Health and Human Services Grants Regulation, 2257-2278 [2021-00207]

Agencies

• DEPARTMENT OF HEALTH AND HUMAN SERVICES

[Federal Register Volume 86, Number 7 (Tuesday, January 12, 2021)]
[Rules and Regulations]
[Pages 2257-2278]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-00207]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

45 CFR Part 75

RIN 0991-AC16


Health and Human Services Grants Regulation

AGENCY: Office of the Assistant Secretary for Financial Resources, 
Department of Health and Human Services.

ACTION: Final rule.

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SUMMARY: This final rule repromulgates and adopts changes to certain 
provisions in the Department's Uniform Administrative Requirements, 
Cost Principles, and Audit Requirements for HHS awards (UAR). This rule 
repromulgates sections of the UAR dealing with payments, access to 
records, indirect allowable cost requirements, and a portion of the 
provision dealing with shared responsibility payments under the 
Affordable Care Act. This rule also amends sections dealing with 
national policy requirements to bring them into compliance with the 
authority under which the UAR is promulgated and OMB guidance, as well 
as to reflect those nondiscrimination requirements that have been 
adopted by Congress.

DATES: This rule is effective February 11, 2021.

FOR FURTHER INFORMATION CONTACT: Johanna Nestor at 
[email protected] or 202-205-5904.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Introduction
II. Background
III. Statutory Authority
IV. Section-by-Section Description of the Final Rule and Response to 
Public Comments
V. Regulatory Impact Analysis

I. Introduction

    This rule repromulgates provisions of Part 75 that were originally 
published late in 2016 in a rulemaking which the Department had serious 
concerns about compliance with certain requirements of the Regulatory 
Flexibility Act. This rule also finalizes proposed changes to Sec.  
75.300, on statutory and national policy requirements to bring them 
into alignment with the Department's statutory authorities, including 
those underlying part 75. The Department is committed to the principle 
that every person must be treated with dignity and respect and afforded 
all of the protections of the Constitution and statutes enacted by 
Congress--and to fully enforcing such civil rights protections and 
requirements. The Department has determined, however, that the public 
policy requirements it imposed in the existing Sec.  75.300(c) and (d) 
disrupted the balance struck by Congress with respect to 
nondiscrimination requirements applicable to grant recipients and, as 
evidenced by the requests for accommodations and lawsuits, will violate 
the Religious Freedom Restoration Act, 42 U.S.C. 2000bb-2000bb-4 
(RFRA), in some circumstances.\1\ The Department also believes that 
these requirements have sowed uncertainty that, over time, could 
decrease the effectiveness of Department-funded programs by deterring 
participation in them.
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    \1\ Some non-Federal entities and commenters argued that the 
Department lacked the legal authority to promulgate existing Sec.  
75.300(c) and (d). While the Department is concerned about its 
statutory authority for these existing provisions, it does not need 
to resolve the issue definitively because the Department believes 
that amending these provisions is warranted in light of the other 
reasons set forth in this preamble.
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    Given the careful balancing of rights, obligations, and goals in 
the public-private partnerships in Federal grant programs, the 
Department believes it appropriate to impose only those 
nondiscrimination requirements required by the Constitution and federal 
statutes applicable to the Department's grantees. But such authorities 
do not support the application of some of the requirements in existing 
Sec.  75.300(c) and (d) to all recipients of Departmental assistance or 
to all Department-funded programs. Accordingly, the Department revises 
Sec.  75.300(c) to recognize the public policy requirement that 
otherwise eligible persons not be excluded from participation in, 
denied the benefits of, or subjected to discrimination in the 
administration of programs and services where such actions are 
prohibited by federal statute. The Department also revises Sec.  
75.300(d) to state clearly that the Department will follow all 
applicable Supreme Court decisions in the administration of the 
Department's award programs.\2\
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    \2\ The final rule also does not repromulgate, and removes, 
Sec.  75.101(f); with the amendments to Sec.  75.300(c) and (d), the 
provision is not necessary.
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    With respect to the other provisions in the 2016 rulemaking, the 
Department repromulgates Sec.  75.305(a), which addressed the 
applicability of certain payment provisions to states; Sec.  75.365, 
which authorized the grant agency to require recipients to permit 
public access to various materials produced under a grant, but 
authorized the agency to place restrictions on grantees' ability to 
make public any personally identifiable information or other 
information that would be exempt from disclosure under FOIA; Sec.  
75.414(c)(1)(i) through (iii) and (f), which established limits on the 
amount of indirect costs allowable under certain types of grants; and 
Sec.  75.477, which established that recipients could not include, in 
allowable costs under HHS grants, any tax payment imposed on an 
employer for failure to comply with the Affordable Care Act's employer 
shared responsibility provisions, but does not repromulgate the 
exclusion from allowable costs in grants of penalties due for failing 
to comply with the individual shared responsibility provision because 
such tax penalty has been reduced to zero except for tax penalties 
associated with failure to maintain minimum essential coverage prior to 
January 1, 2019.

[[Page 2258]]

II. Background

The December 2014 Adoption of the UAR

    On December 26, 2013, the Office of Management and Budget (OMB) 
issued the Uniform Administrative Requirements, Cost Principles, and 
Audit Requirements for Federal Awards (Uniform Guidance), 2 CFR part 
200, that ``set standard requirements for financial management of 
Federal awards across the entire federal government.'' 78 FR 78590 
(Dec. 26, 2013). OMB's purpose in promulgating the Uniform Guidance was 
to (1) streamline guidance in making federal awards to ease 
administrative burden and (2) strengthen financial oversight over 
federal funds to reduce risks of fraud, waste, and abuse. 78 FR 78590 
(Dec. 26, 2013); 85 FR 3766 (Jan. 22, 2020).
    In December of 2014, the Department, in conjunction with OMB and 
two dozen other federal departments and agencies adopted Uniform 
Administrative Requirements, Cost Principles, and Audit Requirements 
for Federal Awards (UAR). 79 FR 75871 (Dec. 19, 2014). The Department 
adopted ``OMB's final guidance with certain amendments, based on 
existing HHS regulations, to supplement the guidance as needed for the 
Department.'' 79 FR at 75875.
    As promulgated by OMB, the statutory authorities for the cost and 
audit principles in the Uniform Guidance and the UAR include the Chief 
Financial Officer's Act, 31 U.S.C. 503, the Budget and Accounting Act, 
31 U.S.C. 1101-1125, the Single Audit Act, 31 U.S.C. 6101-6106, and 
several Executive Orders dictating internal government practice. 2 CFR 
200.103. Similarly, as adopted--and as currently in force--these same 
authorities underlie HHS's UAR regulations. 45 CFR 75.103. These laws 
provide broad authority for the financial management and administration 
of federal awards (grants and cooperative agreements). The Chief 
Financial Officers Act, for example, provides that OMB shall ``oversee, 
periodically review, and make recommendations to heads of agencies on 
the administrative structure of agencies with respect to their 
financial management activities.'' 5 U.S.C. 503(a)(6). Similarly, the 
Single Audit Act directs each agency, pursuant to guidance issued by 
OMB, to ``(1) monitor non-federal entity use of federal awards, and (2) 
assess the quality of audits conducted under this chapter.'' 31 U.S.C. 
7504. These statutes include rulemaking delegations, see, e.g., 31 
U.S.C. 7505, and for decades have provided unquestioned authority for 
the financial management and oversight of federal grants. But that 
authority is limited to requirements associated with the financial 
management and oversight of federal grants.
    As initially promulgated, Statutory and National Policy 
Requirements, 2 CFR 200.300 (and 45 CFR 75.300), was a notice 
provision. It directed the Federal awarding agency ``to communicate to 
the non-Federal entity all relevant public policy requirements, 
including those in general appropriations provisions, and incorporate 
them either directly or by reference in the terms and conditions of the 
Federal award.'' 2 CFR 200.300(a). See also Appendix I, F.2 to Part 
200--Full Text of Notice of Funding Opportunity (describing requirement 
to inform applicants of national policy requirements: ``Providing this 
information lets a potential applicant identify any requirements with 
which it would have difficulty complying if its application is 
successful . . . . Doing so will alert applicants that have received 
Federal awards from the Federal awarding agency previously and might 
not otherwise expect different terms and conditions.''). The section, 
Statutory and National Policy Requirements, was not intended to be an 
independent basis for, or to establish, new substantive conditions, 
nondiscrimination or otherwise.
    In adopting the Uniform OMB guidance, the Department supplemented 
it with HHS specific amendments to account for the Department's 
particular functions and programs. 79 FR 75871, 75889 (Dec. 19, 2014). 
However, the Department did not add to the authorities beyond Sec.  
75.103 and the Housekeeping Statute as the basis for Part 75.
    In Sec.  75.300, Statutory and National Policy Requirements, HHS 
adopted OMB's Uniform Guidance nearly verbatim. Under Sec.  75.300(a), 
the HHS agency awarding a grant is required to manage and administer 
the Federal award so as to ensure that Federal funding is expended and 
associated programs are implemented in full accordance with U.S. 
statutory and public policy requirements. The regulation specifically 
identifies those statutory and public policy requirements as including 
those protecting public welfare, the environment, and prohibiting 
discrimination. Section 75.300(a) also requires the HHS awarding agency 
to communicate to recipients all relevant public policy requirements, 
including those in general appropriations provisions, and incorporate 
them either directly or by reference in the terms and conditions of the 
Federal award.
    The OMB Uniform Guidance and the Department's UAR apply to the 
recipients (and, as provided, subrecipients) of Federal financial 
assistance from the Department, whether such assistance is provided in 
the form of grants or cooperative agreements, with such recipients and 
subrecipients referenced, collectively, as ``non-Federal entities.'' In 
this preamble, for ease of reference, the Department uses the term 
``grant'' in place of ``Federal financial assistance'' or ``Federal 
award,'' the terms used in the UAR and defined in Sec.  75.2. 
Similarly, the term ``grantmaking agency'' is used to reference 
``Federal awarding agency'' or ``HHS awarding agency,'' as those terms 
are defined in Sec.  75.2. Finally, in this preamble, the Department 
uses ``grantee'' and ``subgrantee'' interchangeably with ``recipient'' 
and ``subrecipient,'' respectively, as those terms are also defined in 
Sec.  75.2.

The Department's Additions to the UAR in December 2016

    In July 2016, the Department proposed certain amendments to the 
UAR, and in December 2016, the Department finalized amendments to 
modify its UAR to incorporate certain directives ``not previously 
codified in regulation.'' 81 FR 89393 (December 12, 2016) (2016 Rule). 
These amendments included changes to a State payment provision, access 
to records, indirect allowable cost requirements, exclusion from 
allowable costs of employer and individual shared responsibility 
payments under the Affordable Care Act, and policy requirements dealing 
with discrimination and Supreme Court decisions on same-sex marriage. 
Specifically, the 2016 Rule adopted:
     Section 75.300(c) and (d), which required recipients not 
to discriminate on the basis of certain specified factors, regardless 
of whether those factors had been incorporated into nondiscrimination 
statutes applicable to the specific grants and recipients (and Sec.  
75.101(f), which exempted the Temporary Assistance for Needy Families 
from such requirements), and required recipient compliance with two 
specific Supreme Court decisions.
     Section 75.305(a), which addressed the applicability of 
certain payment provisions to states.
     Section 75.365, which authorized the grant agency both to 
require recipients to permit public access to various materials 
produced under a grant and to place restrictions on recipients' ability 
to make public any personally identifiable information or

[[Page 2259]]

other information that would be exempt from disclosure under FOIA.
     Section 75.414(c)(1)(i) through (iii) and (f), which 
established limits on the amount of indirect costs allowable under 
certain types of grants.
     Section 75.477, which established that recipients could 
not include, in allowable costs under HHS grants, any tax penalty/
payment imposed on an individual or on the employer for failure to 
comply with the individual or employer shared responsibility 
provisions, respectively.\3\
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    \3\ The Department had proposed, but did not finalize, a 
revision to Sec.  75.102, relating to requirements related to the 
Indian Self Determination and Education Assistance Act. Apart from 
this provision, which generated a significant number of comments, 
the Department received few comments on the proposed rule.
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    These new requirements became effective January 11, 2017.

The Department's November 2019 Notice of Exercise of Enforcement 
Discretion and Proposed Rule

    As States and other recipients and subrecipients became aware of 
these new regulatory requirements, some began to complain to the 
Department about certain elements of Sec.  75.300(c) and (d), 
contending, among other things, that application of some of the 
requirements in those provisions (1) unlawfully interfered with certain 
faith-based organizations' protected speech and religious exercise, in 
violation of the Religious Freedom Restoration Act (RFRA), 42 U.S.C. 
2000bb, et seq., or the U.S. Constitution, (2) exceeded the 
Department's statutory authority, and (3) reduced the effectiveness of 
programs funded by the Department by excluding certain entities from 
participating in those programs. These communications, requests for 
exemptions or deviations, and complaints \4\ caused the Department to 
look more closely at the 2016 rulemaking by which these and other 
provisions in the UAR were adopted. The Department's examination raised 
serious concerns about compliance with certain requirements of the 
Regulatory Flexibility Act, and caused the Department to decide not to 
enforce the provisions added by the 2016 Rule, pending repromulgation. 
The Department issued that Notice of Exercise of Enforcement Discretion 
on November 1, 2019. See https://www.hhs.gov/about/news/2019/11/01/hhs-issues-proposed-rule-to-align-grants-regulation.html (issuance of 
proposed rule ``follows same-day issuance of a Notice of Nonenforcement 
of certain regulatory provisions''); it was published in the Federal 
Register on November 19, 2019. Notice of Exercise of Enforcement 
Discretion, 84 FR 63809 (Nov. 19, 2019).\5\
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    \4\ In addition to those specifically mentioned in the proposed 
rule, the Department received communications from individuals and 
organizations such as Senators and Members of Congress, state 
legislators, religious leaders (including all of the Catholic 
Bishops of Pennsylvania), faith-based charities and charities 
operated by churches and religious orders, and public interest 
groups.
    \5\ The Department received several comments on the enforcement 
discretion notice. These comments primarily criticized the 
Department for ignoring the statements of Regulatory Flexibility Act 
compliance within the 2016 rule, and for not engaging in notice and 
comment prior to amending the rule. As this notice responds to 
comments and finalizes the proposed rule, those concerns are no 
longer at issue.
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The Notice of Proposed Rulemaking
    The Department simultaneously published a proposed rule to 
repromulgate or revise the provisions of the UAR that had been adopted 
through the 2016 Rule. It proposed to repromulgate, without change, 
Sec. Sec.  75.305(a), 75.365, and 75.414(c)(1)(i)-(iii) and (f). With 
respect to Sec.  75.477, the Department proposed to repromulgate only 
the exclusion from allowable costs of any employer payments for failure 
to offer health coverage to employees as required by 26 U.S.C. 4980H; 
it did not propose to repromulgate the provision with respect to shared 
responsibility payments for individuals because such tax penalty had 
been reduced to zero.
    The Department proposed to amend Sec.  75.300 because it had 
received communication and complaints, requests for exceptions (under 
45 CFR 75.102), and lawsuits concerning Sec.  75.300(c) and (d). It 
noted that it was preliminarily enjoined from enforcing Sec.  75.300(c) 
in the State of Michigan as to a particular subgrantee's protected 
religious exercise. Buck v. Gordon, 429 F. Supp. 3d 447 (W.D. Mich. 
2019). It also described concerns expressed by some non-federal 
entities that requiring compliance with certain nonstatutory 
requirements of those paragraphs violates the Religious Freedom 
Restoration Act (RFRA), 42 U.S.C. 2000bb, et seq., or the U.S. 
Constitution, exceeds the Department's statutory authority, or reduces 
the effectiveness of programs, for example, by reducing foster care 
placements in the Title IV-E program of HHS's Administration for 
Children and Families. The Department explained that these complaints 
and legal actions indicated that Sec.  75.300(c) and (d) imposed 
regulatory burden and created a lack of predictability and stability 
for both the Department and stakeholders with respect to these 
provisions' viability and enforcement.\6\ The Department also noted 
that some federal grantees had stated that they would require their 
subgrantees to comply with Sec.  75.300(c) and (d), even if it meant 
some subgrantees with religious objections would leave the program(s) 
and cease providing services. Such grantees and subgrantees provide a 
substantial percentage of services in some Department-funded programs 
and are effective partners of federal and state governments in 
providing such services. As noted in the proposed rule, the Department 
believes that the departure of such grantees and subgrantees from 
Department-funded programs could likely reduce the effectiveness of 
those programs.
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    \6\ In response to a request for information in 2017, some 
members of the public submitted comments to the Department citing 
possible burdens created by paragraphs (c) and (d) as they were 
included in the 2016 Rule. See https://www.regulations.gov/docketBrowser?rpp=25&so=DESC&sb=commentDueDate&po=0&s=75.300&dct=PS&D=HHS-OS-2017-0002.
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    Accordingly, as an exercise of its discretion to establish 
requirements for its grant programs and to establish enforcement 
priorities for those programs, the Department proposed to amend Sec.  
75.300(c) and (d). It proposed to amend Sec.  75.300(c) to require 
compliance with all applicable statutory nondiscrimination 
requirements. It also proposed to amend Sec.  75.300(d) to specify its 
commitment to complying with all applicable Supreme Court decisions in 
administering its award programs, instead of singling out two specific 
Supreme Court decisions.
    As the Department noted in the proposed rule, it had received 
several requests for exceptions from Sec.  75.300(c) and (d) under 45 
CFR 75.102(b) (allowing exceptions to part 75 requirements on a case-
by-case basis). In January of 2019, the Department granted the State of 
South Carolina an exception from the provision in Sec.  75.300(c) that 
required the State to prohibit subgrantees from selecting among 
prospective foster parents on the basis of religion, to the extent that 
such prohibition conflicts with a subgrantee's religious exercise, 
conditioned on the referral of potential foster parents who do not 
adhere to the subgrantee's religious beliefs to other subgrantees, or 
to the South Carolina foster care program. The State's request for a 
deviation or waiver from Sec.  75.300(c) and (d) noted that the child 
placing agencies working with South Carolina comply with the 
requirements of Social Security Act Title IV-E, including the provision 
that they may not deny a person the right to become an adoptive or 
foster

