BILL ANALYSIS Ó AB 1064 Page 1 Date of Hearing: April 22, 2015 ASSEMBLY COMMITTEE ON EDUCATION Patrick O'Donnell, Chair AB 1064 (Roger Hernández) - As Amended March 26, 2015 SUBJECT: Education finance: indirect cost rates SUMMARY: Removes the January 1, 2016 sunset date from provisions of law that require the California Department of Education (CDE) and any other state agency to allow the full indirect cost rate established by the CDE for state or federal grant programs administered by local education agencies unless a lower rate is required by other state or federal law. EXISTING LAW: 1)Requires the CDE and any other state agency to allow the full indirect cost rate established by the CDE for state or federal grant programs administered by local education agencies unless a lower rate is required by other state or federal law. 2)Defines "indirect cost" to mean "the agencywide, general management cost of the activities for the direction and control of the agency as a whole [which] include, but are not necessarily limited to, administrative activities necessary for the general operation of the agency, such as accounting, budgeting, payroll preparation, personnel services, AB 1064 Page 2 purchasing, and centralized data processing." 3)Defines "indirect cost rate" to mean the rate established by the CDE for each local education agency. 4)Becomes inoperative and is repealed January 1, 2016 unless extended by statute enacted before that date. FISCAL EFFECT: Unknown COMMENTS: The United States Department of Education has approved a delegation agreement with the CDE that authorizes the CDE, 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 CDE, 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 CDE for each district, unless federal or state law requires a lower cost rate. AB 1064 Page 3 Need for this bill. The CDE determines the indirect cost rate for each LEA. This indirect cost rate is typically less than 10%, and this rate covers such general operating 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 CDE 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 author's office, statutory protections are necessary to ensure that, unless otherwise provided in state or federal law, the CDE allows LEAs to use the full indirect rate established for them. REGISTERED SUPPORT / OPPOSITION: Support Antelope Valley Union High School District Claremont Unified School District La Canada Unified School District Los Angeles County Office of Education AB 1064 Page 4 Lynwood Unified School District San Gabriel Unified School District Torrance Unified School District Opposition None received Analysis Prepared by:Rick Pratt / ED. / (916) 319-2087