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

SUBCOMMITTEE ON SELECT REVENUE MEASURES JIM MCCRERY, Louisiana, Chairman
J.D. HAYWORTH, Arizona JERRY WELLER, Illinois RON LEWIS, Kentucky MARK FOLEY, Florida KEVIN BRADY, Texas PAUL RYAN, Wisconsin	MICHAEL R. MCNULTY, New York RICHARD E. NEAL, Massachusetts WILLIAM J. JEFFERSON, Louisiana JOHN S. TANNER, Tennessee
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.

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

Aviv, Diana, United Jewish Communities

Baptist Joint Committee on Public Affairs, J. Brent Walker

Corporation for Enterprise Development, Ray Boshara

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

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

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

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

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

Food Donation Connection, Bill Reighard

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

Hudson Institute, Amy L. Sherman

Humphreys, Katherine, Indiana Family and Social Services Administration

Independent Sector, Sara Melendez

Indiana Family and Social Services Administration, Katherine Humphreys

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

Melendez, Sara, Independent Sector

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

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

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

Reighard, Bill, Food Donation Connection

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

Sherman, Amy L., Hudson Institute

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

Shriners Hospitals for Children, Troy Bryant Yopp, Jr.

Smoot, Samantha, Texas Freedom Network Education Fund

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

Texas Freedom Network Education Fund, Samantha Smoot 

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

United Jewish Communities, Diana Aviv

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

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

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

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

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

H.R. 7, THE "COMMUNITY SOLUTIONS ACT OF 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:]

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:]

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:]

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:]

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:]

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.

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:]

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.

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 $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 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 a $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:]

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:]

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.

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 four 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 Corporation 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

The Honorable 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 workforce, 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 towards 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

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:]

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:]

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:]

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 1960s, 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 1960s 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 1960s 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 1940s and 1960s, 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 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

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 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 monies 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 attachments are being retained in Committee files.]

Statement of the Congress of National Black Churches, Inc.

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,

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

[The prepared statement of Mr. Scott follows:]

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.

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 that 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:]

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 about 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 playing field 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. Okay.

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 long-standing 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 1960s.

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.

Secondly, 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.

Secondly, 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 1970s and early 1980s, 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. Okay, 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.

Secondly, the Community Solutions Act protects exemption for religious organizations established in the Civil Rights Act of 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. Okay.

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 long-standing 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:]

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.

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 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.)

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 20^th 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.

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.

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.

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 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 ten 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.

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.)

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 five years. Health (Code 500) is scheduled to grow by 62 percent over five years.⁵

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

• 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.

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.

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 five 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.

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.

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 of 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.

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.

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.

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 "hand out." 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.

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.

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 one year to the next, therefore once the code 600 outlay totals are known one can predict the means-tested component with reasonable accuracy.

5. The White House, p. 196.

6. Projected outlay figures taken from Office of Management and Budget, Budget of the United States 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.

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 playing field 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 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 1940s and when we passed the 1960 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.]

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. Okay, 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 home town 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 CEO of Independent Sector; Ray Boshara, policy director, Corporation 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 home town. 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:]

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:]

Mr. MCNULTY. Thank you, Mr. Reighard.

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

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

Dr. MELENDEZ. Good morning. I am Sara Meléndez, 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:]

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-business owners, pursuing post-secondary 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:]

Chairman MCCRERY. Thank you, Mr. Boshara. Ms. Aviv?

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:]

Chairman MCCRERY. Thank you, Ms. Aviv. Ms. Meiklejohn?

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 playing field and will undermine long-standing 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:]

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.]

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

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

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 ten 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.

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.

[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?

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 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 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 dialogue 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:]

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?

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 two 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:]

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:]

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

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:]

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:]

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

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 of 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 Workforce 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 playing field was not level.

And so one final word about the playing field 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 playing field 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. Okay. Thank you very much.

Can I mention one, very quick last thing?

Chairman HERGER. Very quickly.

Ms. SMOOT. Okay.

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:]

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) of 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 of 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 of 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, etc. 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 three-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

Texas Freedom Network Education Fund
Austin, Texas 78767
June 28, 2001

[Submissions for the Record follow:]

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

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