[[Page 2260]]

parent on the basis of ``race, color, or national origin,'' 42 U.S.C. 
671(a)(18), and contended that the Department had unlawfully expanded 
such statutory provisions through those regulatory provisions.\7\ The 
State also argued that the provisions violated the Constitution and 
RFRA because they require certain child placing agencies to abandon 
their religious beliefs or forgo the available public licensure and 
funding. In granting the exception, the Department, through its Office 
for Civil Rights (OCR) and the Administration for Children and Families 
(ACF), respectively, found that requiring the State's subgrantee to 
comply with the religious nondiscrimination provision would 
substantially burden its religious beliefs in violation of RFRA \8\ and 
that application of the regulatory requirement would cause a 
significant programmatic burden for South Carolina's foster care 
program by impeding the placement of children into foster care.\9\ 
Finding that other foster care agencies were available to facilitate 
adoptions for those who did not share the particular subrecipient's 
religious beliefs, the Department granted South Carolina's request for 
an exception with respect to the particular subgrantee and other 
similarly situated subgrantees, in order to facilitate the 
participation of faith-based entities in the recruitment of families 
for South Carolina's foster care program. The Department also reviewed 
Sec.  75.300(c) and concluded that it likely exceeded the 
nondiscrimination provisions for the foster care program specifically 
enacted by Congress.\10\
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    \7\ The request was subsequently narrowed to a request for an 
exception from the religious nondiscrimination provision in Sec.  
75.300(c).
    \8\ In reaching this conclusion, OCR found, among other things, 
that (1) the religious nondiscrimination provision in section 
75.300(c) exceeds the scope of the nondiscrimination provisions 
found in the federal statutes applicable to the foster care program, 
and provides no exception for religious organizations (as found in 
other statutes prohibiting religious discrimination, (2) the OMB UAR 
does not include analogous provisions to section 75.300(c), and (3) 
HHS UAR permits the awarding agency to grant exceptions to 
applicable provisions on a case-by-case basis.
    \9\ South Carolina had provided information to the Department 
that it needs more child placing agencies, that faith-based 
organizations are essential to recruiting more families for child 
placement, and that it would have difficulty continuing to place all 
children in need of foster care without the participation of such 
faith-based organizations.
    \10\ Two lawsuits were filed against the Department, challenging 
the Department's decision to grant an exception to South Carolina. 
In Maddonna v. Department of Health and Human Services, 19-cv-448 
(D.S.C. 2019), a Catholic plaintiff challenged the exception granted 
to South Carolina and its subrecipient bringing claims against the 
Department under the Administrative Procedure Act, and the First and 
Fifth Amendment; while the complaint was dismissed without prejudice 
because of lack of standing, the plaintiff has filed a further 
lawsuit. In Rogers v. HHS, 19-cv-01567-TMC (D.S.C. 2019), a 
Unitarian same-sex couple challenged the exception as a violation of 
the First and Fifth Amendments as well.
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    The State of Texas also expressed concerns about the legality of 
Sec.  75.300(c) and (d). The Texas Attorney General first sent a letter 
to the Secretary and to several components of the Department from which 
it received grants, notifying them that it considered the gender-
identity and sexual-orientation nondiscrimination requirements of Sec.  
75.300(c), and the treatment of same-sex-marriage requirement of Sec.  
75.300(d), to be contrary to law and that it did not intend to comply 
with such provisions in the operation of its programs funded with 
Department grants. In a subsequent communication, the Texas Attorney 
General's Office stated that Sec.  75.300(c) and (d) suffer from 
various legal flaws, asked the Department to repeal the provisions, 
and, in the alternative, requested that ACF grant an exception from the 
application of those provisions for any faith-based, child-welfare 
service provider in Texas's Title IV-E foster care and adoption 
program. Another letter reiterated the arguments and requests made in 
the preceding letters. The Department, through ACF and OCR, reached out 
to the State on several occasions, but was unable to determine whether 
specific faith-based organizations were being affected by the 
provisions. One day before the Department posted the proposed rule in 
this rulemaking to its website, see https://www.hhs.gov/about/news/2019/11/01/hhs-issues-proposed-rule-to-align-grants-regulation.html, 
Texas, joined by the Archdiocese of Galveston-Houston, instituted a 
lawsuit challenging the regulations under the Administrative Procedure 
Act (APA), RFRA, the First Amendment, and the Spending Clause. Texas 
and the Archdiocese alleged that the application of Sec.  75.300(c) and 
(d) to the State's Title IV-E Foster Care and Adoption Assistance 
program violates RFRA because it requires current and potential program 
participants, including the Archdiocese, which seeks to participate in 
Texas's Title IV-E program, to refrain from discriminating on the basis 
of sexual orientation, gender identity, and same-sex-marriage status as 
a condition of participation in the program. Texas v. Azar, 3:19-cv-
0365 (S.D. Tex 2019).\11\ Pursuant to the Department's motion to 
dismiss, on August 5, 2020, the district court dismissed the complaint 
as moot and entered judgment for the Department. Texas v. Azar, 2020 WL 
4499128 (Aug. 5, 2020).
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    \11\ On March 5, 2020, the Department's Office for Civil Rights 
(OCR) issued a letter to the Texas Attorney General indicating that 
OCR has concluded that RFRA prohibits the Department from applying 
(i.e., enforcing) section 75.300(c) and (d) to Texas with respect to 
the Archdiocese or other similarly situated entities. In analyzing 
the issue, OCR noted.
     The Archdiocese's sincerely held religious beliefs with 
respect to marriage.
     Application of Sec.  75.300(d) and certain provisions 
in Sec.  75.300(c) to require Texas to exclude the Archdiocese (or 
similarly situated entities) from its foster care and adoption 
programs would constitute a substantial burden on the Archdiocese's 
religious exercise by compelling it to choose between religious 
exercise and participation in the program.
     Applying those provisions to Texas with respect to the 
Archdiocese is not the least restrictive means of advancing a 
compelling governmental interest because doing so would likely 
reduce the effectiveness of the Title IV-E program and the 
Department's compelling interest is in increasing the number of 
providers, including faith-based providers, who are willing to 
participate in the foster care program; the governmental interest in 
ensuring that potential foster care or adoptive parents with whom 
certain providers cannot partner still have opportunities to 
participate in the Title IV-E program can be accomplished through 
other means, such as promoting the availability of alternative 
providers; the OMB UAR does not contain provisions analogous to the 
provisions at issue; and part 75 provides a mechanism for granting 
exceptions from the requirements of that part.
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    In addition to the litigation referenced above, the Department has 
also been subject to several other lawsuits concerning these 
provisions. As noted, in Buck v. Gordon, 429 F.Supp.3d 447 (W.D. Mich. 
2019), a district court preliminarily enjoined the Department from 
enforcing Sec.  75.300(c) with respect to plaintiffs. One of the 
plaintiffs in that lawsuit, a Catholic charity, was willing to place 
children for adoption with same-sex couples once they were certified by 
the State or another agency, but could not, consistent with its 
religious beliefs, provide such certifications. Michigan had not sought 
an exception, but had required subrecipients to comply with 
nondiscrimination conditions as adoption placement agencies, even 
though doing so violated the sincerely held religious beliefs of the 
plaintiff Catholic charity in the lawsuit.\12\ Plaintiffs sued both 
Michigan and the Department. As noted, the court entered a preliminary 
injunction against the Department, prohibiting it from taking any 
enforcement action against Michigan based on the faith-based 
organization's protected religious exercise or Michigan's obligations 
under the preliminary injunction to accommodate that religious 
exercise.
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    \12\ Michigan imposed this requirement independent of the 
requirements imposed by the Department in Sec.  75.300(c) and (d).
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    Against the backdrop of multiple requests for exceptions, 
communications and other complaints

[[Page 2261]]

concerning Sec.  75.300(c) and (d), continued lawsuits, and a careful 
consideration of its authorities, the Department proposed amending 
these provisions in November of 2019. 84 FR 63831 (Nov. 19, 2019).

OMB's January 2020 Proposed Rule Updating the Uniform Guidance

    Consistent with 2 CFR 200.109, which requires OMB to review the 
Uniform Guidance every five years, on January 22, 2020, OMB issued a 
proposed rule to update the Uniform Guidance. 85 FR 3766 (Jan. 27, 
2020). With respect to OMB's Statutory and National Policy Requirements 
provision, OMB proposed to amend the first sentence of Sec.  200.300(a) 
to include references to the U.S. Constitution and federal law and 
specific references to free speech and religious liberty, in addition 
to the specific references currently in Sec.  200.300(a). Thus, under 
the proposed guidance, the Federal awarding agency would be required to 
manage and administer the Federal award in a manner so as to ensure 
that Federal funding is expended and associated programs are 
implemented ``in full accordance with the U.S. Constitution, Federal 
Law, statutory, and public policy requirements,'' including ``those 
protecting free speech, religious liberty, public welfare, the 
environment, and prohibiting discrimination.'' 85 FR at 3793. According 
to OMB, the purpose for the proposed revisions are ``to align with 
Executive Orders (E.O.) 13798 ``Promoting Free Speech and Religious 
Liberty'' and E.O. 13864 ``Improving Free Inquiry, Transparency, and 
Accountability at Colleges and Universities.'' These Executive Orders 
advise agencies on the requirements of religious liberty laws, 
including those laws that apply to grants, and set forth a policy of 
free inquiry at institutions receiving Federal grants; the proposed 
revisions would ``underscore[ ] the importance of compliance with the 
First Amendment.'' 85 FR at 3768. The comment period closed on March 
23, 2020. On August 13, 2020, OMB issue the final Guidance for Grants 
and Agreements, 85 FR 49506 (Aug. 13, 2020). As amended in the final 
rule, section 200.300(a) provides that the federal awarding agency 
would manage and administer federal awards so as to ensure that funding 
and associated programs are implemented and managed ``in full 
accordance with the U.S. Constitution, Federal Law, and public policy 
requirements,'' including ``those protecting free speech, religious 
liberty, public welfare, the environment, and prohibiting 
discrimination.'' The Department anticipates that it will, as 
appropriate, amend its UAR to align with any changes adopted to the 
Uniform Guidance.\13\
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    \13\ The changes to Sec.  200.300(a) seem to address many of the 
issues that led the Department to propose the changes that it did to 
Sec.  75.300(c) and (d). The Department finalizes the amendments to 
Sec.  75.300(c) and (d) with no substantive changes from the 
proposed rule. However, as the Department gains experience in 
implementing the updated provisions, it will consider whether the 
changes made to section 200.300(a) obviate any need for the 
Department's Sec.  75.300(c) and (d) and, thus, whether it should 
repeal such provisions.
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III. Statutory Authority

    As discussed above, in promulgating the UAR and Part 75, both OMB 
and the Department relied almost exclusively on the Housekeeping 
Statute, 5 U.S.C. 301, and the financial management statutes in 2 CFR 
200.103 (and 45 CFR 75.103). These include the Chief Financial 
Officer's Act, 31 U.S.C. 503, the Budget and Accounting Act, 31 U.S.C. 
1101-1125, the Single Audit Act, 31 U.S.C. 6101-6106, and several 
Executive Orders dictating internal government practice.
    The Department also has statutory authority to issue regulations to 
enforce certain government-wide statutory civil rights 
nondiscrimination statutes, such as Title VI of the Civil Rights Act of 
1964, 42 U.S.C. 2000d et seq. (prohibiting discrimination on the basis 
of race, color, national origin by recipients of Federal financial 
assistance); Title IX of the Education Amendments of 1972, 20 U.S.C. 
1681 (prohibiting discrimination on the basis of sex in federally 
assisted education programs), Section 504 of the Rehabilitation Act of 
1973, 29 U.S.C. 794 (prohibiting discrimination on the basis of 
disability in programs and activities conducted by, or receiving 
financial assistance from, federal agencies), and the Age 
Discrimination Act, 42 U.S.C. 6101 et seq. (prohibiting discrimination 
on the basis of age in programs and activities receiving financial 
assistance from federal agencies). There are also certain program 
specific nondiscrimination provisions where the Department has the 
authority to issue enforcement regulations. These include section 
471(a)(18) of the Social Security Act (SSA), 42 U.S.C. 671(a)(18) 
(prohibiting discrimination on the basis of race, color, or national 
origin in Title IV-E adoption and foster care programs), and section 
508 of the SSA, 42 U.S.C. 708 (prohibiting discrimination on the basis 
of age, race, color, national origin, disability, sex, or religion in 
Maternal and Child Health Services Block Grant programs).\14\
---------------------------------------------------------------------------

    \14\ The Department is authorized to issue regulations for the 
efficient administration of its functions in the Social Security Act 
programs for which it is responsible. See SSA 1102(a), 42 U.S.C. 
1302(a).
---------------------------------------------------------------------------

IV. Section-by-Section Description of the Final Rule and Response to 
Public Comments

    The Department provided a 30-day comment period, which closed on 
December 19, 2019. The Department received well over 100,000 public 
comments. After considering the comments, the Department finalizes the 
proposed rule with the changes described in this section, in which the 
Department discusses the public comment, its responses, and the text of 
the final rules.

General Comments

    Comment: Several comments stated 30 days was not sufficient time to 
comment on the proposed rule and asked the Department to extend the 
comment period.
    Response: The Department appreciates the commenters' suggestions, 
but respectfully disagrees that the 30-day comment period was 
insufficient and declines to extend the comment period. The APA does 
not have a minimum time period for comments, and 30-day comment periods 
are often provided in rulemakings. The comment period closed 30 days 
after publication of the proposed rule in the Federal Register on 
November 19, 2019, but the proposed rule went on display at the Office 
of the Federal Register on November 18, 2019, and on the Department's 
website on November 1, 2019. See https://www.hhs.gov/about/news/2019/11/01/hhs-issues-proposed-rule-to-align-grants-regulation.html. This is 
consistent with the 2016 Rule, which was also the subject of a 30-day 
comment period. See Health and Human Services Grant Regulation, 81 FR 
45270 (July 13, 2016) (establishing a comment period that closed on 
August 16, 2016).
    The comment period provided ample time for the submission of more 
than 100,000 comments by a variety of interested parties, including 
extensive comments by a number of entities. Those comments offer a 
broad array of perspectives on the provisions that the Department 
proposed to modify in its repromulgation of the 2016 Rule. The number 
and comprehensiveness of the comments received disprove commenters' 
claim that the 30-day comment period was insufficient. Accordingly, 
after reviewing the public

[[Page 2262]]

comments and the requests for additional time, the Department does not 
believe that extending the comment period is or was necessary for the 
public to receive sufficient notice of, and opportunity to comment on, 
the proposed rule. Consequently, the Department concludes that the 
comment period was legally sufficient and is not extending the comment 
period.

