BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                      



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          |SENATE RULES COMMITTEE            |                  AB 2435|
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                                 THIRD READING


          Bill No:  AB 2435
          Author:   Roger Hernández (D)
          Amended:  8/13/12 in Senate
          Vote:     21

           
           SENATE EDUCATION COMMITTEE  :  7-1, 6/20/12
          AYES:  Lowenthal, Alquist, Hancock, Liu, Price, Simitian, 
            Vargas
          NOES:  Blakeslee
          NO VOTE RECORDED:  Runner, Huff, Vacancy
           
          SENATE APPROPRIATIONS COMMITTEE  :  5-2, 8/6/12
          AYES:  Kehoe, Alquist, Lieu, Price, Steinberg
          NOES:  Walters, Dutton
           
          ASSEMBLY FLOOR  :  56-15, 5/29/12 - See last page for vote


           SUBJECT  :    Education finance:  indirect cost rates

           SOURCE  :     Los Angeles County Office of Education


           DIGEST  :    This bill, until January 1, 2016, requires the 
          State Department of Education (SDE), or any other state 
          agency, that administers a grant or allocation of federal 
          or state funds to a school district, to allow an indirect 
          cost rate that is not less than the indirect cost rate 
          established by SDE for each district, unless federal or 
          state law requires a lower cost rate.  

           ANALYSIS  :    The United States Department of Education has 
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          approved a delegation agreement with the department that 
          authorizes the SDE, as the recognized agency to establish 
          indirect cost rates for the state's local educational 
          agencies (LEAs).  Indirect costs are agency-wide general 
          management costs (i.e., activities for the direction and 
          control of the agency as a whole).  General management 
          costs consist of administrative activities necessary for 
          the general operation of the agency, such as accounting, 
          budgeting, payroll preparation, personnel services, 
          purchasing, and centralized data processing.
           
          This bill requires the SDE, or any other state agency, that 
          administers a grant or allocation of federal or state funds 
          to a school district, to allow an indirect cost rate that 
          is not less than the indirect cost rate established by SDE 
          for each district, unless federal or state law requires a 
          lower cost rate.  

          This bill:  

          1. Defines "direct cost" as a cost that provides 
             measurable, direct benefits to a particular program of 
             an agency, including, but not limited to, salaries and 
             benefits of teachers and aides, costs of purchasing 
             textbooks and instructional supplies, and costs for 
             providing pupils with counseling, health services, and 
             transportation. 

          2. Defines "indirect cost" as the agency-wide, general 
             management cost of the activities for the direction and 
             control of the agency as a whole, including, but not 
             limited to, administrative activities necessary for the 
             general operation of the agency, as specified.  

          3. Defines "indirect cost rate" as the indirect cost rate 
             established by SDE for each school district.  

          4. Sunsets January 1, 2016.

           Comments
           
           Need for this bill  .  The SDE determines the indirect cost 
          rate for each LEA.  This indirect cost rate is typically 
          less than 10%, and this rate covers such general operating 

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          costs as accounting, budgeting, personnel services, 
          purchasing, payroll and data processing.  However, LEAs 
          cannot cover their operating costs when the indirect rate 
          allowed for certain grants and allocations are less than 
          the SDE determined rate.  If LEAs cannot cover these 
          operating costs, they cannot operate programs that provide 
          important services for students and families without 
          putting the LEA at financial risk. 

          According to the SDE, "General management costs are 
          necessary for any program to exist. For instance, all 
          programs will use the business office at one time or 
          another for services such as contracts, purchasing, payroll 
          checks, and personnel management.  Without the benefit of 
          an indirect cost rate, there would be no standard way for 
          each program to contribute its share of the general 
          management costs without spending a lot of staff time 
          having to 'time account' to each activity.  By using an 
          indirect cost rate, LEAs have a standardized, efficient way 
          to recover a share of general management costs from 
          individual programs."

          Federal and state law often delineate the amount of 
          indirect costs or administration either the state or LEAs 
          can utilize from a grant allocation.  For example, under 
          the state After School Education and Safety program, school 
          districts are limited to expending no more than 5% of their 
          grant amount for administration.

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes   
          Local:  No

          According to the Senate Appropriations Committee, this bill 
          has no direct fiscal impact on the state, since any 
          potential funding distribution would occur within a program 
          and a set amount of grant funding already dedicated to that 
          program.

           SUPPORT  :   (Verified  8/14/12)

          Los Angeles County Office of Education (source)
          California County Superintendents Educational Services 
          Association
          San Francisco Unified School District

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          School Innovations and Advocacy
          West Covina Unified School District

           ARGUMENTS IN SUPPORT  :    Proponents of this bill argue that 
          the SDE, as well as other state agencies sometimes 
          arbitrarily specify an indirect cost rate for grant 
          programs that is neither specified in law or is lower than 
          the established indirect cost rate established by the SDE.


           ASSEMBLY FLOOR  :  56-15, 5/29/12
          AYES:  Alejo, Allen, Ammiano, Atkins, Beall, Bill 
            Berryhill, Block, Blumenfield, Bonilla, Bradford, 
            Brownley, Butler, Charles Calderon, Campos, Carter, 
            Chesbro, Davis, Dickinson, Eng, Feuer, Fong, Fuentes, 
            Furutani, Galgiani, Gatto, Gordon, Hagman, Hayashi, Roger 
            Hernández, Hill, Huber, Hueso, Huffman, Jeffries, Jones, 
            Lara, Ma, Mendoza, Mitchell, Monning, Nestande, Norby, 
            Olsen, Pan, Perea, V. Manuel Pérez, Portantino, Skinner, 
            Smyth, Solorio, Swanson, Torres, Wieckowski, Williams, 
            Yamada, John A. Pérez
          NOES:  Achadjian, Conway, Donnelly, Beth Gaines, Garrick, 
            Grove, Harkey, Knight, Logue, Mansoor, Miller, Morrell, 
            Nielsen, Silva, Wagner
          NO VOTE RECORDED:  Buchanan, Cedillo, Cook, Fletcher, 
            Gorell, Halderman, Hall, Bonnie Lowenthal, Valadao


          PQ:k  8/14/12   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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