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The rule on federal money going only to organizational ventures that don't discriminate based on faith is fine -- unless you just don't want any government funding of any program run by a religious group.
After all, how could you give ANY money to religious groups if you had the rule that the group can't use faith as a criteria in non-government funded programs. If that was the criteria, then you would be saying that the group couldn't discriminate by hiring a Catholic to be priest, a Methodist to be minister, a Jew to be a rabbi,etc.