HF2304: State Grant Indirect Cost Cap

Imposes a 5% cap on indirect costs for all state-funded grants awarded or amended on or after July 1, 2026. It defines direct and indirect costs, prohibits reclassification to circumvent the cap, requires separate identification and documentation of costs in budgets, and mandates state departments to monitor compliance, recover disallowed costs, and adopt necessary administrative rules. Exceptions are allowed only if expressly authorized by law or when federal requirements apply to federal funds. Departments may set stricter caps if specified in grant documentation.

Key Points & Impacts:

• Imposes a 5% cap on the aggregate amount of indirect costs that can be charged to state-funded grants.

• Prohibits departments from approving grant budgets or reimbursements that would exceed the 5% indirect cost cap, unless specifically exempted by law.

• Prevents grantees from reclassifying indirect costs as direct costs or charging indirects on top of direct costs that already include allocable indirects.

• Requires grant budgets to separately identify and document direct and indirect costs, with a narrative explaining indirect cost calculations and certification of compliance.

• Mandates grantees to retain records substantiating indirect costs and allocation methodologies for at least 10 years after grant closeout.

• Directs state departments to incorporate these requirements into grant solicitations and agreements, and to monitor and enforce compliance, including recovery of disallowed costs.

• Allows departments to set stricter (lower) indirect cost caps for specific grants if justified and stated in grant documents.

• Clarifies that federal indirect cost requirements take precedence for portions of grants funded with federal money.