Section 75.300(c) and (d), Statutory and National Policy Requirements, 
and the Related Provision at 75.101(f)

    As noted above, in proposing to repromulgate Sec.  75.300(c) and 
(d) in modified form, the Department noted non-Federal entities have 
expressed concerns that requiring compliance with certain nonstatutory 
requirements of those paragraphs violates RFRA or the U.S. 
Constitution, exceeds the Department's statutory authority, or reduces 
the effectiveness of its programs. The Department further noted that 
the existence of complaints and legal actions indicates that Sec.  
75.300(c) and (d) imposed regulatory burden and created a lack of 
predictability and stability for the Department and stakeholders with 
respect to these provisions' viability and enforcement. The Department 
also noted that some Federal grantees had stated that they will require 
their subgrantees to comply with the nonstatutory requirements of Sec.  
75.300(c) and (d), even if it means some subgrantees with religious 
objections would leave the program(s) and cease providing services 
rather than comply. Because certain grantees and subgrantees that may 
cease providing services if forced to comply with Sec.  75.300(c) and 
(d) provide a substantial percentage of services pursuant to some 
Department-funded programs and are effective partners of federal and 
state governments in providing such services, the Department indicated 
that it believes that such an outcome would likely reduce the 
effectiveness of Department-funded programs.
    Accordingly, as an exercise of its discretion to establish 
requirements for its grant programs and to establish enforcement 
priorities for those programs, the Department proposed to amend Sec.  
75.300(c) and (d). It proposed to amend Sec.  75.300(c) to require 
compliance with applicable statutory nondiscrimination requirements. It 
proposed to amend Sec.  75.300(d) to provide that the Department would 
follow all applicable Supreme Court decisions in administering its 
award programs. The Department also proposed to remove Sec.  75.101(f), 
which was added by the 2016 rule to clarify that the requirements of 
Sec.  75.300(c) do not apply to the Temporary Assistance for Needy 
Families Program (title IV-A of the Social Security Act, 42 U.S.C. 601-
619).
    The Department reexamined the current Sec.  75.300(c) and (d) and 
their authorities after also receiving complaints from recipients and 
States that these provisions exceeded the Department's authority under 
the laws cited in Sec.  75.103 and the Housekeeping Statute, 5 U.S.C. 
301. Several commenters pointed out, for example, that the Social 
Security Act prohibits discrimination on the basis of ``race, color or 
national origin'' in the foster care and adoption context, 42 U.S.C. 
671(a)(18); see 42 U.S.C. 608(d) (incorporating statutory 
nondiscrimination provisions). And several other statutes, such as 
Title VI, 42 U.S.C. 2000d et seq, prohibit categories of discrimination 
by grantees on a government-wide basis. Upon closer scrutiny, the 
Department has determined it was not appropriate to stray beyond those 
statutory categories with the 2016 amendments to Sec.  75.300.
    The Department is finalizing Sec.  75.300(c) as proposed, which 
states: ``It is a public policy requirement of HHS that no person 
otherwise eligible will be excluded from participation in, denied the 
benefits of, or subjected to discrimination in the administration of 
HHS programs and services, to the extent doing so is prohibited by 
federal statute.'' \15\ This change ensures that relevant changes in 
the law in these areas will be most appropriately monitored by the 
relevant program offices administering them. The Department also 
finalizes the removal of Sec.  75.101(f).
---------------------------------------------------------------------------

    \15\ The Department notes that ``federal statute'' encompasses 
binding case law authoritatively interpreting the statute, as well 
as any regulations duly promulgated pursuant to statutory rulemaking 
authority that address discrimination in particular programs. This 
clarification should remove possible confusion as to the scope of 
the provision while still ensuring the agency maintains the balance 
established by Congress in adopting statutory nondiscrimination 
provisions in part 75.
---------------------------------------------------------------------------

    As discussed, OMB issued proposed guidance amending Sec.  75.300(a) 
in January. OMB's proposed revision, requiring funds to be expended in 
full accordance with the Constitution and federal laws, could be seen 
as mirroring the requirements of proposed Sec.  75.300(d). However, the 
Department is adopting paragraph (d) as proposed.
    Comments: Some commenters opposed the proposed provisions, 
contending that the Department had the authority to promulgate the 
current Sec.  75.300(c) and (d) in the 2016 rulemaking. Some said 
concern about the Department's legal authority is inconsistent with the 
Department's previous legal position as embodied in the current rule.
    Other commenters supported the proposed provisions, contending that 
the current rule exceeds the Department's authority. Some of these 
commenters focused on specific programs. For example, some commenters 
said that the current rule exceeds the Department's authority by 
expanding the nondiscrimination clause in Title IV-E (the federal 
foster care and adoption program) to include classifications not found 
in the statute. Another commenter said that the current rule exceeds 
the Department's authority and discretion by unilaterally expanding 
civil rights protections to persons not protected by existing law or 
Supreme Court decisions. Another commenter noted that the Department 
lacks statutory authority to vary the nondiscrimination requirements 
established by Congress for funded programs. Other commenters labeled 
the current rule executive overreach, contended that it grossly 
exceeded the authority of an Executive Branch agency to implement the 
relevant statutory scheme, or argued that federal discrimination 
standards should adhere to the Constitution, acts of Congress, and 
Supreme Court decisions.
    Response: The Department, like all federal agencies, has authority 
to revisit regulations and question the wisdom of its policies on a 
continuing basis. Chevron U.S.A. Inc. v. Natural Resources Defense 
Council, Inc., 467 U.S. 837, 842-843 (1984). The Department has, in 
fact, written into its UAR regulations a periodic review mechanism. 45 
CFR 75.109 (``HHS will review 45 part 75 at least every five years''). 
In reassessing these provisions, particularly in light of the receipt 
of letters and complaints,\16\ ongoing lawsuits, and exception 
requests, regarding the lawful and appropriate scope of Sec.  75.300(c) 
and (d), the Department is exercising that obligation.
---------------------------------------------------------------------------

    \16\ While several commenters stressed that important reliance 
interests are at stake, the 2016 amendment had been in place less 
than three years when the Department issued the proposed rule.
---------------------------------------------------------------------------

    With respect to Sec.  75.300(c) in particular, the Department 
begins by noting that Congress has selectively imposed 
nondiscrimination requirements in certain statutes, and with respect to 
certain grant programs, and not imposed the same requirements in 
others. For example, Title VI of the Civil Rights Act prohibits 
discrimination on the basis of race, color and national origin, but not 
religion or sex. Title IX of the Education

[[Page 2263]]

Amendments of 1972 prohibits discrimination on the basis of sex, but 
not religion, and only in certain programs. While RFRA prohibits the 
federal government from substantially burdening a person's exercise of 
religion unless it demonstrates that the application of the burden is 
the least restrictive means of furthering a compelling governmental 
interest and discrimination by the federal government on the basis of 
religion often will violate RFRA, Congress does not specifically 
prohibit discrimination on the basis of religion (as such) in many of 
its statutes. In the statutes establishing certain programs and grants, 
Congress has specified the protected categories with respect to which 
discrimination is prohibited. Congress has not expressly included 
discrimination on the basis of sexual orientation, gender identity, or 
same-sex marriage status, in any statute applicable to departmental 
grants. In making these decisions, Congress balanced a number of 
competing considerations, including ensuring protections for 
beneficiaries and avoiding burdens that might discourage organizations 
from participating in Department-funded programs. And it balanced these 
considerations with respect to, and in the context of, specific grant 
programs.
    Likewise, with respect to Sec.  75.300(d), the Supreme Court's 
holdings in United States v. Windsor, 570 U.S. 744 (2013), and 
Obergefell v. Hodges, 576 U.S. 644 (2015), have limits. Generally, 
those cases require federal and state governments (as state actors) to 
treat same-sex and opposite-sex couples the same in licensing and 
recognizing marriage. Those cases do not require private individuals to 
abandon any views or beliefs that they have about same-sex marriage; 
nor could they, given that the Due Process Clause and Equal Protection 
doctrine do not regulate private conduct.
    In promulgating the existing Sec.  75.300(c) and (d), however, the 
Department went beyond the nondiscrimination requirements imposed by 
Congress and beyond the holdings of Windsor and Obergefell. It added 
additional prohibited bases of discrimination, thus disrupting the 
balance struck by Congress for nondiscrimination requirements in 
Department-funded grant programs. It also inserted a requirement that 
all grant recipients ``[i]n accordance with the Supreme Court decisions 
in United States v. Windsor and in Obergefell v. Hodges, . . . must 
treat as valid the marriages of same-sex couples,'' which thus extends 
the holdings in those cases to non-state action. Indeed, depending on 
how broadly that provision were interpreted, it could raise concerns 
under the unconstitutional conditions doctrine. Cf. Agency for Int'l 
Dev't v. Alliance for Open Society Int'l, Inc., 570 U.S. 205, 214 
(2013) (``[T]he Government may not deny a benefit to a person on a 
basis that infringes his constitutionally protected . . . freedom of 
speech even if he has no entitlement to that benefit.'' (internal 
quotation marks omitted).
    The Department notes that the authority for imposing these 
requirements is not clear. In promulgating part 75, it relied on the 
Housekeeping Statute, 5 U.S.C. 301, which authorizes ``[t]he head of an 
Executive department . . . [to] prescribe[ ] regulations for the 
government of his department, the conduct of its employees, the 
distribution and performance of its business, and the custody, use, and 
preservation of its records, pages, and property.'' But the Department 
does not interpret that statute as authorizing substantive regulations 
imposing nondiscrimination requirements on the conduct of federal grant 
recipients, except as necessary or appropriate to implement an 
underlying substantive statutory requirement.\17\ Similarly, the 
Department is not convinced that the authority conferred in the 
financial management statutes cited in 45 CFR 75.103 is appropriately 
exercised to impose nondiscrimination requirements of this sort. The 
Single Audit Act Amendments, for example, authorize the Department to 
promulgate rules to ``(1) monitor non-Federal entity use of Federal 
awards, and (2) assess the quality of audits conducted under this 
chapter,'' 31 U.S.C. 7504, 7505. That grant of authority does not 
appear to contemplate imposition of substantive nondiscrimination 
provisions onto all Departmental grant programs through regulation, 
especially where the substantive requirements were not embodied in 
statute(s) applying the requirement to all such grant programs.
---------------------------------------------------------------------------

    \17\ The Department recognizes that there are current legal 
challenges as to the use of the Housekeeping Statute to issue 
regulations to implement substantive statutory requirements.
---------------------------------------------------------------------------

    Application of the requirements in Sec.  75.300(c) and (d) is also 
contrary to RFRA in at least some circumstances. As explained at length 
later in this preamble, RFRA provides that the ``Government shall not 
substantially burden a person's exercise of religion even if the burden 
results from a rule of general applicability, except'' where 
application of such substantial burden to a person ``(1) is in 
furtherance of a compelling governmental interest; and (2) is the least 
restrictive means of furthering that compelling governmental 
interest.'' 42 U.S.C. 2000bb-1. The Department has already concluded 
that imposition of some of the nondiscrimination requirements in Sec.  
75.300(c) and (d) would violate the rights of certain religious 
organizations interested in providing foster-care services as part of 
Department-funded programs. There may be other circumstances where 
these requirements create similar problems under RFRA.
    Even assuming that the Department had legal authority to impose the 
nondiscrimination requirements in circumstances that do not present a 
RFRA problem, however, the Department no longer believes it appropriate 
to do so. As explained throughout this preamble, those 
nondiscrimination requirements raised questions about whether the 
Department was exceeding its authority, disrupted the balance of 
nondiscrimination requirements adopted by Congress, and sowed 
uncertainty for grant applicants, recipients, and subrecipients that 
could deter participation in Department-funded programs and, over time, 
undermine the effectiveness of those programs. The Department is under 
no legal obligation to impose such requirements and has accordingly 
decided to remove them. In their place, the Department adopts a new 
Sec.  75.300(c) to state clearly that all grant recipients and 
subrecipients must comply with the nondiscrimination requirements made 
applicable to them by Congress and a new Sec.  75.300(d) to state that 
the Department will comply with all applicable Supreme Court precedents 
in its administration of grants. These provisions fall squarely within 
the Department's statutory authorities, respect the balance struck by 
Congress with respect to nondiscrimination requirements applicable to 
grant recipients, and will promote certainty for grant applicants and 
recipients by returning to the longstanding requirements with which 
they are familiar.
    Comment: A number of commenters, both those that supported the 
proposed rule generally and those that opposed the proposed rule, 
suggested that proposed Sec.  75.300(d) was unnecessary, as a truism or 
otherwise.
    Response: The Department recognizes that proposed Sec.  75.300(d) 
may seem a truism. But it states an important principle: The Department 
will follow all applicable Supreme Court decisions in administering its 
award programs. And it is not unknown for federal

[[Page 2264]]

regulations to enunciate such principles that may seem unnecessary to 
be set forth in regulatory text. The Department, accordingly, finalizes 
Sec.  75.300(d) as proposed.
    Comment: Several commenters opposed the proposed rule, arguing that 
proposed Sec.  75.300(c) creates an inconsistency among the 
Department's regulations and policies prohibiting discrimination. 
Specifically, commenters referred to HHSAR 352.237-74, which includes a 
``Non-Discrimination in Service Delivery'' clause that prohibits 
discrimination based on non-merit factors such as ``race, color, 
national origin, religion, sex, gender identity, sexual orientation, 
[and] disability (physical or mental).'' Commenters noted that the 
Department cited this provision in promulgating current Sec.  
75.300(c); one commenter noted that the alignment of grant programs 
with contractual requirements helped guarantee uniformity in service 
delivery and ensured that discrimination had no place in any 
Department-funded program. Another commenter said that this 
codification was, according to the Department, ``based on existing law 
or HHS policy.'' Commenters asserted that removing this consistency 
goes against the Department's assertion, in its proposed rulemaking, 
that the amendment will increase predictability and stability, and 
would subject grants and service contracts to different 
nondiscrimination requirements. Furthermore, commenters have said that 
the proposed rule amending Sec.  75.300(c) would remove explicit 
protections from certain communities, leaving grantees with little 
clarity or guidance.
    Response: The Department respectfully disagrees. This final rule 
amending Sec.  75.300(c) expressly prohibits discrimination where 
prohibited by federal statute. While the Department's regulations and 
policies applicable to federal contracts can serve as persuasive 
authority for its regulations and policies applicable to grants and 
cooperative agreements, they do not bind the Department in adopting 
policies that govern its grant programs.
    Furthermore, in basing its decision to adopt current Sec.  
75.300(c) on the fact that the HHSAR contains such a provision with 
respect to service contracts, the Department may have failed to give 
sufficient consideration to the difference between grants and 
procurement contracts (including service contracts) under federal law. 
Under the Federal Grant and Cooperative Agreement Act, a grant (or 
cooperative agreement) is an assistance arrangement, where the purpose 
is to encourage the recipient of funding to carry out activities in 
furtherance of a public goal: A grant agreement is used when the 
principal purpose of the relationship is to transfer something of value 
to the recipient ``to carry out a public purpose of support or 
stimulation authorized by a law of the United States'' and 
``substantial involvement is not expected'' between the agency and the 
recipient when carrying out the contemplated activity. 31 U.S.C. 
6304.\18\ In contrast, the primary purpose of a procurement contract is 
to acquire goods or services for the direct benefit or use of the 
government: A procurement contract (including for service delivery) is 
used when ``the principal purpose of the instrument is to acquire (by 
purchase, lease, or barter) property or services for the direct benefit 
or use of the United States government.'' 31 U.S.C. 6303.\19\ 
Procurement contracts ``are subject to a variety of statutory and 
regulatory requirements that generally do not apply to assistance 
transactions.'' GAO-06-382SP, Appropriations Law (2006), Vol. II, 10-
18. And, arguably, because the purpose is to acquire goods or services 
for the direct benefit or use of the government, the Department may 
have greater latitude to impose nondiscrimination and other 
requirements on a contractor than on a grantee, when the Department's 
purpose is to provide assistance through a grant.\20\
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    \18\ A cooperative agreement is used when the principal purpose 
of the relationship is to transfer something of value to the 
recipient ``to carry out a public purpose of support or stimulation 
authorized by law of the United States'' and ``substantial involve 
is expected'' between the agency and the recipient when carrying out 
the contemplated activity. 31 U.S.C. 6305.
    \19\ The ``Non-Discrimination in Service Delivery'' clause is 
applied to ``solicitations, contracts, and orders to deliver 
services under HHS' programs directly to the public.'' See HHSAR 
337.103(e). These service contracts are procurement contracts where 
the federal agency provides assistance to specified recipients by 
using an intermediary. They are procurement contracts: The agency is 
acquiring the services for the direct benefit or use of the United 
States government because it is buying the intermediary's services 
for its own purposes, to relieve the agency of the need to provide 
the advice or services with its own staff. See S. Rep. No. 97-180, 3 
(1981) (``What is important is whether the federal government's 
principal purpose is to acquire the intermediary's services, which 
may happen to take the form of producing a product or carrying out a 
services that is then delivered to an assistance recipient, or if 
the government's principal purpose is to assist the intermediary to 
do the same thing. Where the recipient of the award is not receiving 
assistance from the federal agency but is merely used to provide a 
service to another entity which is eligible for assistance, the 
proper instrument is a procurement contract.'').
    \20\ In the proposed rule, the Department expressed concern that 
the existence of the referenced complaints and legal actions created 
a lack of predictability and stability for the Department and 
stakeholders with respect to the viability and enforcement of the 
current Sec.  75.300(c) and (d). 84 FR at 638132. The Department 
recognizes that, because Congress has been selective in imposing 
specific nondiscrimination requirements with respect to certain 
grant programs, grantees may see even the application of statutory 
nondiscrimination requirements as unpredictable. However, under 
Sec.  75.300(a), the Department's awarding agency is required to 
communicate to the non-Federal entity all relevant public policy 
nondiscrimination requirements and to incorporate them either 
directly or by reference in the terms and conditions of the Federal 
award.
---------------------------------------------------------------------------

    Comments: With respect to religious liberty issues and RFRA, some 
commenters opposed the proposed rule based on their view that religious 
freedom exemptions do not belong in healthcare where lives may be at 
stake, or in science and medical procedures. Another commenter 
contended that the proposed rule would allow religious groups to 
discriminate, to the detriment of children needing foster care 
services. Another disagreed that the 2016 Rule violated religious 
freedom or RFRA, or required remediation for that reason. Other 
commenters contended the proposed rule would permit religious 
discrimination, including against beneficiaries and participants in 
direct federally funded programs, or opposed the proposed rule because 
religious freedom should not be pursued with discriminatory regulations 
or policies. Another claimed that the proposed rule is based on a false 
premise that protecting minorities is inconsistent with RFRA. Some 
commenters opposed the proposed rule, asserting that it is 
unconstitutional and violates the Establishment Clause (or the 
separation of church and state); another commenter contended that it 
would also violate the Equal Protection and Due Process components of 
the Fifth Amendment.
    Conversely, many commenters supported the proposed rule because it 
protects the religious freedom of faith-based organizations that 
provide services in federal programs. They stated that the proposed 
rule corrected the RFRA violations in the 2016 rule, alleviated 
discrimination against faith-based organizations, and would protect 
against religious discrimination. Another commenter supported the 
proposed rule because the current rule may violate the Free Speech and 
Free Exercise Clauses of the U.S. Constitution. Some commenters 
supported the proposed rule because it is a regulation that frees up 
long-standing faith-based organizations to help the public good. A 
number of commenters, specifically addressing foster care and adoption 
or other child welfare programs, supported the proposed rule to prevent 
government discrimination against religious

