[Federal Register Volume 59, Number 10 (Friday, January 14, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-905]


[[Page Unknown]]

[Federal Register: January 14, 1994]


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Part IV





Department of Education





_______________________________________________________________________



34 CFR Parts 75 and 76




Direct Grant Programs and State-Administered Programs; Proposed Rule
DEPARTMENT OF EDUCATION

34 CFR Parts 75 and 76

RIN 1880-AA50

 
Direct Grant Programs and State-Administered Programs

AGENCY: Department of Education.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Secretary proposes to amend the Department's regulations 
on direct grant programs and State-administered programs to clarify the 
requirements and procedures for establishing and applying indirect cost 
rates under programs administered by the Department.

DATES: Comments must be received on or before February 28, 1994.

ADDRESSES: All comments concerning these proposed regulations should be 
addressed to Sherlyn Taylor, Grants and Contracts Service, U.S. 
Department of Education, 400 Maryland Avenue SW., room 3636, ROB-3, 
Washington, DC 20202-4700.

FOR FURTHER INFORMATION CONTACT: Glenn Riley, U.S. Department of 
Education, 400 Maryland Avenue SW., room 3636, ROB-3, Washington, DC 
20202-4700. Telephone: (202) 708-7640. Individuals who use a 
telecommunications device for the deaf (TDD) may call the Federal 
Information Relay Service (FIRS) at 1-800-877-8339 between 8 a.m. and 8 
p.m., Eastern time, Monday through Friday.

