Sarah Posner reported on this back in August 2012.

Rcent disclosures by the Department of Justice reveal that the Obama administration has continued a policy, first put in place by the Office of Legal Counsel in the Bush Justice Department, of granting faith-based recipients of taxpayer dollars certificates of exemption from federal laws prohibiting religious discrimination in employment by such organizations receiving federal funds.  

A very good book about the Bush-era origins of this is Kingdom Coming by Michelle Goldberg.

Since President Barack Obama launched his Office of Faith-Based and Neighborhood Partnerships shortly after taking office in 2009, the Coalition Against Religious Discrimination (CARD) has been assiduously asking the administration a simple question: why are faith-based organizations that receive taxpayer money permitted to discriminate based on religion in hiring, and under what circumstances? For over three years, CARD members have remained frustrated not only with the refusal to change the policy, but the administration’s unwillingness to explain exactly how the policy is being implemented. Last year, at a townhall at the University of Maryland, Obama himself would not explain the policy, saying only, “I think that the balance we tried to strike is to say that if you have set up a nonprofit that is disassociated from your core religious functions and is out there in the public doing all kinds of work, you have to abide generally with the nondiscrimination hiring practices. On the other hand, if it’s closer to your core functions… then you might have more leeway to hire someone who is of that religious faith. […] I think we’ve struck the right balance so far.”

Late last year, CARD sent requests, “simple questions” about the policy, said Dena Sher, Legislative Counsel at the ACLU’s Washington Legislative Office, to the faith-based offices housed in a dozen federal agencies. CARD received no response, and no acknowledgment of follow-up meeting requests, she said.

Under questioning by members of the House Judiciary Committee, however, the Justice Department has been pushed to be more forthcoming, and what “case-by-case” means is becoming a little clearer. Although Attorney General Eric Holder attempted to dodge the question in a 2011 House Judiciary Committee hearing, in response to written questions from Rep. Bobby Scott (D-VA), DOJ admitted in June 2012 that the Department grants faith-based grantees certificates of exemption from laws prohibiting religious discrimination. The sole legal authority for these exemptions lies in a 2007 Office of Legal Counsel memo [.pdf] written by Bush administration lawyers, concluding that the Religious Freedom Restoration Act “protects this right to prefer co-religionists for employees even if the statute that authorizes the funding program generally forbids consideration of religion in employment decisions by grantees.”

See that? RFRA again. What a mistake that law was.

Although it was unclear at the time exactly how the Obama administration was implementing the Bush OLC memo, in 2009, CARD asked the Department of Justice to revisit the memo’s legal conclusions, on the grounds that it “wrongly asserts that RFRA is ‘reasonably construed’ to require that a federal agency categorically exempt a religious organization from an explicit federal nondiscrimination provision tied to a grant program.” The Los Angeles Times editorialized that “both the 1st Amendment and a reasonable reading of federal law require a reversal of the Bush policy.” The New York Times, also in an editorial, said the memo was “based on a far-fetched interpretation of the 1993 Religious Freedom Restoration Act.” In a 2010 letter, CARD charged that continued reliance on the 2007 OLC memo “threatens core civil rights and religious freedom protections” and that the administration’s vague case-by-case approach “raises the problem of religious selectivity and provides scant opportunity for transparency or accountability. Following this approach indefinitely while leaving the Bush-era rules in place forestalls a critical opportunity for prophylactic guidance and presidential leadership against employment discrimination within federally-funded social welfare projects by faith-based grant recipients.” But DOJ has declined to revisit the memo. Although it has made clear it is leaving the memo’s legal reasoning in place, until the June 2012 written responses to the Judiciary Committee, DOJ has not explained how the “case-by-case” review was actually being implemented, or admitted that it was continuing the Bush procedure of granting the certificates of exemption.

This is why we can’t have separation of church and state.