[[Page 2265]]

adoption and foster care providers or faith-based agencies, which 
should not need to choose between helping children and their deeply 
held beliefs and should be free to serve children and families 
according to their beliefs. Several noted that prohibiting religious 
groups from providing critical services to underserved and at-risk 
children violates the principles of religious freedom; others noted 
that Christian-based foster agencies should not be discriminated 
against because of their religious beliefs regarding marriage. Some 
commenters also supported the proposed rule because they support the 
inclusion of faith-based organizations for consideration in the 
awarding of grants.
    Response: RFRA provides broad protection for religious liberty 
against infringement by the federal government. Burwell v. Hobby Lobby, 
573 U.S. 682 (2014). RFRA provides that the federal government ``shall 
not substantially burden a person's exercise of religion even if the 
burden results from a rule of general applicability,'' unless ``it 
demonstrates that the application of the burden to the person (1) is in 
furtherance of a compelling governmental interest; and (2) is the least 
restrictive means of furthering that compelling governmental 
interest.'' 42 U.S.C. 2000bb-1. RFRA's test is the ``most rigorous'' 
form of scrutiny identified by the Supreme Court. Church of the Lukumi 
Babalu Aye v. City of Hialeah, 508 U.S. 520, 546 (1993); see also City 
of Boerne v. Flores, 521 U.S. 507, 534 (1997) (``Requiring a State to 
demonstrate a compelling interest and show that it has adopted the 
least restrictive means of achieving that interest is the most 
demanding test known to constitutional law.''). It governs ``all 
Federal law, and the implementation of that law, whether statutory or 
otherwise, and whether adopted before or after November 16, 1993'': It 
is applicable to federal statutory law adopted after such date ``unless 
such law explicitly excludes such application by reference to this 
chapter.'' \21\
---------------------------------------------------------------------------

    \21\ 42 U.S.C. 2000bb-3.
---------------------------------------------------------------------------

    For purposes of RFRA, ``exercise of religion'' includes ``any 
exercise of religion, whether or not compelled by, or central to, a 
system of religious belief.'' 42 U.S.C. 2000bb-2(2), 2000cc-5(7)(A). 
The term ``substantially burden'' means to ban an aspect of a person's 
religious observance or practice, compel an act inconsistent with that 
observance or practice, or substantially pressure the person to modify 
such observance or practice.'' Department of Justice, ``Federal Law 
Protections for Religious Liberty,'' 82 FR 49668, 49669-70 (Oct. 26, 
2017). Whether the financial consequences are a fine or the withholding 
of a benefit, such as a grant or license, is irrelevant. See Sherbert 
v. Verner, 374 U.S. 398, 404 (1963) (``It is too late in the day to 
doubt that the liberties of religion and expression may be infringed by 
the denial of or placing of conditions upon a benefit or privilege.''); 
see also Hobbie v. Unemployment Appeals Comm'n of Fla., 480 U.S. 136, 
141 (1987); Thomas v. Review Bd. of Ind., 450 U.S. 708, 717-18 
(1981).\22\ In 2017, the Supreme Court recognized that, under the First 
Amendment, religious institutions applying for government grants have 
``a right to participate in a government benefit program without having 
to disavow [their] religious character.'' Trinity Lutheran Church of 
Columbia, Inc. v. Comer, 137 S. Ct. 2012, 2022 (2017). And RFRA 
likewise applies to government actions in administering grant programs. 
See 82 FR at 49669 (``RFRA applies to all actions by federal 
administrative agencies, including . . . grant or contract distribution 
and administration.''); see also OLC Opinion, ``Application of the 
Religious Freedom Restoration Act to the Award of a Grant Pursuant to 
the Juvenile Justice and Delinquency Prevention Act,'' 31 Op. O.L.C. 1, 
62 (2007) (RFRA requires Office of Justice Programs to exempt a 
religious organization that is a grantee from a religious 
nondiscrimination requirement in the grant).
---------------------------------------------------------------------------

    \22\ RFRA expressly incorporates the compelling interest tests 
of Wisconsin v. Yoder, 406 U.S. 205 (1972) and Sherbert v. Verner, 
374 U.S. 398 (1963). See 42 U.S.C. 2000bb(b)(1).
---------------------------------------------------------------------------

    Government bears a heavy burden to justify a substantial burden on 
the exercise of religion. ``[O]nly those interests of the highest order 
. . . can overbalance legitimate claims to the free exercise of 
religion.'' Thomas, 450 U.S. at 718 (quoting Wisconsin v. Yoder, 406 
U.S. 206, 215 (1972)). ``[B]roadly formulated interests justifying the 
general applicability of government mandates'' are insufficient. 
Gonzales v. O Centro Espirita Beneficente Uniao do Vegetal, 546 U.S. 
418, 431 (2006). The government must establish a compelling interest to 
deny an accommodation to the particular claimant. Id. at 430, 435-38. 
An asserted compelling interest in denying an accommodation to a 
particular claimant is undermined by evidence that exemptions or 
accommodations have been granted for other interests, id. at 433, 436-
37; Hobby Lobby, 134 S. Ct. at 2780, that the government has in place a 
system of individual exemptions from the requirement, Employment 
Division, Department of Human Resources of Oregon v. Smith, 494 U.S. 
872, 884 (1994); Fraternal Order of Police v. City of Newark, 170 F.3d 
359, 366 (3d Cir. 1999) (Alito, J.), or that similar agencies or 
programs do not impose the requirement, Holt v. Hobbs, 135 S. Ct. 853, 
866 (2015). The compelling-interest requirement applies even where the 
accommodation sought is ``an exemption from a legal obligation 
requiring [the claimant] to confer benefits on third parties.'' Hobby 
Lobby, 134 S. Ct. at 2781 n.37. Although ``in applying RFRA `courts 
must take adequate account of the burdens a requested accommodation may 
impose on nonbeneficiaries,' '' the Supreme Court has explained that 
almost any governmental regulation could be reframed as a legal 
obligation requiring a claimant to confer benefits on third parties. 
Id. (quoting Cutter v. Wilkinson, 544 U.S. 709, 720 (2005)). As nothing 
in the text of RFRA admits of an exception for laws requiring a 
claimant to confer benefits on third parties, 42 U.S.C. 2000bb-1, and 
such an exception would have the potential to swallow the rule, the 
Supreme Court has rejected the proposition that RFRA accommodations are 
categorically unavailable for laws requiring claimants to confer 
benefits on third parties. Hobby Lobby, 134 S. Ct. at 2781 n.37.
    Even if the government can identify a compelling interest, the 
government must also show that denial of an accommodation is the least 
restrictive means of serving that compelling governmental interest. 
This standard is ``exceptionally demanding.'' Id. at 2780. It requires 
the government to show that it cannot accommodate the religious 
adherent while achieving its interest through a viable alternative, 
which may include, in certain circumstances, expenditure of additional 
funds, modification of existing exemptions, or creation of a new 
program. Id. at 2781. Indeed, the existence of exemptions for other 
individuals or entities that could be expanded to accommodate the 
claimant, while still serving the government's stated interests, will 
generally defeat a RFRA defense, as the government bears the burden to 
establish that no accommodation is viable. See id. at 2781-82.
    Applying these principles, as noted in the proposed rule, and 
above, the Department determined that RFRA's application to Sec.  
75.300(c) in the context of the South Carolina Title IV-E foster care 
program, and the participation of a faith-based provider whose 
religious

[[Page 2266]]

beliefs precluded it from complying with the religious 
nondiscrimination provision, required the Department to issue an 
exception to South Carolina for that faith-based organization and other 
similarly situated faith-based participants in South Carolina's foster 
care program who were willing to refer would-be foster parents to other 
providers. A federal district court in Michigan likewise concluded that 
RFRA required an exception from Sec.  75.300(c) for a Catholic 
organization that participated in Michigan's foster care and adoption 
program, but could not--consistent with its Catholic beliefs--review 
and recommend to the State same-sex or unmarried couples (although it 
referred such cases to other child placing agencies for review and 
recommendation). The court issued a preliminary injunction precluding 
the Secretary from taking ``any enforcement action against the State 
under 45 CFR 75.300(c) based upon [plaintiff's] protected religious 
exercise . . . or upon the State of Michigan's obligation under this 
preliminary injunction to accommodate such protected religious 
exercise.'' Buck, 429 F.Supp.3d at 461. Finally, as noted above, the 
Department's OCR notified the Texas Attorney General that it had 
concluded that application of Sec.  75.300(d) and certain provisions in 
Sec.  75.300(c) to require Texas to exclude the Archdiocese of 
Galveston (or similarly situated entities) from its foster care and 
adoption programs would violate RFRA.
    The Department recognized that it had a number of options to 
address the burdens imposed on religious exercise by Sec.  75.300(c) 
and (d). As noted above, the Department proposed to amend the 
provisions to mirror the balance struck by Congress with respect to 
nondiscrimination requirements and to reduce confusion for grant 
applicants and recipients. This exercise of the Department's discretion 
also alleviates the substantial burdens on religious exercise that the 
Department had identified and others of which it is not yet aware. 
Especially in the absence of any statutory requirement to impose Sec.  
75.300(c) and (d), the Department believes that the best way to avoid 
such burdens on religious exercise is, instead of requiring individual 
objectors to assert claims under RFRA or other applicable laws, to 
avoid such regulatory requirements.\23\
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    \23\ See California v. Azar, No. 19-15974, 2020 WL 878528, at 
*24 (9th Cir. Feb. 24, 2020) (en banc) (``HHS acted well within its 
authority in deciding how best to avoid conflict with the Federal 
conscience laws'').
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    Comments: A number of commenters opposed the proposed revisions to 
Sec.  75.300 because they asserted that the revisions would lead to 
spending of taxpayer dollars to support organizations that discriminate 
in violation of equal rights. Similarly, some commenters asserted that 
the proposed revisions to Sec.  75.300 would violate the separation of 
church and state.
    Response: The Department respectfully disagrees. Under the state 
action doctrine, the First, Fifth, and Fourteenth Amendment of the 
Constitution among others, apply only to state action, i.e., the action 
of the federal government and, as applicable, the state governments. It 
does not apply to private conduct. See United States v. Morrison, 529 
U.S. 598 (2000); Civil Rights Cases, 109 U.S. 3 (1883). Thus, only the 
action of the federal government (or state governments) could violate 
the Establishment Clause or the Due Process or Equal Protection 
Clauses. The private conduct of Federal recipients and subrecipients is 
not considered state action merely by receipt of partial funding from 
the government. See Rendell-Baker v. Kohn, 457 U.S. 830 (1982). And the 
Department's funding of faith-based and other organizations for a wide 
variety of purposes does not constitute sufficient involvement or 
entwinement with the government for private recipients to be considered 
state actors. See Shelley v. Kraemer, 334 U.S. 1 (1948).
    The government does not violate the Establishment Clause where 
grants are awarded to a wide variety of entities, including faith-based 
organizations, and for a wide variety of purposes, none of which are 
the promotion of religion. Indeed, ``a significant factor in upholding 
governmental programs in the face of Establishment Clause attack is 
their neutrality towards religion.'' Rosenberger v. Rector & Visitors 
of Univ. of Va., 515 U.S. 819, 839 (1995). That ``guarantee of 
neutrality is respected, not offended, when the government, following 
neutral criteria and evenhanded policies, extends benefits to 
recipients whose ideologies and viewpoints, including religious ones, 
are broad and diverse.'' Id. Thus, religious adherents and 
organizations may, like nonreligious adherents and organizations, 
receive direct financial aid through a secular-aid program. Indeed, 
excluding religious adherents and organizations from secular-aid 
programs may violate the Free Exercise Clause. See, e.g., Trinity 
Lutheran, 137 S. Ct. 2012 (scrap tire program). And the Department is 
under an affirmative duty to allow faith-based organizations to 
participate equally in federal grant programs while maintaining their 
independence, including their expression of their religious beliefs. 
See, e.g., 42 U.S.C. 290kk-1 (SAMHSA discretionary funds), 300x-65 
(SAMHSA block grants), 604a (Temporary Assistance for Needy Families); 
see also 45 CFR 87.3.\24\
---------------------------------------------------------------------------

    \24\ The Department is aware that a federal district court has 
recently declined to dismiss a challenge, brought by a same-sex 
couple against South Carolina and the Department, challenging the 
exception granted to the State of South Carolina with respect to the 
religious nondiscrimination provision in the current Sec.  75.300(c) 
for Miracle Hill and similarly situated entities in South Carolina. 
The court dismissed the plaintiff's equal protection claim for 
religious discrimination and denied the motion to dismiss the 
plaintiff's claims for violation of the Establishment Clause and 
equal protection based on sexual orientation discrimination. Nothing 
in that decision would preclude the Department from finalizing this 
rule. Rogers v. HHS, 19-cv-01567-TMC (D.S.C. 2019).
---------------------------------------------------------------------------

    Comment: The Department received numerous comments on a variety of 
other laws as well. These included Title VII, the Affordable Care Act, 
the Family First Prevention Services Act, and state and local laws 
dealing with discrimination and child welfare. Some commenters believed 
these laws required keeping the current language of Sec.  75.300(c) and 
(d), while other commenters believed these laws required the Department 
to repeal or amend paragraphs (c) and (d). Some also thought agency 
action to be premature given the pendency of several cases surrounding 
these laws at the Supreme Court.
    Response: This rulemaking does not alter a grant applicant or 
recipient's obligations under the referenced laws or any regulations 
promulgated to implement such laws. Thus, grant applicants and 
recipients that are subject to nondiscrimination requirements in Title 
VII, the Affordable Care Act, and/or state or local laws dealing with 
discrimination, will remain subject to those laws to the same extent 
that they were before this rulemaking. Conversely, grant applicants and 
recipients who are not subject to those requirements will continue not 
to be subject to them. The Department will also continue to enforce any 
nondiscrimination provisions for which it has enforcement authority 
relating to grant applicants and recipients, and it will do so in 
accordance with the terms of the statutes. For example, the Department 
will continue to require State foster care plans under the Family First 
Prevention Services Act to include the prohibition on ``delay[ing] or 
deny[ing] the placement of a child for adoption or into foster care, on 
the basis of the race, color, or national origin of the adoptive or 
foster parent, or of the child,

[[Page 2267]]

involved,'' 42 U.S.C. 671(a)(18)(b), while also ensuring that federal 
payments for foster care are only expended for child placements made 
pursuant to the ``best interest of the child'' standard. 42 U.S.C. 
672(e).
    Commenters noted the pendency before the Supreme Court of several 
cases raising the question whether Title VII prohibits an employer from 
firing employees because of their sexual orientation or gender 
identity, contending that any action by the Department would be 
premature. As a general matter, although the Supreme Court's 
interpretation of the language of Title VII may inform the 
interpretation of similar language in other statutes and regulations, 
like Title IX, the statutes differ in certain respects. See, e.g., 
Gebser v. Lago Vista Indep. Sch. Dist., 524 U.S. 274, 283-90 (1998) 
(comparing the text, context, and structure of Title VII and Title IX); 
Jackson v. Birmingham Bd. of Educ., 544 U.S. 167, 175 (2005) (same).
    The Supreme Court has now decided those Title VII cases and nothing 
in its decision in Bostock v. Clayton County, 590 U.S. __, 140 S. Ct. 
1731 (2020), on those consolidated cases precludes the Department from 
issuing this final rule. In Bostock v. Clayton County, the Supreme 
Court held that Title VII's prohibition of employment discrimination 
because of sex encompasses discrimination because of sexual orientation 
and gender identity. The provision at issue in Bostock stated that it 
is ``unlawful . . . for an employer to fail or refuse to hire or to 
discharge any individual, or otherwise to discriminate against any 
individual . . . because of such individual's . . . sex.'' 42 U.S.C. 
2000e-2(a)(1). The Court stated that it ``proceed[ed] on the assumption 
that `sex' signified what the employers suggest, referring only to 
biological distinctions between male and female'' when Title VII was 
enacted.in 1964 140 S. Ct. at 1739. The Court then discussed the 
statute's use of the words ``because of'' (``by reason of'' or ``on 
account of''), ``discriminate against'' (treating [an] individual worse 
than others who are similarly situated), and ``individual,'' before 
concluding that the statute covered the challenged conduct, see 140 S. 
Ct. at 1739-40, 1753. The Court reasoned, ``[f]or an employer to 
discriminate against employees for being homosexual or transgender, the 
employer must intentionally discriminate against individual men and 
women in part because of sex.'' 140 S. Ct. at 1743. The Court noted 
that ``[t]he only question before us is whether an employer who fires 
someone simply for being homosexual or transgender has discharged or 
otherwise discriminated against that individual `because of such 
individual's sex.' '' 140 S. Ct. at 1753 (``Under Title VII . . . we do 
not purport to address bathrooms, locker rooms, or anything else of the 
kind.''). It noted that ``the employers worry that our decision will 
sweep beyond Title VII to other federal or state laws that prohibit sex 
discrimination,'' but stated that ``none of these other laws are before 
us; we have not had the benefit of adversarial testing about the 
meaning of their terms, and we do not prejudge any such question 
today.''). Id. Finally, the Court acknowledged the potential 
application of the ``express statutory exception for religious 
organizations''; of the First Amendment, which ``can bar the 
application of employment discrimination laws'' in certain cases; and 
of RFRA, ``a kind of super statute'' which ``might supersede Title 
VII's commands in appropriate cases.'' 140 S. Ct. at 1754 (noting that 
``how these doctrines protecting religious liberty interact with Title 
VII are questions for future cases too'').
    The final rule is consistent with Bostock. First, whether a grant 
recipient or applicant is subject to Title VII is determined by facts 
independent of its relationship to the Department. Receiving a grant 
from the Department does not change a grantee's obligations under that 
statute. Second, if the Court's reasoning in Bostock is extended to 
other statutory protections prohibiting discrimination on the basis of 
sex--statutory provisions that are applicable to grants, such as Title 
IX, section 1557 of the Affordable Care Act or other statutory 
provisions that incorporate Title IX's prohibition on discrimination on 
the basis of sex into Departmental grant programs, or other statutes 
that prohibit sex discrimination in Departmental grant programs--Sec.  
75.300(c) and (d) would incorporate such protections. Third, because 
the final rule applies only applicable statutory nondiscrimination 
requirements to its grant programs, the Department necessarily 
acknowledges the potential exceptions to such requirements under the 
Constitution and federal statute, including in nondiscrimination 
statutes, RFRA, and the First Amendment. Accordingly, nothing about the 
Bostock decision undermines the Department's choice in this final rule 
to refer to statutory nondiscrimination requirements and state that the 
Department will follow applicable Supreme Court decisions in 
administering its award programs, rather than delineating the specific 
protected categories from discrimination in the rule or applying two 
specific Supreme Court decisions. If anything, Bostock shows the 
utility of the Department's approach in this final rule.
    Comments: Some commenters opposed the proposed rule, contending 
that it is an arbitrary and capricious exercise of the Department's 
rulemaking authority and violates the APA; another added that it is an 
abuse of discretion and otherwise not in accordance with law. Several 
commenters asserted that the Department did not provide adequate 
evidence to support its assertions about complaints or the proposed 
revisions, or failed to provide a reasoned analysis for the proposed 
changes.
    Response: The Department respectfully disagrees. Under the APA, 
agency action may be arbitrary and capricious if the agency (1) 
``relied on factors which Congress has not intended it to consider''; 
(2) ``entirely failed to consider an important aspect of the problem''; 
(3) ``offered an explanation for its decision that runs counter to the 
evidence before the agency''; or (4) offered an explanation ``so 
implausible that it could not be ascribed to a difference in view or 
the product of agency expertise.'' Motor Vehicle Mfrs. Ass'n of U.S., 
Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983). Having 
identified legal, policy, and programmatic issues presented by current 
Sec.  75.300(c) and (d), the Department proposed, and now finalizes, 
revisions to the provisions to address the issues. As finalized here, 
the amended Sec.  75.300(c) and (d) better align with the governing 
statutes. It is never arbitrary and capricious for an agency to 
``justify its policy choice by explaining why that policy `is more 
consistent with statutory language,' '' so long as the agency 
``analyze[s] or explain[s] why the statute should be interpreted'' as 
the agency proposes. Encino Motorcars, LLC v. Navarro, 136 S. Ct. 2117, 
2127 (2016) (quoting Long Island Care at Home, Ltd. v. Coke, 551 U.S. 
158, 175 (2007)).
    The Department respectfully disagrees with commenters that 
contended that the Department has not met the threshold standard for 
revising its regulations. Agency action that ``changes prior policy'' 
is not subject to a heightened justification or standard of review: An 
Agency ``need not demonstrate to a court's satisfaction that the 
reasons for the new policy are better than the reasons for the old one; 
it suffices that the new policy is permissible under the statute, that 
there are good reasons for it, and that the agency believes it to be 
better, which the conscious change of course adequately

