BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
AB 1064 (Roger Hernández) - Education finance: indirect cost
rates.
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|Version: March 26, 2015 |Policy Vote: ED. 7 - 0 |
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|Urgency: No |Mandate: No |
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|Hearing Date: July 13, 2015 |Consultant: Jillian Kissee |
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This bill does not meet the criteria for referral to the
Suspense File.
Bill
Summary: This bill removes the January 1, 2016 sunset date that
requires the California Department of Education (CDE), and any
other state agency, to allow an indirect cost rate established
by the CDE for state or federal grant programs, unless federal
or state law requires a lower rate.
Fiscal
Impact:
No direct state fiscal impact since any potential funding
distribution would occur within a program and a set amount of
grant funding already dedicated to that program. Absent this
bill, CDE indicates that it would establish the same indirect
costs rates as under this bill.
Background: Existing law requires the CDE and any other state agency to
AB 1064 (Roger Hernández) Page 1 of
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allow an indirect cost rate established by the CDE for state or
federal grant programs administered by local educational
agencies (LEAs) unless a lower rate is required by state or
federal law.
Existing law further defines the following:
1)"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,
purchasing, and centralized data processing."
2)"Indirect cost rate" to mean the rate established by the CDE
for each LEA.
These provisions become inoperative and are repealed as of
January 1, 2016, unless extended by statute enacted before that
date.
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 LEAs. Federal and state law often delineate the amount
of indirect costs or administration either the state or LEAs can
utilize from a grant allocation, in which case those rates must
be used. For example, under the state After School Education
and Safety program, school districts are limited to expending no
more than five percent of their grant amount for administration.
According to CDE's 2015-16 Restricted Indirect Cost Rates for
K-12 LEAs, the average indirect cost rate for 2015-16 is 5.11
percent. Indirect cost rates allow LEAs to have a standardized
way to recover a share of general management costs from
individual programs.
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Proposed Law:
This bill repeals the January 1, 2016 sunset date that
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.
Related
Legislation: AB 2435 (Hernández, Chapter 587, Statutes of 2012)
established the requirement for CDE to allow the full indirect
cost rate for state or federal programs administered by LEAs.
Staff
Comments: This bill continues the CDE's authority under existing law to
allow an indirect cost rate that is not less than the indirect
cost rate established by the department, unless a lower rate is
required by federal law. It removes the CDE's discretion to
require that more of a grant's funds be spent on direct services
by reducing the allowed indirect cost rate. According to CDE
guidance, an LEA may claim up to its approved indirect cost rate
unless there is specific authority to limit the rate.
Absent this bill or federal or state requirements that specify
an indirect cost rate, the CDE has the implicit authority to
limit the indirect cost rate for a specific grant. For example,
if the CDE believes that a grant will result in minimal actual
indirect costs, it may set the rate for that grant lower than an
LEA's approved indirect cost rate. To the extent a lower
indirect cost rate could be imposed by the CDE for a particular
grant in the future, more grant funding would be available for
direct services. Similarly, if less funding is allowed to
administer a grant program, this could pressure other
unrestricted areas of an LEA's budget to cover the full costs of
the grant. Ultimately, the total grant levels would not change
and any potential funding distribution would occur within a
grant's dedicated funding stream.
Recommended
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Amendments: Technical amendment to update an incorrect code
reference in existing law.
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