BILL ANALYSIS Ó
SENATE COMMITTEE ON EDUCATION
Alan Lowenthal, Chair
2011-2012 Regular Session
BILL NO: AB 2435
AUTHOR: Hernandez
AMENDED: April 26, 2012
FISCAL COMM: Yes HEARING DATE: June 20, 2012
URGENCY: No CONSULTANT:Daniel Alvarez
SUBJECT : Education finance: indirect cost rates.
SUMMARY
This bill 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.
BACKGROUND
The United States Department of Education (USDE) has
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.
ANALYSIS
This bill 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.
Specifically, this bill:
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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.
STAFF COMMENTS
1) Need for the bill . The State Department of Education
determines the indirect cost rate for each local
educational agency (LEA). This indirect cost rate is
typically less than ten percent, 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 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.
2) According to State Department of Education , "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
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indirect cost rate, LEAs have a standardized,
efficient way to recover a share of general management
costs from individual programs."
Proponents of this measure 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.
3) 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 five percent of their grant
amount for administration.
As drafted, this measure singles out the utilization
of SDE established indirect cost rates for school
districts only. However, the SDE establishes indirect
cost rates for school districts, county offices of
education, charter schools, and joint power
authorities where applicable.
Therefore, staff recommends amendments (1) if
technically necessary, clarify Section 2 of this
measure should be added to Title 2, division 2 part
20, chapter 3, article 2 of the education code, and
(2) amend Section 2 of this measure to clarify for
purposes of this section (i.e., EC § 33329) "school
district" includes school districts, county offices of
education, and other identified educational agencies
or entities.
4) According to the Assembly Appropriations Committee ,
this measure would result in no additional Proposition
98 costs to implement. The majority of state and
federal grants specify the amount school districts can
utilize for administration. If a federal or state
grant specifies the rate a district can utilize for
administration, this bill requires districts to use
that rate.
SUPPORT
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California County Superintendents Educational Services
Association
Los Angeles County Office of Education
San Francisco Unified School District
OPPOSITION
None on file