S.F. _____ H.F. _____ Section 1. NEW SECTION . 8.13 Uniform limit on indirect 1 costs charged to state-funded grants. 2 1. Purpose. The purpose of this section is to establish 3 a uniform statewide limit on indirect costs charged to 4 state-funded grants to ensure that public moneys are directed 5 primarily to program services and deliverables, to promote 6 transparency, and to provide consistent administration across 7 departments and establishments. 8 2. Definitions. As used in this section, unless the context 9 otherwise requires: 10 a. “Direct cost” means a cost that can be identified with 11 or directly assigned to a particular final cost objective, 12 program, project, or activity with a high degree of accuracy. 13 “Direct cost” includes but is not limited to salaries and 14 wages of personnel working on the program, associated fringe 15 benefits, program supplies and materials, program-specific 16 equipment, program-required participant insurance, travel 17 necessary for program objectives, program-required participant 18 support costs, and programmatic subawards. 19 b. “Grant” means a state-funded monetary award provided 20 by a department or establishment for the purpose of carrying 21 out a public program, project, or service, whether provided 22 through contract, grant agreement, cooperative agreement, or 23 other funding instrument. “Grant” does not include a loan, 24 tax expenditure, or procurement contract for goods or routine 25 services purchased for the state’s direct use. 26 c. “Grantee” means a recipient of a grant, including but not 27 limited to a nonprofit organization, local government, tribal 28 government, public or private institution of higher education, 29 or for-profit entity. 30 d. “Indirect cost” means a cost that is incurred for 31 a common or joint objective and cannot be identified with 32 a particular final cost objective, program, project, or 33 activity without disproportionate effort. “Indirect cost” 34 includes but is not limited to the allocable portion of 35 -1- LSB 5536XD (3) 91 sc/ns 1/ 5

S.F. _____ H.F. _____ general administration and general expenses such as executive 1 management, accounting, auditing, budgeting, human resources, 2 procurement, payroll, insurance, utilities for general 3 administrative space, depreciation or use allowances on 4 buildings and equipment used for general administration, 5 facility operation and maintenance for general administrative 6 space, and information technology services supporting general 7 administrative functions. 8 e. “Total grant amount” means the total dollar amount of 9 state moneys obligated to the grantee under a grant, as stated 10 in the fully executed grant or funding agreement, inclusive of 11 all budget categories and any amendments. 12 3. Indirect cost cap. 13 a. The aggregate amount of all indirect costs charged to a 14 grant shall not exceed five percent of the total grant amount. 15 b. A department or establishment shall not approve a 16 budget or reimbursement request that would cause a grantee’s 17 cumulative indirect costs to exceed five percent of the total 18 grant amount. 19 c. A grantee shall not do any of the following: 20 (1) Reclassify an indirect cost as a direct cost for the 21 purpose of circumventing the cap imposed under this subsection. 22 (2) Charge an indirect cost on top of a direct cost that 23 includes an allocable share of indirect costs. 24 d. A department or establishment shall not waive the cap 25 imposed under this subsection unless expressly authorized by 26 law that references and exempts the grant from this subsection. 27 4. Budgeting and documentation. 28 a. Each grant budget must separately identify indirect 29 costs and direct costs. The budget narrative must describe the 30 basis for the grantee’s indirect cost calculation and certify 31 compliance with the cap imposed under this section. 32 b. A grantee shall maintain records sufficient to 33 substantiate all indirect costs charged to a grant, including 34 the methodology used to allocate indirect costs across funding 35 -2- LSB 5536XD (3) 91 sc/ns 2/ 5

