The 1998 Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) was the first federal legislation to contain a "charitable choice" provision allowing faith-based organizations (FBOs) to compete for state and federal government funds on the same basis as secular providers. For FBOs that consider pursuit of government funding a suitable strategy, financial collaboration with state and local governments can offer increased financial resources, capacity, and networking opportunities. State and local governments can use the federal faith-based initiative to increase FBO participation in by taking the following actions: ensure that all stakeholders understand PRWORA's charitable choice provision; model the federal government's "faith-friendly" actions at the state and local levels; and remove barriers to FBO participation in government procurement processes. Other issues that must be addressed are as follows: revising government grant and contracting processes; overcoming barriers to collaboration that exist in state/local laws and practices; ensuring the existence of secular alternatives to FBO-provided services; and holding FBOs accountable for restricting the use of government funds to approved services and protecting clients' religious freedoms. Research has identified numerous innovative strategies and practices for fostering partnerships between FBOs and state and local governments in Ohio, New York, and Michigan. (Contains 35 references.) (MN)