News Council testifies on legislation to cover indirect costs for nonprofit contracts

On Wednesday, the Council offered testimony in support of House Bill 3241, An Act enhancing the effectiveness of nonprofits’ core mission work through full cost funding, legislation that would bring the Commonwealth into conformity with the federal rules under which it must comply and extend the same set of cost principles to all government grants and contracts, regardless of whether they are funded solely with federal, state or other funds – or a combination of each.

The legislation would ensure that nonprofits with Negotiated Indirect Cost Rate Agreements (NICRA) reflecting an indirect cost rate negotiated between the federal government and a grant or contract awardee would receive the same indirect cost rate if receiving state funds or a combination of state and other non-federal funds. Indirect costs are equivalent to what a for-profit business might refer to as “overhead.” These include items such as rent, utilities, technology, administration, professional fees and other expenses that are not tied to any one program but that are vital to sustaining a healthy organization. Should a nonprofit not have negotiated and received an indirect cost rate as described above, House Bill 3241 provides that it would receive a rate of at least 15 percent of the costs that would be considered modified total direct costs

Unfortunately, nonprofits have for years  not received the full costs under contracts for services that they deliver on behalf of governments. A study from Giving Evidence shows that the most efficient
and effective charitable nonprofits spend more on indirect costs than their less effective peers. Additionally, the federal Government Accountability Office (GAO) investigated concerns about the fiscal strain on nonprofits in 2010.  For too long, nonprofits with allegedly “high” overhead rates have been vilified by certain so-called charity websites, further creating an unrealistic expectation of what it takes to run a nonprofit organization.  Read the full testimony here.

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