BILL ANALYSIS Ó
AB 2435
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Date of Hearing: April 18, 2012
ASSEMBLY COMMITTEE ON EDUCATION
Julia Brownley, Chair
AB 2435 (Hernandez) - As Amended: April 10, 2012
SUBJECT : Education finance: indirect cost rates
SUMMARY : Establishes rules governing the indirect rate that
local education agencies may charge when implementing federal or
state grant programs. Specifically, this bill :
1)Requires the California Department of Education (CDE) or any
other state agency that administers a federal grant program to
allow the local education agency (LEA) implementing the
program to charge the indirect cost rate established for that
LEA by the CDE, unless federal law requires a lower rate.
2)Requires the CDE or any other state agency that administers a
state grant program to allow the LEA implementing the program
to charge an indirect cost rate that is not less than the rate
established for that LEA by the CDE.
FISCAL EFFECT : Unknown
COMMENTS : When implementing a grant program, LEAs incur
indirect costs, which include the cost of administrative
activities necessary for the general operation of the agency,
such as accounting, budgeting, payroll preparation, personnel
services, purchasing, and centralized data processing. LEAs are
typically allowed to allocate a fixed percentage of the grant
(the indirect cost rate) to these overhead activities. The CDE
periodically assigns an allowed indirect cost rate for each LEA.
For the Los Angeles County Office of Education, the sponsors of
this bill, the CDE-established rate is 9.31%.
According to the sponsors, the indirect rate that LEAs are
allowed for specific grant programs is typically less than the
rate established for that LEA by the CDE. The CDE acknowledges
this, but says the reason is that federal or state law governing
grant programs often impose a lower rate than the one
established by the CDE. The CDE reports that it always allows
LEAs to charge the CDE-established indirect rate unless
otherwise required by regulations or statute.
AB 2435
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This bill addresses this issue differently for federal and state
grant programs. With respect to federal grant programs, the
bill requires the CDE or any other state agency administering a
federal program to allow LEAs to use the CDE-established
indirect rate unless otherwise required by federal law.
According to the CDE, this provision is unnecessary, because
this is already the practice.
With respect to state grant programs, the bill requires the CDE
or any other state agency administering the program to allow
LEAs to use the CDE-established indirect rate. This conflicts
with other provisions of law that establish a lower rate for
specific grant programs and raises questions as to which
provision would be operative.
It also raises policy questions. In some cases, a lower
indirect rate (for example, 5%) may be imposed in lieu of a
direct local match requirement in order to require some level of
local contribution to the program. Overriding the lower
indirect rate cap would, in such cases, override the policy
objective of imposing a de facto local match. The Committee may
wish to consider whether it is best to establish a single
indirect rate that would apply to all grant programs (the
objective of this bill) or to establish program-specific rates
depending on the characteristics, purposes, and policy
objectives of each program (allowed by existing law).
REGISTERED SUPPORT / OPPOSITION :
Support
Los Angeles County Office of Education (Sponsor)
San Francisco Unified School District
Opposition
None received
Analysis Prepared by : Rick Pratt / ED. / (916) 319-2087