BILL ANALYSIS Ó ------------------------------------------------------------ |SENATE RULES COMMITTEE | AB 2435| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ 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 CONTINUED AB 2435 Page 2 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 CONTINUED AB 2435 Page 3 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 CONTINUED AB 2435 Page 4 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 **** END **** CONTINUED