Welfare Reform Act and HUD-funded housing and related activities are federal in nature and hence subject to federal constitutional law. But not all public aid is federal. Much of the funding for assisted housing and related services comes from state and local sources. Unlike federal programs, if a state or local program provides aid to faith-based groups, even if permissible under the federal Constitution, it must still meet state constitutional requirements.

State constitutions vary. A few, like that of Maryland, contain virtually no prohibition on providing public money to a church or other religious entity. M d. C onst. Dec. of Rights, art. 36 (1970). However, most state constitutions specifically prohibit certain state monies from going to religious institutions or being used for religious purposes. See C al. C onst. art. 16, § 5 (1879); M ich. C onst. art. 1, § 4 (1963).

In many respects, state constitutional law in the area of freedom of religion parallels federal constitutional law. Although judicial interpretations of state funding for religious groups necessarily are bound by the particular language of each state constitution and the facts of each case, some general guides may be helpful when analyzing the law in this area. The first issue is to identify the purpose and proposed use for the property or funding—both by the public funder and the recipient. The more secular the purpose and use, the more any sectarian use is incidental rather than primary to the main purpose and use, and the more likely the funding or use will be permitted. The second issue is to identify the type of funding. The use of state obligation bond proceeds is much more questionable than if the funds are generated by publicly issued revenue bonds. Revenue bonds secured by project revenues do not call into question state constitutional limitations to the same extent as other public funding. Similarly, state-funded vouchers and certificates to individuals are less likely to face state constitutional prohibitions. If the voucher recipient chooses a religious provider, the individual (and not the state) has made that choice. The third issue is to identify the nature of the religious entity. Is the entity totally sectarian, such as a church, or is it a separate entity from the religious organization but with religious affiliations, financial support, or other ties? Clearly, the less direct an entity’s religious connection, the less likely the organization will encounter state constitutional objections.

State Court Decisions

Although most state cases involve the religious institution itself or sectarian schools and hospitals, the analysis in these cases is relevant to issues that arise in the housing area.

Use of Public Property by Religious or Religiously Related Entities. Even in states with constitutional prohibitions, courts have upheld the use of public property by religious or religiously related entities. In California, for example, a long-term lease of surplus community college property to a religious group was deemed constitutional because the primary purpose of generating income to the district was secular. Woodland Hills Homeowners Org. v. Los Angeles Cmty. College Dist., 266 Cal. Rptr. 767 (Cal. Ct. App. 1990). Any benefit to the religious group, such as enabling it to expand its sectarian activities, was merely incidental. Id. at 775. Similarly, a Michigan court upheld the lease of public property for a church-run camp open to the public. Dep’t of Natural Resources v. Bd. of Trustees, 318 N.W.2d 830 (Mich. Ct. App. 1982).

Bonds to Finance Projects of Religious or Religiously Related Entities. State courts have generally treated general obligation bonds differently from revenue bonds. General obligation bonds, backed by taxpayer-generated funds, may trigger state constitutional prohibitions in states that have more restrictive constitutional language. Typical of such states is Idaho. An Idaho health authority could not issue bond anticipation notes or general authority bonds to finance a sectarian religious hospital, because the proceeds would be public funds under the Idaho Constitution. Bd. of County Comm’rs v. Idaho Health Facilities Auth., 531 P.2d 588, 599 (Idaho 1975). But in Maryland, one of the few states with a more permissive constitution, the state may lend general obligation bond proceeds to finance nonprofit sectarian hospitals. Truitt v. Bd. of Pub. Works, 221 A.2d 370 (Md. Ct. App. 1966). In fact, the court questioned whether it would raise a constitutional issue if religiously affiliated hospitals were excluded. Id. at 391–92. Similarly, Maryland could grant public funds to construct buildings for sectarian colleges, provided the buildings themselves would not be dominated by sectarian use. Horace Mann League v. Bd. of Pub. Works, 220 A.2d 51 (Md. Ct. App. 1966). On the other hand, state constitutional prohibitions notwithstanding, state courts generally view revenue bonds, backed by project-specific revenues, as involving only private funds, thereby not calling into question those prohibitions. Of course, given that the issuer is a public entity, revenue bonds, even if issued to sectarian entities, generally are limited to secular uses. For example, a California court upheld the constitutionality of an authority’s revenue bonds to construct nonsectarian educational facilities at sectarian colleges on the theory that public funds were not involved. Cal. Educ. Facilities Auth. v. Priest, 526 P.2d 513, 520 (Cal. 1974). Interestingly, while government compliance inspections were justified to assure no excessive entanglement between church and state, the compliance procedures themselves were not considered excessive entanglement. Id. at 519. The Virginia Supreme Court upheld issuance of revenue bond proceeds to a pervasively sectarian university so long as their primary purpose was secular and financing was available to sectarian and nonsectarian universities alike. Virginia Coll. Bldg. Auth. v. Lynn, 538 S.E.2d 682, 689–99 (Va. 2000).