S.F. _____ H.F. _____ sources, and shall retain the records for at least ten years 1 after final payment or closeout, or longer if required by the 2 grant agreement. 3 c. If a grantee allocates indirect costs across multiple 4 funding sources, the allocation methodology must be reasonable, 5 consistently applied, and compliant with generally accepted 6 cost allocation principles. The grantee shall document 7 the methodology and make it available to the department or 8 establishment awarding the grant upon request. 9 5. Administration and oversight. 10 a. A department or establishment shall incorporate the 11 requirements of this section into each grant solicitation and 12 agreement. 13 b. A department or establishment shall review a proposed 14 grant budget for compliance with this section prior to awarding 15 the grant and shall monitor indirect costs charged during the 16 grant period. 17 c. A department or establishment shall implement controls 18 to prevent payment of indirect costs in excess of the cap 19 imposed under this section, including rejection or adjustment 20 of an invoice or reimbursement request that would exceed the 21 allowable maximum. 22 d. The department of management shall adopt rules pursuant 23 to chapter 17A to implement and administer this section. The 24 office of grants enterprise management of the department of 25 management shall issue implementation guidance, including 26 standardized definitions, examples, and sample budget 27 templates, to promote uniform application of this section. 28 6. Remedies. 29 a. Indirect costs charged in excess of the cap imposed under 30 this section are disallowed. 31 b. A department or establishment shall recover any amounts 32 paid for disallowed indirect costs through offsets against 33 future payments under the grant, repayment by the grantee, or 34 other means provided in the grant agreement and applicable law. 35 -3- LSB 5536XD (3) 91 sc/ns 3/ 5

S.F. _____ H.F. _____ c. As a condition of continued funding, a department or 1 establishment may require a grantee that exceeds the cap 2 imposed under this section to implement a corrective action 3 plan and revised allocation methodology to ensure future 4 compliance. 5 7. Lower cap authorized. A department or establishment may 6 adopt a stricter limit on indirect costs than established in 7 this section for particular grants if authorized by law or if 8 necessary or desirable based on funding conditions, provided 9 such limit is stated in the grant solicitation and agreement. 10 8. Federal moneys. To the extent a grant includes federal 11 moneys that contain explicit requirements concerning indirect 12 costs, the federal requirement applies to the portion of the 13 grant funded with federal moneys. 14 Sec. 2. APPLICABILITY. This Act applies to grants 15 awarded or amended on or after July 1, 2026. A department or 16 establishment, as defined in section 8.2, shall, to the extent 17 practicable, modify an existing grant upon amendment to conform 18 to this Act. 19 EXPLANATION 20 The inclusion of this explanation does not constitute agreement with 21 the explanation’s substance by the members of the general assembly. 22 This bill provides that indirect costs, as defined in the 23 bill, charged to a state-funded grant awarded or amended on 24 or after July 1, 2026, must not exceed 5 percent of the total 25 grant amount and prohibits a department or establishment from 26 approving a budget or reimbursement request that would exceed 27 that limit unless expressly authorized by law. A grantee is 28 prohibited from reclassifying an indirect cost as a direct cost 29 and from charging an indirect cost on top of a direct cost that 30 includes an allocable share of indirect costs. For purposes of 31 Code chapter 8, a department or establishment is an executive 32 department, commission, board, institution, bureau, office, 33 or other agency of state government, that uses, expends, or 34 receives any government funds, excluding the courts and the 35 -4- LSB 5536XD (3) 91 sc/ns 4/ 5

S.F. _____ H.F. _____ general assembly. 1 A grant budget must list indirect costs and direct costs 2 separately and a budget narrative must explain the basis for 3 the indirect cost calculation. A grantee must maintain records 4 related to indirect costs for a minimum of 10 years. An 5 allocation method that allocates indirect costs across multiple 6 funding sources must be reasonable, consistent, and compliant 7 with generally accepted cost allocation principles. The 8 methodology must be documented and provided to the department 9 or establishment upon request. 10 The bill requires a department or establishment to 11 incorporate the provisions of the bill into each grant 12 solicitation and agreement, ensure grant budgets are compliant, 13 and implement controls to prevent payment of indirect costs in 14 excess of the cap. The department of management (DOM) must 15 adopt rules to implement the bill and DOM’s office of grants 16 enterprise management must issue implementation guidance to 17 promote uniform application of the bill. 18 The bill requires a department or establishment to recover 19 amounts paid for disallowed indirect costs through offsets 20 against future payments under the grant, repayment by the 21 grantee, or other means provided in the grant agreement and 22 applicable law. A department or establishment may require a 23 grantee that exceeds the cap to implement a corrective action 24 plan and revised allocation methodology. 25 The bill authorizes a department or establishment to adopt 26 a lower cap on indirect costs under certain circumstances if 27 the cap is stated in the grant solicitation and agreement. The 28 bill’s provisions do not supplant federal requirements for 29 federal moneys included in a grant. 30 -5- LSB 5536XD (3) 91 sc/ns 5/ 5