The "charitable choice" provision in the 1996 Federal welfare reform law gave States the opportunity to contract directly with faith-based organizations (i.e., churches, mosques, and temples) and to compete for government funding on a level playing field with other not-for-profit organizations. Recently, President Bush's emphasis on faith-based service providers has increased awareness in the States and sparked many debates on the role of sectarian organizations in welfare reform. In their 2001 sessions, several State legislatures weighed the value of engaging faith organizations against concerns about how to build their capacity to administer and provide services, challenges to maintaining accountability in contracting, and questions about the separation of church and state. Proponents of "charitable choice" argue that sectarian organizations are uniquely qualified in their ability to connect with the needs of local residents and provide support on an as-needed basis. They are also capable of providing holistic services that cannot be offered by government agencies; i.e., they provide ongoing emotional and spiritual support. If a faith-based organization does apply for and accept government funds, it is required to distinguish between expenditures for social services and worship services. This requirement was established to ensure that faith-based organizations were not proselytizing with government funds. The illegal use of government funds for worship-related activities is a primary concern of charitable-choice opponents. Critics of faith-based service providers refer to religious freedom and separation of church and state as fundamental reasons that States should not implement faith-based initiatives. There are concerns over civil rights in the hiring practices of faith-based organizations and the civil liberties of welfare recipients that receive assistance from religious contractors. This report highlighted States that have incorporated the faith-based community in their welfare reform initiatives. They are California, Illinois, Massachusetts, Michigan, New York, Texas, Virginia, and Wisconsin. 3 figures and 21 references