Vouchers and Other State Funding. Direct public payments to individuals in the form of vouchers or certificates, when used by the recipients at religious institutions, have been upheld under state constitutional law. The Ohio Supreme Court, for example, upheld funding of school vouchers to families that could use them for private religious or other schools. Simmons-Harris v. Goff, 711 N.E.2d 203 (Ohio 1999). The vouchers were for a secular purpose, and the family—not the state—determined whether or not to select the religious schools. Id. at 208–09. Similarly, a Wisconsin court held that the state could pay families under the Milwaukee Parental Choice Program to attend private schools of their choice whether nonsectarian or sectarian. Jackson v. Benson, 578 N.W.2d 602 (Wis. 1998). The primary benefit and effect are to provide better educational opportunities for low-income families rather than the advancement of religion. Id. at 612. The choice to attend sectarian schools was made by students, not the state. Id. at 615.

HUD Programs

In light of the freedom of religion clauses of the First Amendment, HUD has followed a relatively cautious course in funding religious entities and activities. For example, HUD, in its CDBG and HOME programs, generally does not fund religious entities directly, even for secular activities. In these programs, HUD provides funds only to religiously affiliated organizations and then only if the activities that it funds are secular in nature. In order to access such HUD funding, religious entities have sponsored or formed nonprofit affiliates designed to serve charitable purposes and qualify as tax-exempt charitable organizations under § 501(c)(3) of the Internal Revenue Code. 26 U.S.C. § 501(c)(3) (1994 & Supp. V 1999). But religious entities themselves can have a role—a limited one—when it comes to CDBG and HOME funding. The nature of that role traditionally has been more limited if the public funding involves real estate rather than services. Religious entities can sponsor, but not be, recipients of these HUD funds for real estate-type activities.

Under the CDBG program, HUD funds for real estate-related purposes must go directly to the religiously affiliated end-users. See 24 C.F.R. § 570.200(j) (2001). But HUD funds for services can pass through, though still not directly to, the religious entities:

In accordance with First Amendment Church/State Principles, as a general rule, CDBG assistance may not be used for religious activities or provided to primarily religious entities for any activities, including secular activities. . . . (3) As a general rule, CDBG funds may be used for eligible public services to be provided through a primarily religious entity. . . .


Similarly, HOME program funds to build or rehabilitate housing cannot go to or through primarily religious entities themselves, even for secular purposes. Id. § 92.257. But if a religious organization establishes a secular entity, that entity can receive HOME funds. Id. Also, property owned by religious entities can be acquired with HOME funds. Id. In addition to HUD regulations interpreting the Fair Housing Act to assure nondiscriminatory housing practices on the basis of religion, other HUD programs specifically limiting the role of religious organizations include Housing Opportunities for Persons with AIDS (id. § 574.300(c)), HOPE for Youth—Youthbuild (id. § 585.406), the Rental Rehabilitation Grant Program (id. § 511.11(c)(5)), the Emergency Shelter Grant Program under the Stewart B. McKinney Act (id. § 576.23), and HOPE for Homeownership of Single Family Homes Program (HOPE 3) (id. § 572.405(d)).

The legal and practical distinction between real estate and social service activities is fading. Housing and community development programs today generally include social services and vice versa. It is too early to tell what effect, if any, this blurring of categories will have on religious entity participation in HUD funding. Furthermore, in light of the President’s new initiatives, HUD is questioning and may be reconsidering its traditional limitation on program funding for “primarily religious entities.” In June 2001, HUD issued a notice seeking comments that identify specific issues with HUD programs that discourage or inhibit participation of faith-based groups. Notice of Request for Comments on Obstacles to the Participation on Faith-Based and Other Community Organizations, 66 Fed. Reg. 30,276 (June 5, 2001), revised by 66 Fed. Reg. 37,102 (July 16, 2001) (re-opening comment period until Aug. 15, 2001).                              


Drawing the legal line between the mission of a faith-based entity and the secular nature of the activity is the task of the future. Both in housing and social services, many perplexing and controversial issues will occupy the public, courts, and legislators, now that the concept of Charitable Choice has enlivened opportunities for public assistance to faith-based groups. The gist of it all suggests that whether authorization comes in the form of the current Charitable Choice legislation or otherwise, religious and religiously affiliated organizations may be able to play a greater role in publicly assisted housing and community development than they have in the past.