[[Page 2268]]

indicates. This means that the agency need not always provide a more 
detailed justification than what would suffice for a new policy created 
on a blank slate.'' FCC v. Fox Television Stations, Inc., 556 U.S. 502, 
515 (2009). Given the limited justification for the adoption of Sec.  
75.300(c) and (d), and the fact that the Department was not statutorily 
obligated to add those provisions in the first place, the explanations 
provided in the proposed rule--and in this final rule--meet the 
applicable standards.
    Comments: Many commenters opposed the proposed rule, contending 
that it would permit organizations to discriminate against members of 
the LGBTQ community, women, and religious minorities. One commenter 
claimed that the proposed rule eliminates protections for traditionally 
marginalized populations, including LGBTQ people, and permits 
discrimination in the administration of HHS programs and services based 
on gender identity or sexual orientation. Many suggested that LGBTQ 
individuals and other marginalized communities could lose access to 
healthcare through discrimination under the proposed rule. One 
commenter claimed that the proposed rule lays the foundation for 
possible discrimination against certain groups of people; other 
commenters expressed concern that it will set a precedent for 
discrimination in other health and human services programs. One 
commenter suggested that the proposed changes would increase the 
burdens on the LGBTQ community, women, and people of minority faiths, 
violating their civil rights and imposing damage far greater than the 
monetary effects on the regulated community. A number of State 
Attorneys General opposed the proposed rule, contending that it would 
eliminate explicit protections for age, disability, sex, race, color, 
natural origin, religion, gender identity, or sexual orientation, and 
replace them with a generic prohibition of discrimination to the extent 
prohibited by federal statutes, making grantees free to discriminate if 
they so choose. One commenter stated that the proposed rule would allow 
HHS award recipients, whether religious or non-religious, to 
discriminate based on non-merit factors unless some other prohibition 
applies explicitly to the program or activity. A number of commenters 
argued that discrimination has no place in HHS programs and that HHS 
has no authority to hold money or discriminate against anyone with 
their tax dollars. Other commenters claimed that the proposed rule 
would permit taxpayer dollars to support organizations that may 
discriminate against, or violate the rights of, vulnerable people who 
need services, or in violation of equal rights. Some commenters argued 
that discrimination is against American beliefs and that law and 
government policy should not allow it. Another commenter noted that all 
of humankind is created in the image of God, and that no form of 
discrimination is defensible.
    In addition to the potential impact on foster care and adoption 
(discussed below), commenters asserted that the proposed rule would 
have an adverse impact on children and adults served in multiple 
systems of care. Other commenters claimed a negative impact on various 
health and human services programs supported by HHS funding, including 
housing, homeless shelters, child care, education, food assistance, 
health care, cancer screenings, immunization programs, reproductive 
care, and STD/STI and HIV/AIDS programs, Head Start and other pre-
kindergarten programs, domestic violence hotlines, substance abuse 
programs, resettlement efforts for refugees and asylees, and community 
support services for seniors and people with disabilities. Several 
commenters claimed that the proposed rule could restrict access to HIV 
prevention and treatment and would be a setback to the administration's 
Ending HIV as an epidemic initiative.
    Response: The Department believes that all people should be treated 
with dignity and respect, especially in the Department's programs, and 
that they should be given every protection afforded by the Constitution 
and the laws passed by Congress. The Department does not condone the 
unjustified denial of needed medical care or social services to anyone. 
And it is committed to fully and vigorously enforcing all of the 
nondiscrimination statutes entrusted to it by Congress. In this final 
rule, the Department reemphasizes this commitment to apply and enforce 
those nondiscrimination laws.
    The Department does not agree with commenters' assertion that, 
should the Department limit its nondiscrimination regulatory and 
enforcement activities to the nondiscrimination laws passed by 
Congress, grantees will discriminate against vulnerable populations or 
deny services to the intended beneficiaries of departmental programs, 
or that individuals who are otherwise eligible to receive services from 
programs funded by the Department will not receive them. Commenters 
offered little evidence that this was the case before the current Sec.  
75.300(c) and (d) became effective in January 2017, and there is no 
reason to believe that this will occur as a result of the fact that the 
regulation will only require compliance with statutory 
nondiscrimination requirements. This final rule merely removes the 
regulatory requirement to comply with nonstatutory nondiscrimination 
requirements; grant recipients are still required to comply with the 
statutory nondiscrimination requirements that are applicable to the 
programs for which they receive Department funding--and they remain 
free, consistent with their other legal and regulatory obligations, to 
observe nonstatutory nondiscrimination practices.\25\ To the extent 
that commenters view statutory nondiscrimination provisions as 
insufficient, they can address that issue with Congress.
---------------------------------------------------------------------------

    \25\ A few commenters complained about the proposed removal of 
the express enumeration of the required nondiscrimination in Sec.  
75.300(c). However, Sec.  75.300(a) requires the Department's 
grantmaking agencies to communicate all of the relevant public 
policy requirements--which includes the applicable nondiscrimination 
requirements--to grantees and to incorporate them either directly or 
by reference in the terms and conditions of the Federal award.
---------------------------------------------------------------------------

    The Department is committed to improving the health and wellbeing 
of all Americans.\26\ Consistent with its statutory authority, the 
Department seeks, wherever possible, to remove barriers to healthcare. 
As a matter of policy, the Department recognizes and works to address 
barriers to treatment caused by stigma about depression, anxiety, 
substance use disorder, and other comorbid mental and behavioral health 
conditions.\27\ For example, this final rule does not alter or affect 
the longstanding Federal protections against discrimination for 
individuals with HIV: Section 504, and hence also this final rule, 
prohibits discrimination on the basis that an individual has HIV.\28\ 
OCR continues to pursue major enforcement

[[Page 2269]]

actions under its authorities \29\ and to provide the public guidance 
\30\ to protect the rights of persons with HIV or AIDS. HHS remains 
committed to ensuring that those living with HIV or AIDS receive full 
protection under the law, in accordance with full implementation of the 
President's National HIV/AIDS Strategy.\31\
---------------------------------------------------------------------------

    \26\ When there are a sufficient number of eligible 
organizations and the issue is which ones should be funded, an 
increase in the number of such organizations makes it more likely 
that the funding component (or recipient) would be able to select 
more effective or higher quality recipients/subrecipients.
    \27\ See, e.g., Pain Management Task Force, ``Pain Management 
Best Practices, Fact Sheet on Stigma'' (Aug. 13, 2019), https://www.hhs.gov/sites/default/files/pmtf-fact-sheet-stigma_508-2019-08-13.pdf (``Compassionate, empathetic care centered on a patient-
clinician relationship is necessary to counter the suffering of 
patients. . . . Patients with painful conditions and comorbidities, 
such as anxiety, depression or substance use disorder (SUD) face 
additional barriers to treatment because of stigma.'').
    \28\ See 29 U.S.C. 705(20) (incorporating ADA definition of 
disability into Section 504); 42 U.S.C. 12102(1)-(3); 28 CFR 
35.108(d)(2)(iii)(J).
    \29\ See, e.g., ``HHS Office for Civil Rights Secures Corrective 
Action and Ensures Florida Orthopedic Practice Protects Patients 
with HIV from Discrimination'' (Oct. 30, 2019), https://www.hhs.gov/about/news/2019/10/30/hhs-ocr-secures-corrective-action-and-ensures-fl-orthopedic-practice-protects-patients-with-hiv-from-discrimination.html; ``HHS Office for Civil Rights Enters Into 
Agreement with Oklahoma Nursing Home to Protect Patients with HIV/
AIDS from Discrimination'' (Sept. 8, 2017), https://www.hhs.gov/about/news/2017/09/08/hhs-office-for-civil-rights-enters-into-agreement-with-oklahoma-nursing-home.html.
    \30\ See OCR, ``Know the Rights That Protect Individuals with 
HIV and AIDS,'' https://www.hhs.gov/sites/default/files/ocr/civilrights/resources/factsheets/hivaids.pdf; OCR, ``Protecting the 
Civil Rights and Health Information Privacy Rights of People Living 
with HIV/AIDS,'' https://www.hhs.gov/civil-rights/for-individuals/special-topics/hiv/.
    \31\ See ``Ending the HIV Epidemic: A Plan for America,'' 
https://www.hiv.gov/Federal-response/ending-the-hiv-epidemic/overview.
---------------------------------------------------------------------------

    Comments: Some commenters opposed the proposed rule, contending 
that it would license discrimination by allowing child welfare agencies 
to reject prospective foster and adoptive families on the basis of 
sexual orientation, gender identity or expression, religion, and other 
factors; several suggested that such interests would be prioritized 
above the best interests of the child. Others were concerned that it 
would permit discrimination against children in foster care who are 
LGBTQ and are entitled to loving support and the chance of a family. 
One state noted that its experience was that placement rates and time 
in care do not change significantly when discriminatory providers leave 
the field. A number of commenters thought that the proposed rule would 
have a negative impact on the availability of foster care/adoption 
placements; a few claimed that it would limit the number of loving 
parents that children can be placed with based on sexual preference, 
which does not serve anyone, with one commenter asserting that it will 
increase the number of children in foster care permanently. One 
commenter suggested that the substantive due process rights of children 
in state-regulated foster care will be impaired by the proposed rule 
and that placing the providers of foster care and adoption services in 
a position to serve their religious objectives over the best interest 
of the children in their care violates federal statute which gives the 
children and youth higher priority. Several commenters disagreed that 
the current rule reduces the effectiveness of HHS-funded programs, 
contending that there is no evidence validating the statement. One 
commenter faulted HHS for not providing empirical data to support the 
contention that the nondiscrimination rule is materially affecting 
efforts to find qualified providers; another complained that HHS did 
not present evidence that a significant number of grantees have been 
unduly burdened under the current rule.
    On the other hand, some commenters believed that, with the proposed 
changes, more children in the foster care system will be able to 
receive help as there will be more organizations available to provide 
services. Other commenters supported the proposed rule, believing that 
it keeps faith-based adoption agencies viable. Several Senators who 
submitted comments argued that the proposed rule would encourage a 
wider array of foster service providers. Other commenters noted that 
faith-based organizations have a good track record of helping 
vulnerable children through foster care and adoption, and providing 
material support and services, and believe the proposed rule will have 
a positive impact on the availability of foster care and adoption 
services. Some noted that the proposed rule protects the beneficiaries 
of HHS programs by ensuring that faith-based organizations do not cease 
to provide services, including foster care; several commenters noted 
that the current rule jeopardized foster care for thousands of children 
nationwide.
    Response: The Department and its Administration for Children and 
Families (ACF) supports the prompt placement of children in loving 
homes according to the best interest of the children involved. The 
Department recognizes that many states may need more foster and 
adoptive families and greater foster care capacity. The Department 
values the work of faith-based organizations in service to persons in 
need and in the protection of children. It believes that when both 
faith-based and secular entities participate in the foster care and 
adoption placement processes, children, families, and providers benefit 
from more, not fewer, placement options.\32\
---------------------------------------------------------------------------

    \32\ While one state indicated that its placement rates and time 
in care did not change significantly when ``discriminatory'' 
providers leave the field, other states provided the Department with 
different perspectives on the issue, given the unique dynamics and 
experiences of their state foster care and adoption systems. As 
noted above, based on its experience, the Department believes that 
when faith-based organizations are permitted to participate 
consistent with their religious beliefs, there is greater 
availability of foster care and adoption services and placements.
---------------------------------------------------------------------------

    All children and youth should be treated fairly and with compassion 
and respect for their human dignity. Those in foster care need the 
support of a loving family to help them negotiate adolescence and grow 
into healthy adults, including those that face special or unique 
challenges. Faith-based child placement agencies are critical providers 
and partners in caring for vulnerable children and youth. These 
agencies have a long and successful history of placing foster children 
with loving families, either in temporary foster care or in forever 
homes through adoption. Their participation in these programs does not 
prevent qualified individuals, with whom some faith-based agencies 
cannot work, from becoming foster or adoptive parents because there are 
other agencies that would welcome their participation.
    Failure to address the objections to the nonstatutory 
nondiscrimination requirements could destabilize this diverse system of 
foster care providers. Some faith-based subrecipients, including some 
that provide critically important child welfare services to states and 
local jurisdictions across the child welfare continuum, may not be able 
to provide needed services--and indeed, might be compelled to withdraw 
from the provision of child welfare services--if they are forced to 
comply with the current nonstatutory nondiscrimination requirements. 
Foster care service providers in Michigan, South Carolina, and Texas 
have made such claims, supported by the state in the case of the 
providers in South Carolina and Texas. Such a result would likely 
reduce the effectiveness of the foster care/adoption programs because, 
in many states, it would decrease the number of entities available to 
provide foster care/adoption related services. The Department further 
notes that a number of states have laws requiring the placement of 
children, when possible, with families of the same faith tradition as 
the child, in order to promote and protect the child's free exercise 
rights. Eliminating the ability of faith-based providers to participate 
in Department-funded foster care and adoption programs--because of 
their sincerely held religious beliefs--could thus make it more 
difficult for children to receive services from child placement 
agencies that share their faith traditions and are more likely to place 
such children with foster or adoptive parents and families

[[Page 2270]]

who share their religious beliefs and values and faith traditions.
    This final rule removes the federal regulatory barriers that would 
have precluded such faith-based organization from participating in the 
federally funded Title IV-E foster care and adoption programs.
    Removing regulatory barriers to participation of faith-based child 
placement agencies thus serves the Department's goals of creating more 
options for children in need of loving homes. State child welfare 
agencies are best situated to determine how to serve the diversity of 
children and families within their states, but the changes in this 
final rule will ensure that they have the flexibility to work with all 
available providers. Such providers include not only those child 
placing agencies that operate within the context of their sincerely 
held religious beliefs, but also other providers that do not have such 
beliefs, including State agency placement services. The Department and 
ACF place the best interests of the child first, as participants in 
Department-funded Title IV-E programs must; ensuring qualified 
providers can participate allows ACF to continue to prioritize the 
child's best interest and to avoid any violation of RFRA.
    Comments: Several commenters (including the Chairs of House 
Committees with jurisdiction) opposed the proposed rule, arguing that 
it would create a confusing, uneven patchwork of civil rights 
protections across HHS programs, and undermine a uniform 
nondiscrimination standard for HHS grant programs. Several commenters 
contended that the proposed rule would confuse beneficiaries and 
recipients of HHS services, and inevitably lead to extensive 
litigation; they also claimed that it would create conflicts between 
federal, state, and local law and with prior Executive Orders. Several 
commenters contended that the proposed rule creates greater ambiguity, 
compliance complexity and uncertainty for both providers and 
beneficiaries of HHS-funded programs.
    Response: As noted above, Congress has been selective in imposing 
specific nondiscrimination criteria in certain statutes and programs, 
and not imposing the same criteria in other statutes and programs. The 
Department has elected to follow those selections, and leaves for 
Congress the determination whether to create a uniform 
nondiscrimination standard for all of the Department's grant programs.
    The Department doubts that the lack of a uniform standard will 
cause confusion among grantees, beneficiaries, and recipients of 
Department-funded services. These organizations and individuals are 
likely familiar with the varying eligibility requirements imposed by 
Congress for various grant programs--that there may be varying 
nondiscrimination requirements among such programs is unlikely to come 
as a surprise. Moreover, the Department's agencies are required to 
inform recipients of the relevant public policy requirements--which 
includes the applicable nondiscrimination requirements--and to 
incorporate them either directly or by reference in the terms and 
conditions of the Federal award. See 45 CFR 75.300(a). This would 
minimize any potential for uncertainty or confusion as to what is 
required.
    The Department respectfully disagrees that the proposed rule's 
provisions that are finalized here will create a conflict with state or 
local laws. A conflict arises when an entity cannot comply with two 
different laws. The Department's action here merely removes certain 
federal regulatory requirements. Regulated entities may follow such 
nondiscrimination principles (voluntarily or as a result of other law), 
consistent with their other legal obligations. And consistent with 
their constitutional and legal obligations, State and local governments 
remain free to adopt additional nondiscrimination requirements.
    The Department also notes that commenters appear to have 
misunderstood its expressed concern in the proposed rule that the 
existence of the referenced complaints and legal actions created a lack 
of predictability and stability for the Department and stakeholders 
with respect to the viability and enforcement of the current Sec.  
75.300(c) and (d) in the proposed rule. 84 FR at 63832. In particular, 
the Department was focused on the situations that had been brought to 
its attention where under the current rule, nonstatutory requirements 
conflict with statutory requirements (e.g., RFRA). It was in this 
context that the Department determined that the adoption of this 
regulatory approach would make compliance more predictable and simple 
for grant recipients, and, thus, control regulatory costs and relieve 
regulatory burden. The final rule is consistent with that comment.

