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Best Practices When Contracting With Faith-Based Organizations

Volunteer drops off food at a church based food pantry

"Don't Panic" is the best advice I have ever been given. 
Douglas Adams, "The Hitchhiker’s Guide to the Galaxy"

The U.S. Supreme Court’s 2022 decision in Kennedy v. Bremerton School District overruled a long-standing legal test for determining whether a government agency’s action violated the U.S. Constitution’s prohibition against establishing a state religion (known as the Establishment Clause). Based in part on the old test, local governments, when contracting with faith-based organizations, historically would require the organization to not use funds received under the contract for religious purposes. Has this now changed?

What Did We Do Before Kennedy?

In determining whether the purpose of the contracts violated constitutional provisions, local agencies were guided by the analysis set out by the 1971 U.S. Supreme Court case of Lemon v. Kurtzman. The Lemon Court's Establishment Clause analysis called for an evaluation of the purposes and effects of an action and whether it fosters “excessive government entanglement with religion.” Under that test, contracting for services such as the provision of shelter services (assuming there is no requirement to participate in religious activities) would be ok, but providing a grant to be used to construct a sukkah during the Jewish festival of Sukkot (an inherently religious activity) would not.

Many local agencies addressed the historic concern with a simple “no proselytizing” clause that required the contracting organization to keep its religious activities separate from the secular service that was being funded by the local government agency.

However, the U.S. Supreme Court’s 2022 decision in Kennedy v. Bremerton School District overruled and did away with Lemon’s “excessive government entanglement” test. While the Kennedy Court did not provide a new test, contracting policies that are designed to avoid “excessive government entanglement” may be excessively restrictive. (You can read more about this case in MRSC’s blog: Church and State: U.S. Supreme Court Makes Changes to Establishment Clause Analysis.)

Ok, So What Do We Do Now?

I don’t think Kennedy is going to drastically change how local agencies contract with faith-based organizations. (See? I told y’all not to panic). Local government agencies also have to account for federal funding of a program. The local agencies receive federal funds then contract with “subrecipients” to perform the service or run a program. The true beneficiaries are the members of the public that receive the services.

2 C.F.R. § 3474.15 (contracting with faith-based organizations and nondiscrimination) requires that faith-based organizations be treated the same as other private organizations. But it also allows for program requirements “prohibiting the use of direct financial assistance to engage in explicitly religious activities.”

A July 6, 2022 article by Valerie C. Brannon, Legislative Attorney for the Congressional Record Service, discussed Kennedy’s effect on federal contracting, grants, and other funding. In the article, Brannon explains that the Supreme Court has drawn a constitutional distinction between direct financial aid, which it has said may not be used for religious activities, and indirect financial aid, which may be used for religious activities so long as the government operates the program in a way that is neutral towards religion. Direct financial aid flows to the provider. Indirect financial aid flows to the beneficiary, who may then seek services from eligible faith-based or secular providers.

Federal rules, for example 2 C.F.R § 3474.15 from the U.S. Department of Education, include a provision which applies to faith-based organizations that contract with federal or state agencies to provide services (or receive grants), noting that these organizations:

must carry out eligible activities in accordance with all program requirements, including those prohibiting the use of direct financial assistance to engage in explicitly religious activities [italics mine], subject to any accommodations that are granted to organizations on a case-by-case basis in accordance with the Constitution and laws of the United States, including Federal civil rights laws.

The U.S. Department of Housing and Human Services provides a plain language explanation for faith-based organizations. It says in part:

Basically, it means you cannot use any part of a direct Federal grant to fund religious worship, instruction, or proselytization. Instead, organizations may use government money only to support the non-religious social services that they provide. Therefore, faith-based organizations that receive direct governmental funds should take steps to separate, in time or location, their inherently religious activities from the government-funded services that they offer.

What Are Washington State and Local Agencies Doing?

Great question. I am not aware of any changes to state and local agency contract templates post-Kennedy.

The Washington Department of Youth and Family Services’ Early Childhood Education and Assistance Program (ECEAP) provider requirements include this provision:

Sectarian organizations must comply with all ECEAP requirements including classrooms and classroom practices free of any religious symbolism and no religious activities in the curriculum. This does not preclude children or families from sharing their traditions.

But that form is from 2019, before the Kennedy ruling.


For now, I suggest checking your contract templates and comparing them with state and federal grant language. If your funding partners require specific language, use that language.

For contracts with faith-based organizations that are not state or federally funded, consider adopting similar language distinguishing between direct and indirect funding. As courts provide us with more guidance post-Kennedy, we’ll be able to get a better feel for which tests to use in determining how best to structure contracts with faith-based organizations.

MRSC is a private nonprofit organization serving local governments in Washington State. Eligible government agencies in Washington State may use our free, one-on-one Ask MRSC service to get answers to legal, policy, or financial questions.

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About Steve Gross

Steve Gross joined MRSC as a Legal Consultant in January 2020.

Steve has worked in municipal law and government for over 20 years as an Assistant City Attorney for Lynnwood, Seattle, Tacoma, and Auburn, and as the City Attorney for Port Townsend and Auburn. He also has been a legal policy advisor for the Pierce County Council and has worked in contract administration.