I've always been ambivalent about Bush's policies in this area. Mostly it was because it seemed obvious that, although the President did this with the best of intentions and will administer this program fairly, it could be the path to future government interference with faith-based programs.
After all, that's what happened to our colleges and universities. They used to be largely unaffiliated with the government, but once they started accepting federal funding, all sorts of restrictions and mandates were placed on them. It even went so far that Hillsdale College
, which refused federal funding, was taken to court and ordered to abide by federal mandates because some of their students received federal grants and scholarships. Hillsdale told the government to "shove it" [not a direct quote] and now matches all federal grants to their students so they can remain free of federal interference. Other areas show similar patterns.
So, accepting federal funding could be the door to the federal government mandating all sorts changes to religious activities. Just to look at the Catholic church, the government could try to mandate women priests, that people of all faiths must be allowed to recieve the Eucharist, male nuns, and I'm afraid to continue thinking up possibilitiess. So to maintain the long-term independence of the Catholic church, I hope we don't accept any of the funding.
But another reason to refuse was brought to my attention recently. (Unfortunately, I can't remember where I read it.) The article I read argued that a reason for innate conservatism of the American people is the history of religious freedom. Since, for the most part, American governments have never really funded churches, they've been forced to be self-sufficient and rely on the generosity of their membership.
This is in contrast to the state-supported churches of Europe, which have become lazy and heterodox in their teachings, and have matched the decline of Europe. In contrast, American churches, while weaker than they once were, are comparatively strong and some believe we're currently in the midst of a third (?) "Great Awakening" of religious activity.
It also taught Americans that great things are possible without government assistance. It was individual effort that built these churches, not government workers. We know we can do great things, because we have.
Avoiding federal funding, in my opinion, will help maintain our independence from the government and the strength our of churches. This, in turn, will keep America great.