Section 75.305, Payment

    In the proposed rule, the Department proposed to repromulgate Sec.  
75.305 without change. As stated in the proposed rule, the 2016 Rule 
modified the language in Sec.  75.305 to clarify the relation between 
it, the Treasury-State Cash Management Improvement Act, and other 
regulatory provisions. The Department is reaffirming this clarification 
so that all states are aware of the necessity, for example, to expend 
refunds and rebates prior to drawing down additional grant funds. The 
Department repromulgates this provision without change.
    As with the 2016 rulemaking, the Department received no comments on 
this proposal.

Section 75.365, Restrictions on Public Access to Records

    In the proposed rule, the Department proposed to repromulgate this 
section without change. Section 75.365 clarifies the limits on the 
restrictions that can be placed on non-federal entities that limit 
public access to records pertinent to certain federal awards. As stated 
in the proposed rule, it also implements Executive Order 13642 (May 9, 
2013), and corresponding law. See, e.g., https://www.federalregister.gov/documents/2013/05/14/2013-11533/making-open-and-machine-readable-the-new-default-for-government-information/, and 
Departments of Labor, Health, and Human Services, and Education 
Appropriations Act of 2014, Public Law 113-76, Div. H, Sec. 527 
(requiring ``each Federal agency, or in the case of an agency with 
multiple bureaus, each bureau (or operating division) funded under this 
Act that has research and development expenditures in excess of 
$100,000,000 per year [to] develop a Federal research public access 
policy''). The language in this final rule codifies permissive 
authority for the Department's awarding agencies to require public 
access to manuscripts, publications, and data produced under an award, 
consistent with applicable law. The Department repromulgates this 
provision without change.
    As with the 2016 rulemaking, the Department received no comments on 
this proposal.

Section 75.414, Indirect (Facilities and Administration) Costs

    This provision, as published in 2016, restricted indirect cost 
rates for certain grants. The Department is repromulgating this 
provision without change. As stated in the proposed rule, it is long-
standing HHS policy to restrict training grants to a maximum eight 
percent indirect cost rate. In addition to implementing this limit for 
training grants, this section imposes the same limitation on foreign 
organizations and foreign public entities, which typically do not 
negotiate indirect cost rates, and includes clarifying language to 
Sec.  75.414(f), which would permit an entity that had never received 
an

[[Page 2271]]

indirect cost rate to charge a de minimis rate of ten percent, in order 
to ensure that the two provisions do not conflict.\33\ Additionally, 
the American University, Beirut, and the World Health Organization are 
exempted specifically from the indirect-cost-rate limitation because 
they are eligible for negotiated facilities and administration (F&A) 
cost reimbursement. This restriction on indirect costs, as indicated by 
45 CFR 75.101, would flow down to subawards and subrecipients.
---------------------------------------------------------------------------

    \33\ OMB has proposed to change this in its current rulemaking 
on 2 CFR part 200. Should OMB finalize the rule as proposed, the 
Department would implement as appropriate.
---------------------------------------------------------------------------

    The Department received no comments on this provision.
    In repromulgating the provision, the Department makes several minor 
technical corrections to the language, replacing ``training grants'' 
with ``Federal awards for training'' in paragraph (c)(1)(i); replacing 
``grants awarded'' with ``Federal awards'' and deleting an ``and'' in 
subparagraph (c)(1)(ii); and adding ``in this section'' after 
``paragraphs (c)(1)(i) and (ii)'' in paragraph (f).

Section 75.477, Allowability of Costs Pursuant to Affordable Care Act 
Provisions

    The Department proposed to repromulgate only part of current Sec.  
75.477, providing for the exclusion, from allowable costs, of any 
payments imposed on employers for failure to offer employees and their 
dependents the opportunity to enroll in minimum essential coverage. It 
did not propose to repromulgate the exclusion, from allowable costs, of 
any penalties imposed on individuals for failure to maintain minimum 
essential coverage because Congress reduced to zero the penalties 
imposed on individuals as a result of their failure to maintain such 
coverage, effective after December 31, 2018. The Department has since 
learned that payments of the tax penalties assessed for failure to 
comply with the individual shared responsibility prior to 2019 may 
continue, whether as the result of later filing, IRS administrative or 
appeals processes, or litigation in the Tax Court, the Court of Federal 
Claims, or the District Courts. As a result, the Department 
repromulgates Sec.  75.477, with changes. As proposed, the Department 
repromulgates, without change from the proposed rule, the provision 
addressing tax penalties for failure to comply with the employer shared 
responsibility provisions. That provision makes clear that employers 
may not claim as allowable costs any payments imposed under 26 U.S.C. 
4980H for failure to offer employees (and their dependents) the 
opportunity to enroll in minimum essential coverage. However, because 
of the possibility that individuals may still be responsible for 
payments of the tax penalties assessed for failure to comply with the 
individual shared responsibility prior to 2019, the Department 
repromulgates the provision excluding such payments from allowable 
costs, but only with respect to payments incurred as a result of the 
failure to maintain minimum essential coverage prior to January 1, 
2019, the date on which the individual tax penalty was reduced to zero.
    As with the 2016 promulgation of this provision, the Department 
received no comments on this section.

V. Regulatory Impact Analysis

    The Department has examined the impacts of this final rule as 
required by Executive Order 12866 on Regulatory Planning and Review, 58 
FR 51735 (Oct. 4, 1993); Executive Order 13563 on Improving Regulation 
and Regulatory Review, 76 FR 3821 (Jan. 21, 2011); Executive Order 
13771 on Reducing Regulation and Controlling Costs, 82 FR 9339 (Jan. 
30, 2017); the Regulatory Flexibility Act (Pub. L. 96-354, 94 Stat. 
1164 (Sept. 19, 1980) and Executive Order 13272 on Proper Consideration 
of Small Entities in Agency Rulemaking, 67 FR 53461 (Aug. 16, 2002); 
section 202 of the Unfunded Mandates Reform Act of 1995, Public Law 
104-4, 109 Stat. 48 (Mar. 22, 1995); Executive Order 13132 on 
Federalism, 64 FR 43255 (Aug. 4, 1999); Executive Order 13175 on Tribal 
Consultation, 65 FR 67249 (Nov. 6, 2000); the Congressional Review Act 
(Pub. L. 104-121, sec. 251, 110 Stat. 847 (Mar. 29, 1996)); section 654 
of the Treasury and General Government Appropriations Act of 1999; and 
the Paperwork Reduction Act of 1995, 44 U.S.C. 3501, et seq.
Executive Order 12866 and Related Executive Orders on Regulatory Review
    Executive Order 12866 directs agencies to assess all costs and 
benefits of available regulatory alternatives and, if regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public health and safety 
effects; distributive impacts; and equity). Executive Order 13563 is 
supplemental to Executive Order 12866 and reaffirms the principles, 
structures, and definitions governing regulatory review established 
there.
    As explained in the proposed rule and in this final rule, the 
Office of Management and Budget (OMB) has determined this rule is not 
economically significant in that it will not have an annual effect on 
the economy of greater than $100 million dollars in one year. However, 
because the Department determined that this rule is a ``significant 
regulatory action'' under Executive Order 12866, Sec.  3(f)(4), in as 
much as it raises novel legal or policy issues that arise out of legal 
mandates, the President's priorities, or the principles set forth in an 
Executive Order, the Office of Management and Budget has reviewed it. 
Under Executive Order 13563, this rule harmonizes and streamlines 
rules, and promotes flexibility by removing unnecessary burdens.
Summary of and Need for Final Rule
    As the Department noted in the proposed rule, after promulgation of 
the 2016 Rule, non-Federal entities, including States and other grant 
recipients and subrecipients raised concerns about Sec.  75.300(c) and 
(d), contending that the requiring compliance with certain of the 
nonstatutory requirements would violate RFRA or the U.S. Constitution, 
exceed the Department's statutory authority, or reduce the 
effectiveness of the Department's programs. As a result of the 
Department's consideration of these issues, it believes that this final 
rule is needed for a number of reasons, including:
     To restore the Congressionally established balance with 
respect to nondiscrimination requirements. Congress carefully balanced 
the rights, obligations, and goals involved in various Federal grant 
programs when it decided which nondiscrimination provisions to make 
applicable to such programs. The 2016 Rule made a number of 
nondiscrimination requirements, including certain nonstatutory 
nondiscrimination requirements, applicable to all grantees in all 
Departmental grant programs, regardless of whether Congress had made 
such requirements applicable to the grantees in particular Departmental 
programs. Because Congress carefully balanced competing interests, 
rights, and obligation, the Department believes that it is appropriate 
to impose only those nondiscrimination requirements required by the 
Constitution and the federal statutes that are applicable to the 
grantees.
     To avoid RFRA issues. The imposition of certain 
nonstatutory nondiscrimination requirements on certain faith-based 
organizations as recipients or subrecipients in the Department's 
programs would likely

[[Page 2272]]

constitute a substantial burden on their exercise of religion that is 
not the least restrictive means of furthering a compelling government 
interest and, likely, constitute a violation of RFRA. With respect to 
the Title IV-E foster care and adoption program, the Department has 
determined in two contexts that this was the case, and a federal 
district court similarly issued a preliminary injunction against the 
Department's enforcement of such provisions in the case of a faith-
based organization that participates in Michigan's foster care and 
adoption program. The Department believes that this final rule 
constitutes the best way to avoid such burdens on religious exercise.
     To appropriately focus on compliance with applicable 
Supreme Court decisions. The 2016 Rule made two specific Supreme Court 
decisions applicable to all recipients of the Department's grants, 
although those decisions only apply to state actors. The Department is 
committed to complying not just with those decisions, but all 
applicable Supreme Court decisions, which is what this final rule 
provides.
     To limit uncertainty that would decrease the effectiveness 
of the Department's programs. Section 75.300(c) and (d) have raised 
questions about whether the Department exceeded its authority, 
disrupted the balance of nondiscrimination requirements adopted by 
Congress, generated requests for deviations or exceptions and lawsuits 
challenging the provisions, and sowed uncertainty for grant applicants, 
recipients, and subrecipients that could deter participation in 
Department-funded programs and, over time, undermine the effectiveness 
of those programs. The Department is under no legal obligation to 
impose such requirements and, accordingly, believes that it is 
appropriate to remove them in order to avoid such impacts to the 
Department's programs.
     To remove an exclusion from allowable indirect costs to 
the extent that is no longer necessary. The 2016 Rule excludes from 
allowable indirect costs any tax penalty imposed on individuals for 
failure to maintain minimum essential coverage under the ACA. That tax 
penalty has since been reduced to zero, but individuals may still be 
paying such tax penalties. Accordingly, the final rule limits the 
exclusion to tax penalties assessed for failure to maintain such 
coverage prior to January 1, 2019, when the penalty was reduced to 
zero.
    Thus, as discussed in more detail elsewhere in the preamble, this 
final rule would
     Require recipients to comply with applicable federal 
statutory nondiscrimination provisions.\34\
---------------------------------------------------------------------------

    \34\ The final rule would remove the provision which exempted 
the Temporary Assistance for Needy Families program from this 
provision because the changes to the provision render the exemption 
unnecessary.
---------------------------------------------------------------------------

     Provide that HHS complies with applicable Supreme Court 
decisions in administering its award programs.
     Not repromulgate the exclusion from allowable costs of the 
tax penalty, now reduced to zero, imposed on individuals for failure to 
maintain minimum essential coverage, except for tax penalties 
associated with failure to maintain minimum essential coverage prior to 
January 1, 2019, when the tax penalty was reduced to zero.
     Repromulgate without change a provision which established 
that recipients could not include, in allowable costs under HHS grants, 
any tax penalty imposed on an employer for failure to comply with the 
employer mandate under the ACA.
     Repromulgate without change a provision which addressed 
the applicability of certain payment provisions to states.
     Repromulgate without change a provision which authorized 
the grant agency both to require recipients to permit public access to 
various materials produced under a grant and to place restrictions on 
recipients' ability to make public any personally identifiable 
information or other information that would be exempt from disclosure 
under FOIA.
     Repromulgate, with certain technical changes, a provision 
which established limits on the amount of indirect costs allowable 
under certain types of grants.
Alternatives Considered
    The Department carefully considered several alternatives, but 
rejected the potential alternatives for a number of reasons:
     Alternative 1: Not make any changes to the previously 
issued regulatory provisions at issue. The Department concluded that 
this alternative would likely lead to additional legal challenges. 
Moreover, because of the RFRA issues presented by application of 
certain provisions in the section to certain faith-based organizations 
that participate in or seek to participate in Department-funded 
programs or activities, the Department would continue to be faced with 
either litigation over the Department's compliance with RFRA, or 
additional requests for exceptions or deviations from the provisions, 
both of which would require the expenditure of departmental resources 
to address, as well as the expenditure of resources by such faith-based 
organizations that participate in, or seek to participate in, 
Department-funded programs or activities consistent with their 
religious beliefs. Finally, the current requirements, if enforced, 
could have led to the exclusion of certain faith-based organizations 
from participating in the Department's programs as recipients or 
subrecipients and would likely have a negative impact on the 
effectiveness of such programs.
     Alternative 2: Not make any changes to the regulatory 
provisions at issue, but promulgate a regulatory exemption for faith-
based organizations whose religious exercise would be substantially 
burdened by the application of Sec.  75.300(c) and (d) in their current 
form. This would address the RFRA issues presented by application of 
certain provisions in the section to certain faith-based organizations 
that participate in or seek to participate in Department-funded 
programs or activities. However, this approach would not adhere to the 
balance struck by Congress on nondiscrimination provisions applicable 
to Department grant programs and, thus, would raise competing concerns 
that might require careful balancing.
     Alternative 3: Revise Sec.  75.300(c) and (d) to enumerate 
all applicable nondiscrimination provisions and the programs and 
recipients/subrecipients to which the nondiscrimination provisions 
would apply. This alternative would require the Department to update 
the provision every time Congress created a new program for the 
Department to implement, adopted new nondiscrimination provisions, or 
revised existing nondiscrimination provisions. Moreover, since Sec.  
75.300(a) already requires the grantmaking agency to communicate to 
awardees all relevant public policy requirements, including 
specifically all nondiscrimination requirements (and incorporate them 
either directly or by reference in the terms and conditions of the 
Federal award), this alternative would provide no new benefits to the 
recipients of grants from the Department's grantmaking agencies.
Expected Benefits and Costs of the Final Rule
    The Department expects several benefits from this final rule. The 
final rule will better align the regulation to the statutory 
requirements adopted by Congress. This provides covered entities

