OFBCI was established by PresidentGeorge W. Bush through an executive order on January 29, 2001, representing one of the key domestic policies of Bush's campaign promise of "compassionate conservatism." The initiative sought to strengthen faith-based and community organizations and expand their capacity to provide federally funded social services, with the idea having been that these groups were well-situated to meet the needs of local individuals. As Texas governor, Bush had used the "Charitable Choice" provisions of the 1996 welfare reform (which allowed "faith-based" entities to compete for government contracts to deliver social services) to support the work of faith-based groups in Texas.
For fiscal year 2005, more than $2.2 billion in competitive social service grants were awarded to faith-based organizations. Between fiscal years 2003 and 2005, the total dollar amount of all grants awarded to FBOs increased by 21 percent (GAO 2006:43). The majority of these grants were distributed through state agencies to local organizations in the form of formula grants (GAO 2006:17).
Faith-based organizations are eligible to participate in federally administered social service programs to the same degree as any other group, although certain restrictions on FBOs that accept government funding have been created by the White House to avoid violations of the Establishment Clause.
They may not use direct government funds to support inherently religious activities such as prayer, worship, religious instruction, or proselytization.
Any inherently religious activities that the organizations may offer must be offered separately in time or location from services that receive federal assistance.
FBOs cannot discriminate on the basis of religion when providing services (GAO 2006:13).
President Barack Obama greets and thanks members of the President's Council on Faith-Based and Neighborhood Partnerships during a drop by in the Roosevelt Room of the White House, March 9, 2010.
President Barack Obama renamed the office  and appointed Joshua DuBois as its head. He also established an advisory council for the office. The Advisory Council is composed of religious and secular leaders and scholars from different backgrounds. Each member of the Council is appointed to a one-year term. The members of the Council  include:
Diane Baillargeon, President & CEO, Seedco, New York, NY
Anju Bhargava, Founder, Asian Indian Women in America, New Jersey
According to ABC News, the office would seek "to expand the role of this office as it relates to policy issues where religious and local leaders can be effective. DuBois will coordinate with faith-based and community organizations on social service outreach and will work to utilize these organizations' efforts to advance the administration's policies, with a primary focus on poverty."
The separation of church and state was noted as one of major issues with the Faith-Based Initiatives laws. Critics have claimed that millions in government grants have gone to ministries operated by political supporters of the Bush administration, or have been given to minority pastors who recently committed their support.
In June, 2006, U.S. District Judge Robert W. Pratt ruled that a faith based-program called InnerChange at a Newton, Iowa prison, operated by Charles Colson's Prison Fellowship Ministries, unconstitutionally used tax money for a religious program that gave special privileges to inmates who accepted its evangelical Christian teachings and terms. "For all practical purposes," Judge Pratt said, "the state has literally established an Evangelical Christian congregation within the walls of one of its penal institutions, giving the leaders of that congregation, i.e., InnerChange employees, authority to control the spiritual, emotional, and physical lives of hundreds of Iowa inmates." [See Americans United v. Prison Fellowship Ministries, 2006 U.S. Dist. LEXIS 36970, June 2, 2006]
The second head of the department, Jim Towey, in a session of "Ask the Whitehouse" dated November 26, 2003, stated in regard to a question about pagan faith-based organizations:
"I haven't run into a pagan faith-based group yet, much less a pagan group that cares for the poor! Once you make it clear to any applicant that public money must go to public purposes and can't be used to promote ideology, the fringe groups lose interest. Helping the poor is tough work and only those with loving hearts seem drawn to it."
Pagans reacted angrily to the label "fringe group", the suggestion that pagans are uncompassionate, the idea that they would apply for funding only to promote ideology, and the exclusion of pagan organizations implicit in the statement.
Catholic League President William A. Donohue protested against the nomination of Harry Knox, a former director of Human Rights Campaign and gay rights activist, arguing that he has been dishonest and intolerant. Knox has condemned the positions of Catholic clergy on the issues of contraception and gay ordination.
Nondiscrimination in the use of federal funds is a principle related to all of the funds that were or are distributed through these offices. Since this principle includes religion, much debate was expected in 2004 regarding these fund distributions because the nature of the churches is that they DO discriminate on the basis of religion.