[[Page 2273]]

more clarity and stability concerning the requirements applicable to 
them. The final rule better ensures compliance with RFRA, and allows 
the Department to avoid some situations where a substantial burden on 
religious exercise may be applied by requirements that flow from the 
Department but not from a statute. The final rule will reduce 
litigation and associated costs, both to the government and to covered 
entities, resulting from challenges to nonstatutory public policy 
requirements. The final rule relieves administrative burdens on covered 
entities by removing certain requirements that go beyond those mandated 
by statute. As a result, the final rule enables the participation of 
faith-based organizations that participate in or seek to participate in 
Department-funded programs or activities. In turn, the Department 
expects the final rule will avoid the negative impact that the current 
regulations, if fully implemented, may have on the effectiveness of the 
Department's programs. For example, the Department expects the final 
rule will avoid reducing participation rates in the Department's 
programs by entities that object to the current regulations. The 
Department believes some of those entities have been effective in 
providing a significant number and percentage of services in such 
programs, so the Department expects this rule will avoid a reduction in 
the effectiveness of the Department's programs and in the number of 
beneficiaries served overall.
    As the Department noted in the regulatory impact analysis in the 
proposed rule and in this final rule, with respect to the Regulatory 
Flexibility Act (and as the Department reiterates below in response to 
comments), the Department does not believe that there will be any 
direct costs or economic impact associated with final rule, apart from 
potential administrative costs to grantees to become familiar with the 
requirements of the final rule.
    The Department received comments on the Department's compliance 
with Executive Order 12866.
    Comments: Several commenters contended that the Department had 
failed to conduct an adequate cost-benefit analysis for the proposed 
rule. Several commenters asserted that the Department had failed to 
consider the health and financial costs from the proposed rule; others 
alleged that the Department had failed to consider the impacts and 
harms that would flow from the proposed rule. One commenter alleged the 
proposed rule lacked a holistic analysis of risks and benefits of the 
proposed rule to small business or the foster care system. Another 
complained that the Department had not explained why the proposed rule 
was a significant regulatory action under Executive Order 12866, but 
not economically significant.
    Response: The Department respectfully disagrees with commenters. 
First, the Department does not believe the final rule imposes the costs 
and harms that some commenters allege. While commenters opposing the 
revisions argued that the final rule would permit grantees and 
subrecipients to discriminate against LGBT individuals, women, and 
other vulnerable populations and negatively affect the health or well-
being of such individuals who would be discouraged from seeking 
services from secular service providers, the Department does not 
believe that such discrimination is widespread in its programs (or 
would be widespread in its programs in the absence of the nonstatutory 
nondiscrimination requirements), nor that the final rule would lead to 
a reduction in services provided overall--or, as explained below, that 
this final rule would necessarily cause a change in the composition of 
participants in Department-funded programs. For example, as discussed 
above in cases concerning Title IV-E foster care and adoption programs, 
the Department is aware that various entities will provide services 
only to persons of their religion, or to persons having a certain 
marital status, but the Department is also aware that other entities in 
such programs have been available to provide services to parents with 
whom a specific provider will not work. On the other hand, the entities 
of which the Department is aware that will only work with limited 
categories of parents often place many children, and if they were 
forced to leave the program because of the current regulations, the 
overall number of children placed would likely drop.
    With respect to the requirements imposed by current Sec.  75.300(c) 
and (d) to comply with certain nonstatutory nondiscrimination 
requirements, the Department notes that these requirements of the 2016 
rule became effective in January 2017, coinciding with the change in 
Administration. As a result of changes in compliance and enforcement 
priorities, the Department and its grantmaking agencies did not make, 
and have not made, any concerted effort to obtain recipient compliance 
with the nonstatutory nondiscrimination provisions since the 2016 rule 
became effective, and have not taken steps to enforce compliance with 
such requirements. In addition, in January 2019, the Department issued 
an exception to the State of South Carolina with respect to one of the 
nonstatutory nondiscrimination requirements, recognizing that requiring 
the State's compliance with respect to certain faith-based 
organizations would violate RFRA. In September 2019, a federal district 
court preliminarily enjoined the Department from enforcing Sec.  
75.300(c) with respect to the plaintiffs as a violation of RFRA. And on 
November 1, 2019, the Department announced that it would not be 
enforcing the provisions of the 2016 rule, including the nonstatutory 
nondiscrimination requirements, pending repromulgation of the 
provisions. In light of this sequence of events, the Department 
believes that its recipients fall into one of several categories:
     Recipients that adopted the nondiscrimination practices 
prior to the 2016 rule, voluntarily or as a result of state or local 
law. These recipients' observance of nonstatutory nondiscrimination 
requirements is, thus, not the result of the 2016 rule. Because this 
final rule merely removes the regulatory requirement to comply with the 
nonstatutory nondiscrimination provisions, recipients remain free to 
observe such nondiscrimination practices, consistent with their other 
legal and/or constitutional obligations. And the Department anticipates 
that recipients in this category are likely to continue to observe such 
practices.
     Recipients that had not adopted the nondiscrimination 
practices prior to the 2016 rule and still have not adopted such 
practices, despite the 2016 rule's nonstatutory nondiscrimination 
requirements, in some instances because of the concerns outlined in the 
proposed rule and this final rule with respect to such requirements. 
The Department knows that there are grantees that are in this category. 
Since this final rule removes the requirement to comply with such 
nonstatutory nondiscrimination provisions, the Department expects that 
these grantees will continue to do what they have been doing--and, 
thus, will not change any behavior as a result of the final rule.
     Recipients that had not adopted the nondiscrimination 
practices prior to the 2016 rule, but have complied with the 
nonstatutory nondiscrimination provisions since then. The Department 
acknowledges that there could be some grantees that are in this 
category, although it is not specifically aware of any. To the extent 
that any grantees fall into such category, it seems likely that many 
would continue to follow such

[[Page 2274]]

nondiscrimination practices, voluntarily or because of new or newly 
enforced state or local laws. The Department reaches that conclusion 
because, to the extent that grantees knew about the nonstatutory 
nondiscrimination requirements imposed by the 2016 rule at the time it 
was promulgated and had any concerns about them, such grantees or 
prospective grantees would most likely have taken a ``wait and see'' 
approach to the Department's interpretation and enforcement of such 
provisions. They would thus have fallen within the category described 
in the previous bullet. The same would likely be the case with respect 
to such grantees that learned of the 2016 rule only after the fact--for 
example, as a result of coverage of the State of South Carolina's 
February 2018 request for a deviation from certain requirements in 
Sec.  75.300(c) and (d). Absent specific concerns about complying with 
those nonstatutory requirements, the Department sees little reason that 
grantees would change course yet again.

Thus, apart from the familiarization costs, the Department concludes 
that there will be no economic impact associated with Sec.  75.300(c) 
and (d).
    For significant regulatory actions, Executive Order 12866 requires 
``an assessment, including the underlying analysis,'' of benefits and 
costs ``anticipated from the regulatory action.'' Executive Order 
12866, Sec. Sec.  6(a)(3)(C), 3(f)(1). The Department provides such an 
assessment here and provided one in the proposed rule. Furthermore, the 
APA requires agencies to base their decisions ``on consideration of the 
relevant factors,'' State Farm, 463 U.S. 29, 42 (1983), but it does not 
require them to ``conduct a formal cost-benefit analysis in which each 
advantage and disadvantage is assigned a monetary value,'' Michigan v. 
EPA, 135 S. Ct. 2699, 2711 (2015), or assess the relevant factors in 
quantitative terms, Ranchers Cattlemen Action Legal Fund v. USDA, 415 
F.3d 1078, 1096-97 (9th Cir. 2005). The Department noted in the 
proposed rule that it would harmonize and streamline rules and promote 
flexibility by removing unnecessary burdens. It similarly noted that 
most of the provisions of the proposed rule have been operational since 
2016, and that where the Department proposed to amend the 2016 
provisions, grantees were already subject to the requirements that were 
proposed, so grantees would not need to make any changes to their 
current practice in response to the rulemaking. Although the Department 
received comments asserting that particular harms--for example, 
discrimination against particular groups of beneficiaries--would flow 
from the removal of the provisions, the Department did not identify 
such problems prompting its promulgation of Sec.  75.300(c) and (d) in 
2016, and the commenters did not provide evidence to suggest that such 
problems would occur after promulgation of this final rule.
    Finally, the Department believes that this final rule will impose 
only de minimis costs, if any, on covered entities. This final rule 
relieves regulatory burdens by removing requirements on recipients and 
subrecipients in Sec.  75.300(c) that are not imposed by statute, and 
eliminate the burden imposed on faith-based organizations that 
participate in the Department's programs to seek an exception from 
certain nonstatutory nondiscrimination imposed by the 2016 rule through 
litigation or the exception process in Sec.  75.102(b), as well as the 
expenses that the Department would incur in addressing such litigation 
or exceptions requests. Therefore, as a qualitative matter, the final 
rule could be seen as relieving burdens and costs rather than imposing 
them. Because the final rule does not impose any new regulatory 
requirements, recipients and subrecipients should not incur any new or 
additional compliance costs. Nor does the Department believe covered 
entities would necessarily incur any more than de minimis costs to 
review this rule. Recipients are already required by Sec.  75.300(a) 
and (b) and other regulatory provisions to comply with statutory 
nondiscrimination requirements and ensure their subrecipients and their 
programs are in compliance. Pursuant to Sec.  75.300(a), the 
Department's grantmaking agencies are required to inform applicants for 
grants and recipients in notices of funding opportunities and award 
notices of applicable statutory and regulatory requirements, including, 
specifically, the nondiscrimination requirements applicable to the 
grant program. Therefore, as a practical matter, grantees and 
recipients may rely on these communications to inform them of the legal 
and regulatory requirements applicable to the programs in which they 
participate.
    However, as a standard practice, the Department considers 
regulatory familiarization costs in its regulatory impact analyses. 
Although the Department issues many grants on an annual basis, many 
recipients receive multiple grants. Thus, based on information in the 
Department's Tracking Accountability in Government Grant Spending 
(TAGGS) system, the Department estimates that it has a total of 12,202 
grantees.\35\ Depending on the grantee, the task of familiarization 
could potentially fall to the equivalent of (1) a lawyer (hourly rate: 
Median $59.11, mean $69.86); (2) a general/operations manager (hourly 
rate: Median $48.45, mean $59.15); (3) a medical and health services 
manager (hourly rate: Median $48.55, mean $55.37); (4) a compliance 
officer (hourly rate: Median $33.02, mean $35.03); or (5) a social and 
community service manager (hourly rate: Median $32.28, mean 
$35.05).\36\ Averaging these rates leads to a median hourly rate of 
$44.28 and mean hourly rate of $50.89. The Department assumes that the 
total dollar value of labor, which includes wages, benefits, and 
overhead, is equal to 200% of the wage rate, or $88.56 (median) and 
$101.78 (mean). The changes made by the final rule are straight forward 
and easy to understand--and the Department anticipates that 
professional organizations, trade associations and other interested 
groups may prepare summaries of the rule. Accordingly, the Department 
estimates that it would take a grantee approximately an hour to become 
familiar with the final rule's requirements. The Department, thus, 
concludes that the cost for grantee familiarization with the final rule 
would total $1,080,609.12 (median) or $1,241,919.56 (mean).
---------------------------------------------------------------------------

    \35\ Based on unique DUNS numbers, the Department had 11,749 
recipients in 2017, 12,333 recipients in 2018, and 12,523 recipients 
in 2019, for an average of 12,202.
    \36\ U.S. Bureau of Labor Statistics, May 2019 National 
Occupational Employment and Wage Estimates United States, available 
at https://www.bls.gov/oes/current/oes_nat.htm.
---------------------------------------------------------------------------

    The Department does not believe that covered entities will incur 
training costs under Sec.  75.300(c) and (d) of this rule. Section 
75.300(c) only applies requirements to the extent imposed by statute, 
and recipients and subrecipients are already required to comply with 
such statutory requirements under Sec.  75.300(a) and (b) and other 
statutes and regulations. Section 75.300(d) does not impose 
requirements that recipients or subrecipients need to review, but makes 
a general statement about the Department's compliance with applicable 
Supreme Court cases in its award programs, without requiring 
familiarity with any particular case on the part of recipients or 
subrecipients. In both respects, Sec.  75.300(c) and (d) of this final 
rule impose requirements that may be simpler and easier to understand 
than the current regulation.\37\
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    \37\ The Department notes that Executive Order 12866 ``is 
intended only to improve the internal management of the Federal 
Government and does not create any right or benefit, substantive or 
procedural, enforceable at law or equity by a party against the 
United States, its agencies or instrumentalities, its officers or 
employees, or any other person.'' Executive Order 12866, Sec.  10, 
58 FR 51735 (Oct. 4, 1993).

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[[Page 2275]]

Executive Order 13771
    The White House issued Executive Order 13771 on Reducing Regulation 
and Controlling Regulatory Costs on January 30, 2017. Section 2(a) of 
Executive Order 13771 requires an agency, unless prohibited by law, to 
identify at least two existing regulations to be repealed when the 
agency publicly proposes for notice and comment or otherwise 
promulgates a new regulation. In furtherance of this requirement, Sec.  
2(c) of Executive Order 13771 requires that the new incremental costs 
associated with new regulations shall, to the extent permitted by law, 
be offset by the elimination of existing costs associated with at least 
two prior regulations. Guidance from OMB indicates this offset 
requirement applies to Executive Order 13771 regulatory actions. This 
rulemaking, while significant under Executive Order 12866, will impose 
at most de minimis costs and, therefore, is not either a regulatory 
action or deregulatory action under Executive Order 13771.
Regulatory Flexibility Act and Executive Order 13272
    The Department has examined the economic implications of this final 
rule as required by the Regulatory Flexibility Act (RFA), 5 U.S.C. 601-
612. The RFA requires agencies to analyze regulatory options that would 
minimize any significant impact of a rule on small entities. The RFA 
generally requires that when an agency issues a proposed rule, or a 
final rule that the agency issues under 5 U.S.C. 553 after being 
required to publish a general notice of proposed rulemaking, the agency 
must prepare a regulatory flexibility analysis that meets the 
requirements of the RFA and publish such analysis in the Federal 
Register--unless the agency expects that the rule will not have a 
significant impact on a substantial number of small entities, provides 
a factual basis for this determination, and certifies the statement. 5 
U.S.C. 603, 604, 605(b). If an agency must provide a regulatory 
flexibility analysis, this analysis must address the consideration of 
regulatory options that would lessen the economic effect of the rule on 
small entities. For purposes of the RFA, ``small entities'' include 
proprietary firms meeting the size standards of the Small Business 
Administration (SBA); \38\ nonprofit organizations that are not 
dominant in their fields; and small governmental jurisdictions with 
populations of less than 50,000. 5 U.S.C. 601(3)-(6). States and 
individuals are not small entities. The Department considers a rule to 
have a significant impact on a substantial number of small entities if 
it has at least a three percent impact on revenue on at least five 
percent of small entities.
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    \38\ In the health care and social assistance sector, from which 
the Department draws most of its grantees, SBA considers businesses 
to be small by virtue of having less than between $8.0 million and 
$41.5 million in average annual revenues, depending on the 
particular type of business. See U.S. Small Business Administration, 
Table of Small Business Size Standards Matched to North American 
Industry Classification System Codes, effective August 19, 2019 
(sector 62), available at https://www.sba.gov/sites/default/files/2019-08/SBA%20Table%20of%20Size%20Standards_Effective%20Aug%2019%2C%202019_Rev.pdf. In as much as colleges, universities and professional schools 
(e.g., medical schools) and other educational institutions may 
receive Department funding, the other sector from which the 
Department may draw grantees is the educational services sector, 
where the relevant small business sizes range from $12.0 million to 
$30.0 million in annual revenues. Id. (sector 61).
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    Executive Order 13272 on Proper Consideration of Small Entities in 
Agency Rulemaking reinforces the requirements of the RFA and requires 
the Department to notify the Chief Counsel for Advocacy of the Small 
Business Administration if the final rule may have a significant 
economic impact on a substantial number of small entities under the 
RFA. Executive Order 13272, 67 FR 53461 (Aug. 16, 2002).
    As discussed, this final rule would
     Require recipients to comply with applicable federal 
statutory nondiscrimination provisions.
     Provide that HHS complies with applicable Supreme Court 
decisions in administering its award programs.
     Not repromulgate the exclusion from allowable costs of the 
tax penalty, now reduced to zero, imposed on individuals for failure to 
maintain minimum essential coverage, except for tax penalties 
associated with failure to maintain minimum essential coverage prior to 
January 1, 2019, when the tax penalty was reduced to zero.
     Otherwise re-promulgate the provisions of the 2016 rule.
    The Department's grantees include state and local governments; 
state and local health and human services agencies; public and private 
colleges and universities; nonprofit organizations in the health and 
social services areas, including both secular and faith-based 
organizations; and certain health care providers. Because this final 
rule would apply to all grantees, affected small entities include all 
small entities that apply for the Department's grants; these small 
entities operate in a wide range of areas involved in the delivery of 
health and human services. It is important to note, however, that the 
RFA does not require that an entity assess the impact of a rule on all 
small entities that may be affected by the rule, but only those 
directly regulated by the rule. See National Women, Infants, and 
Children Grocers Ass'n et al. v. Food and Nutrition Service, 416 F. 
Supp. 2d 92, 108-110 (D.D.C. 2006).
    With respect to the changes that the final rule makes to Sec.  
75.300(c) and (d): The adoption of amendments to Sec.  75.300(c) and 
(d) do not impose any new regulatory requirements on recipients. 
Recipients are currently required to comply with applicable federal 
statutory nondiscrimination provisions by operation of such laws and 
pursuant to 45 CFR 75.300(a); the Department is currently required to 
comply with applicable Supreme Court decisions. As discussed above, 
apart from the potential familiarization costs, the Department does not 
believe that there will be any economic impact associated with these 
amendments.
    With respect to the repeal of the allowable cost exclusion for the 
tax penalty for failure to comply with the individual shared 
responsibility provision: When the Department imposed this allowable 
cost exclusion, individuals were subject to a tax penalty or assessment 
for failure to maintain health insurance that constituted minimum 
essential coverage. Congress has since reduced to zero such tax 
penalties or assessments, effective after December 31, 2018. While the 
individual tax penalty for failure to comply with the individual shared 
responsibility provision has been reduced to zero, the Department has 
been informed that individuals may still be paying assessed tax 
penalties for failure to maintain minimum essential coverage prior to 
January 1, 2019. The Department had proposed to eliminate the provision 
because it seemed unnecessary to maintain a provision with respect 
payments of penalties that had been reduced to zero. Since some 
individuals may still be paying such assessments, the Department is 
repromulgating the provision, but limited to tax penalties for failure 
to maintain coverage prior to January 1, 2019, when the penalty was 
reduced to zero. Because this does not represent a change of the 
requirement imposed under the 2016 rule with respect to periods for 
which a non-zero tax penalty could be assessed, there should be no 
economic impact associated with re-imposing an allowable costs 
exclusion for such payments.

[[Page 2276]]

    With respect to the provisions being repromulgated without change: 
These provisions of the final rule have been operational since the 
publication of the 2016 rule. As a result, as noted in the proposed 
rule, recipients, including small entities, will not need to make any 
changes to their current practice in response to this final rule. 
Accordingly, there should be no economic impact associated with the 
repromulgation of these provisions.
    In light of the foregoing, the Department anticipates that this 
final rule will have no impact beyond providing information to the 
public. The Department anticipates that this information will allow 
affected entities to better deploy resources in line with established 
requirements for its recipients, while reducing administrative burdens 
related to litigation and waiver requests. Thus, grantees will be able 
to better prioritize resources towards providing services consistent 
with their mission and grant. As a result, the Department has 
determined, and the Secretary certifies, that this final rule will not 
have a significant impact on the operations of a substantial number of 
small entities.
    The Department asked for comments on the impact of the proposed 
rule on small entities under the Regulatory Flexibility Act, as well as 
the comparative effects and impacts of the situation if the Department 
were to fully enforce the provisions of the 2016 rule as compared to 
the situation if the Department were to fully exercise its enforcement 
discretion with respect to the 2016 rule. The Department received a 
number of comments on the RFA analysis.\39\
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    \39\ Many commenters disagreed with the Department's decision to 
exercise enforcement discretion with respect to the provisions of 
the 2016 rule, pending repromulgation, as a result of its concerns 
about the rule's compliance with the Regulatory Flexibility Act. As 
such comments are beyond the scope of the proposed rule, the 
Department does not respond to them.
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    Comments: Several commenters opposing the proposed rule contended 
that the Department had failed to conduct the required cost-benefit 
analysis necessary to sustain the proposed rule. Some commenters 
contended that the Department did not properly conduct a cost benefit 
and risk analysis of potential affected entities. Several commenters 
asserted that such a cost-benefit analysis would have to consider the 
health and financial costs from the proposed rule. One commenter 
alleged the proposed rule lacked a holistic analysis of risks and 
benefits of the proposed rule to small business or the foster care 
system.
    Response: The Department respectfully disagrees with commenters. 
With respect to the RFA, the Department did fully consider whether the 
proposed rule's changes would have a significant impact on a 
substantial number of small entities. It reviewed the evidence and 
concluded that it would not--and provided a statement in the proposed 
rule with the factual bases for its conclusion. Very few commenters 
addressed the effect of the proposed rule on small entities, with most 
arguing that the Department should have considered the impact on 
individuals and entities other than the Department's recipients. 
However, the RFA requires the Department to consider the impact only on 
small entities directly regulated by the rule; it does not require 
consideration of the rule on all small entities potentially indirectly 
affected by it. See National Women, Infants, and Children Grocers 
Ass'n, 416 F. Supp. 2d at 108-110 (rule only applied to state agencies, 
not to small businesses, such as WIC-only vendors, so federal agency 
properly certified that rule would not have a significant impact on a 
substantial number of small entities). Nor does the RFA require 
consideration of the impact on individuals since individuals do not 
constitute small entities as such term is defined in the RFA.
Unfunded Mandates Reform Act
    Section 202 of the Unfunded Mandates Reform Act of 1995 (Unfunded 
Mandates Act), 2 U.S.C. 1532, requires that covered agencies prepare a 
budgetary impact statement before promulgating a rule that includes any 
Federal mandate that may result in the expenditure by State, local, and 
tribal governments, in the aggregate, or by the private sector, of $100 
million in 1995 dollars, updated annually for inflation. Currently, 
that threshold is approximately $154 million. If a budgetary impact 
statement is required, section 205 also requires covered agencies to 
identify and consider a reasonable number of regulatory alternatives 
before promulgating a rule. The Department has determined that this 
final rule will not result in expenditures by State, local, and tribal 
governments, or by the private sector, of $154 million or more in any 
one year. Accordingly, the Department has not prepared a budgetary 
impact statement or specifically addressed the regulatory alternatives 
considered.
Executive Order 13132, Federalism
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it issues a rule that imposes substantial direct 
requirement costs on State and local governments, preempts State law, 
or otherwise has Federalism implications. Executive Order 13132, 64 FR 
43255 (Aug. 4, 1999). The Department does not believe that this final 
rule would (1) impose substantial direct requirements costs on State or 
local governments; (2) preempt State law; or (3) otherwise have 
Federalism implications.
    Executive Order 12866 directs that significant regulatory actions 
avoid undue interference with State, local, or tribal governments, in 
the exercise of their governmental functions. Executive Order 12866 at 
6(a)(3)(B). Executive Order 13175 further directs that Agencies respect 
Indian tribal self-government and sovereignty, honor tribal treaty and 
other rights, and strive to meet the responsibilities that arise from 
the unique legal relationship between the Federal Government and Indian 
tribal governments. Executive Order 13175 at 2(a). The Department does 
not believe that the final rule would implicate the requirements of 
Executive Orders 12866 and 13175 with respect to tribal sovereignty.
    The final rule maintains the full force of statutory civil rights 
laws protections against discrimination, but does not attempt to impose 
a ceiling on how those protections may be observed by States. 
Consistent with their other constitutional and legal obligations, State 
and local jurisdictions will continue to have the flexibility to impose 
additional civil rights protections. Therefore, the Department has 
determined that this final rule does not have sufficient Federalism 
implications to warrant the preparation of a Federalism summary impact 
statement under Executive Order 13132, and that the rule would not 
implicate the requirements of Executive Orders 12866 and 13175 with 
respect to tribes.
    The Department received several comments on its Executive Order 
13132 analysis.
    Comments: One commenter argued that the Department had not complied 
with Executive Order 13132. Other commenters claimed that the proposed 
rule creates conflicts between federal, state, and local law.
    Response: The Department respectfully disagrees. The proposed rule, 
and this final rule, do not impose any substantial direct requirements 
on State and local governments that do not already exist, nor does it 
preempt or conflict with State or local laws. A conflict arises when an 
entity cannot comply with two different laws. The Department's action 
here merely removes certain regulatory requirements

[[Page 2277]]

for which it lacked legal authority. Consistent with their other 
constitutional and legal obligations, State and local jurisdictions 
will continue to have the flexibility to impose additional civil rights 
protections. And, consistent with their other legal obligations, 
regulated entities are free to comply with such additional civil rights 
protections.
Congressional Review Act
    The Congressional Review Act (CRA) defines a ``major rule'' as 
``any rule that the Administrator of the Office of Information and 
Regulatory Affairs (OIRA) of the Office of Management and Budget finds 
has resulted in or is likely to result in--(A) an annual effect on the 
economy of $100,000,000 or more; (B) a major increase in costs or 
prices for consumers, individual industries, Federal, State, or local 
government agencies, or geographic regions; or (C) significant adverse 
effects on competition, employment, investment, productivity, 
innovation, or on the ability of United States-based enterprises to 
compete with foreign-based enterprises in domestic and export 
markets.'' 5 U.S.C. 804(2). Based on the analysis of this final rule 
under Executive Order 12866, OMB has determined that this final rule is 
not likely to result in an annual effect of $100,000,000 or more, and 
is not otherwise a major rule for purposes of the Congressional Review 
Act.
Assessment of Regulation and Policies on Families
    Section 654 of the Treasury and General Government Appropriations 
Act of 1999 \40\ requires Federal departments and agencies to determine 
whether a proposed policy or regulation could affect family well-
being.\41\ If the determination is affirmative, then the Department or 
agency must prepare an impact assessment to address criteria specified 
in the law.\42\ In the proposed rule, the Department determined that 
the proposed rule would not have an impact on family well-being, as 
defined in section 654.
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    \40\ Public Law 105-277, Div. A, Sec.  654, 112 Stat. 2681-480, 
2681-528 (Oct. 21, 1998), codified at 5 U.S.C. 601 note.
    \41\ Before implementing regulations that may affect family 
well-being, an agency is required to assess the actions as to 
whether the action
    (1) strengthens or erodes the stability or safety of the family 
and, particularly, the marital commitment;
    (2) strengthens or erodes the authority and rights of parents in 
the education, nurture, and supervision of their children;
    (3) helps the family perform its functions, or substitutes 
governmental activity for the function;
    (4) increases or decreases disposable income or poverty of 
families and children;
    (5) action`s proposed benefits justify the financial impact on 
the family;
    (6) may be carried out by State or local government or by the 
family; and
    (7) establishes an implicit or explicit policy concerning the 
relationship between the behavior and personal responsibility of 
youth, and the norms of society.
    5 U.S.C. 601 (note).
    \42\ If a regulation may affect family well-being, the head of 
the agency is required to submit a written certification to the 
director of OMB and to Congress that the regulation has been 
assessed and to provide an adequate rationale for implementation of 
a regulation that may negatively affect family well-being. Id.
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    The Department received many comments on its initial family well-
being impact analysis, or on the likely impact of the proposed rule on 
the well-being of children in need of foster care or other services. 
After considering the comments, the Department concludes that the final 
rule will not have an impact on family well-being as defined in section 
654.
    Comment: Several commenters argued that, since the proposed rule 
rolls back nondiscrimination protections, it will have significant 
impacts on family well-being across a range of the Department's 
programs because it will affect access to programs for which they would 
otherwise be eligible. They suggested individual impact assessments 
were necessary for, among others, Head Start Programs, Refugee 
Resettlement, and caregiver support programs. Commenters also believed 
the family well-being analysis required an assessment of the impact for 
populations under the rule, including LGBT beneficiaries. At least some 
of the comments seem based on the premise that, under the proposed 
rule, religious or faith-based organizations would discriminate and, 
for example, reject prospective foster and adoptive families, to the 
detriment of children, including LGBTQ children, in need of foster or 
adoptive placements in loving families.
    Other commenters supported the proposed rule, arguing that society 
needed as many agencies working on behalf of children as possible and 
that the proposed rule would prevent discrimination in the Department's 
programs by permitting religious and faith-based organizations to 
participate in Department-funded programs.
    Response: The Department respectfully disagrees with commenters who 
argued that the proposed rule (and this final rule) would have a 
negative effect on family well-being, as defined in section 654. The 
Department rejects commenters' view that, under the rule, vulnerable 
families or populations will experience discrimination, or be denied 
services in Department-funded programs for which they are otherwise 
eligible. Commenters offered little evidence that this was the case 
before the current Sec.  75.300(c) and (d) became effective, and the 
Department has no evidence supporting the belief that this will occur 
as a result of the final rule. Many commenters focused on child welfare 
programs and the foster care and adoption systems. Based on the 
information before the Department, as well as the Department's 
experience and expertise, the Department believes that the final rule 
will enable faith-based child placement agencies--which are critical 
providers and partners in caring for vulnerable children and have a 
long and successful history of placing children (including older 
children, children with health conditions and sibling groups, all of 
whom are more difficult to place) with loving families--to continue 
their service. Based on its experience and expertise, the Department 
believes that the result will be more, rather than fewer, child 
placement agencies and more, rather than fewer, options for children in 
need of loving homes. Furthermore, it is the Department's understanding 
that the participation of faith-based child placement organizations 
will not affect the availability of secular child placement 
organizations that are able to work with prospective foster and 
adoptive parents and families with whom some faith-based organizations 
cannot work. States work with both faith-based child placement 
organizations and secular child-placement organizations.
Paperwork Reduction Act
    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3506; 5 CFR part 1320 appendix A.1), the Department has reviewed this 
final rule and has determined that there are no new collections of 
information contained therein.

List of Subjects in 45 CFR Part 75

    Administrative Practice and Procedure, Federal aid programs, Grants 
Programs, Grants Administration, Cost Principles, state and local 
governments.

    Dated: January 5, 2021.
Alex M. Azar II,
Secretary, Department of Health and Human Services.

    Therefore, under the authority of 5 U.S.C. 301 & 2 CFR part 200, 
and for the reasons stated in the preamble, the Department of Health 
and Human Services amends 45 CFR part 75 as follows:

[[Page 2278]]

PART 75--UNIFORM ADMINISTRATIVE REQUIREMENTS, COST PRINCIPLES, AND 
AUDIT REQUIREMENTS FOR HHS AWARDS

0
1. The authority citation for 45 CFR part 75 is revised to read as 
follows:

    Authority: 5 U.S.C. 301; 2 CFR part 200.


Sec.  75.101   [Amended]

0
2. Amend Sec.  75.101 by removing paragraph (f).

0
3. Amend Sec.  75.300 by revising paragraphs (c) and (d) to read as 
follows:


Sec.  75.300   Statutory and national policy requirements.

* * * * *
    (c) It is a public policy requirement of HHS that no person 
otherwise eligible will be excluded from participation in, denied the 
benefits of, or subjected to discrimination in the administration of 
HHS programs and services, to the extent doing so is prohibited by 
federal statute.
    (d) HHS will follow all applicable Supreme Court decisions in 
administering its award programs.

0
5. Amend Sec.  75.305 by revising paragraph (a) to read as follows:


Sec.  75.305   Payment.

    (a)(1) For States, payments are governed by Treasury-State CMIA 
agreements and default procedures codified at 31 CFR part 205 and TFM 
4A-2000 Overall Disbursing Rules for All Federal Agencies.
    (2) To the extent that Treasury-State CMIA agreements and default 
procedures do not address expenditure of program income, rebates, 
refunds, contract settlements, audit recoveries and interest earned on 
such funds, such funds must be expended before requesting additional 
cash payments.
* * * * *

0
6. Revise Sec.  75.365 to read as follows:


Sec.  75.365   Restrictions on public access to records.

    Consistent with Sec.  75.322, HHS awarding agencies may require 
recipients to permit public access to manuscripts, publications, and 
data produced under an award. However, no HHS awarding agency may place 
restrictions on the non-Federal entity that limits public access to the 
records of the non-Federal entity pertinent to a Federal award 
identified in Sec. Sec.  75.361 through 75.364, except for protected 
personally identifiable information (PII) or when the HHS awarding 
agency can demonstrate that such records will be kept confidential and 
would have been exempted from disclosure pursuant to the Freedom of 
Information Act (5 U.S.C. 552) (FOIA) or controlled unclassified 
information pursuant to Executive Order 13556 if the records had 
belonged to the HHS awarding agency. The FOIA does not apply to those 
records that remain under a non-Federal entity's control except as 
required under Sec.  75.322. Unless required by Federal, State, local, 
or tribal statute, non-Federal entities are not required to permit 
public access to their records identified in Sec. Sec.  75.361 through 
75.364. The non-Federal entity's records provided to a Federal agency 
generally will be subject to FOIA and applicable exemptions.

0
7. Amend Sec.  75.414 by revising paragraphs (c)(1)(i) through (iii) 
and the first sentence of paragraph (f) to read as follows:


Sec.  75.414   Indirect (F&A) costs.

* * * * *
    (c) * * *
    (1) * * *
    (i) Indirect costs on Federal awards for training are limited to a 
fixed rate of eight percent of MTDC exclusive of tuition and related 
fees, direct expenditures for equipment, and subawards in excess of 
$25,000;
    (ii) Indirect costs on Federal awards to foreign organizations and 
foreign public entities performed fully outside of the territorial 
limits of the U.S. may be paid to support the costs of compliance with 
federal requirements at a fixed rate of eight percent of MTDC exclusive 
of tuition and related fees, direct expenditures for equipment, and 
subawards in excess of $25,000; and
    (iii) Negotiated indirect costs may be paid to the American 
University, Beirut, and the World Health Organization.
* * * * *
    (f) In addition to the procedures outlined in the appendices in 
paragraph (e) of this section, any non-Federal entity that has never 
received a negotiated indirect cost rate, except for those non-Federal 
entities described in paragraphs (c)(1)(i) and (ii) of this section and 
section (D)(1)(b) of appendix VII to this part, may elect to charge a 
de minimis rate of 10% of modified total direct costs (MTDC) which may 
be used indefinitely. * * *
* * * * *

0
8. Revise Sec.  75.477 to read as follows:


Sec.  75.477   Shared responsibility payments.

    (a) Payments for failure to maintain minimum essential health 
coverage. Any payments or assessments imposed on an individual or 
individuals pursuant to 26 U.S.C. 5000A(b) as a result of any failure 
to maintain minimum essential coverage as required by 26 U.S.C. 
5000A(a) with respect to any period prior to January 1, 2019, are not 
allowable expenses under Federal awards from an HHS awarding agency.
    (b) Payments for failure to offer health coverage to employees. Any 
payments or assessments imposed on an employer pursuant to 26 U.S.C. 
4980H as a result of the employer's failure to offer to its full-time 
employees (and their dependents) the opportunity to enroll in minimum 
essential coverage under an eligible employer-sponsored plan are not 
allowable expenses under Federal awards from an HHS awarding agency.

[FR Doc. 2021-00207 Filed 1-7-21; 4:15 pm]
BILLING CODE 4150-24-P