SUPPLEMENTARY INFORMATION: To improve the administration of 
discretionary grants and to clarify for grantees the procedures and 
requirements of the Department, the Secretary is proposing to revise 
sections in the Education Department General Administrative Regulations 
(EDGAR) on indirect cost rates.
    A number of problems in this area of grants administration will be 
addressed by the proposed changes. For example, the use of a restricted 
indirect cost rate for programs with supplement-not-supplant language 
in their authorizing statutes is required by current regulations. 
However, State education agencies have incurred significant financial 
liabilities by using incorrect restricted indirect cost rates. The 
proposed changes clarify how these rates are calculated and so will 
reduce the likelihood of those errors recurring. In addition, the term 
``occupancy and space maintenance costs'' as used in the computation of 
restricted indirect cost rates has not been clearly defined, resulting 
in grant recipients being reimbursed improperly for space costs. The 
inclusion of a definition in these proposed regulations will address 
this problem.
    The absence of a training grant definition has led to disagreements 
between the Department and grant recipients over whether the training 
rate of eight percent, which is a lower rate than most recipients' 
negotiated rate, should be applied to certain grants. The proposed 
definition will alleviate this problem and improve the Department's 
ability to effectively administer these grants. Similarly, ambiguities 
in existing regulations on the use of indirect costs for matching or 
cost-sharing and on the reimbursement of indirect costs to groups of 
eligible parties has contributed to administrative problems between the 
Department and its grant recipients. The proposed changes will clarify 
for all parties how these special situations are to be handled.
    The existing regulations in these sections are being revised and 
reorganized and new sections are being added. Specifically, the 
following sections are proposed for revision or addition:
    Section 75.129--This section is revised to include a reference to a 
new requirement in Sec. 75.564 on the determination of indirect costs 
for a grant to a group of eligible parties.
    Section 75.560--This section is revised to include the requirements 
that a grantee claiming indirect costs must have a current indirect 
cost rate agreement, that the Secretary may establish a temporary 
indirect cost rate under certain circumstances, and that the Secretary 
may establish a restricted indirect cost rate for a grantee to satisfy 
the regulatory requirements of certain programs administered by the 
Department.
    Section 75.561--This section is revised to clarify the approval 
period for indirect cost rates established by the Secretary.
    Section 75.562--This section is revised and expanded to include a 
definition of a training grant, a statement that the Secretary decides 
which grants are training grants, a clarification of the base to which 
the training rate is applied, and a restatement of the existing 
requirement that indirect costs in excess of the eight percent 
limitation may not be charged directly or be used to satisfy matching 
or cost-sharing requirements. It also explains that a grantee must have 
documentation available to show that its negotiated indirect cost rate 
is at least eight percent.
    Section 75.563--This section is revised to refer grantees subject 
to a restricted indirect cost rate to the new sections in part 76 on 
restricted rates.
    Sections 75.564 through 75.568 are removed in order to transfer 
these sections on restricted indirect cost rates to part 76. Since most 
grants under restricted rate programs are made to agencies of State or 
local governments, or their subgrantees, the Secretary is proposing 
this change to clarify the applicability of these regulations.
    Section 75.564--This is a new section that includes several 
requirements applicable to the reimbursement of indirect costs, 
including clarification on the use of indirect costs to satisfy 
matching or cost-sharing requirements and the reimbursement of indirect 
costs under a grant to a group of eligible parties. The exclusion of 
certain categories of grants from reimbursement for indirect costs is 
proposed, since these types of grants have very little overhead or 
administrative costs associated with them. This exclusion is consistent 
with the current policy of the Department of Health and Human Services.
    Section 76.560--This section is revised to include the requirements 
that a grantee claiming indirect costs must have a current indirect 
cost rate agreement, that the Secretary may establish a temporary 
indirect cost rate under certain circumstances, and that the Secretary 
may establish a restricted indirect cost rate for a grantee to satisfy 
the statutory requirements of certain programs administered by the 
Department.
    Section 76.563 is revised to indicate the new sections in part 76 
that apply to grantees subject to a restricted indirect cost rate.
    Section 76.564--This new section incorporates the provisions of the 
current Sec. 75.564 and also includes the requirement that indirect 
costs not recovered as a result of the restrictions may not be charged 
directly or charged to other Federal awards.
    Section 76.565--This new section incorporates the provisions of the 
current Sec. 75.565. The term ``general management costs'' is 
substituted for ``administrative charges'' to avoid confusion with the 
latter term as it is used in other regulations. The section explains 
that the term general management costs includes some occupancy and 
space maintenance costs. It also clarifies what is meant by the terms 
``chief executive officer,'' which is used in place of ``chief 
administrative officer,'' and ``component'' as these terms are used in 
this section.
    Section 76.566--This new section incorporates the provisions of the 
current Sec. 75.566 and clarifies which fringe benefits may be used in 
determining fixed costs in a restricted rate calculation.
    Section 76.567--This new section incorporates the provisions of the 
current Sec. 75.567 and explains that the term ``other expenditures'' 
also includes some occupancy and space maintenance costs and costs 
related to chief executive officers and their offices.
    Section 76.568--This is a new section that defines what is meant by 
occupancy and space maintenance costs in the computation of restricted 
indirect cost rates. The section also describes the limited 
circumstances in which those costs can be charged directly.
    Section 76.569--This is a new section that revises the formula 
currently in Sec. 75.568 for computing indirect costs under a 
restricted rate program to clarify the base to which the rate is 
applied.

Executive Order 12866

    These proposed regulations have been reviewed in accordance with 
Executive Order 12866. Under the terms of the order the Secretary has 
assessed the potential costs and benefits of this regulatory action.
    The potential costs associated with the proposed regulations are 
those resulting from statutory requirements and those determined by the 
Secretary to be necessary for administering this program effectively 
and efficiently. Burdens specifically associated with information 
collection requirements, if any, are identified and explained elsewhere 
in this preamble under the Paperwork Reduction Act of 1980.
    In assessing the potential costs and benefits--both quantitative 
and qualitative--of these proposed regulations, the Secretary has 
determined that the benefits of the proposed regulations justify the 
costs.
    The Secretary has also determined that this regulatory action does 
not unduly interfere with State, local, and tribal governments in the 
exercise of their governmental functions.
    To assist the Department in complying with the specific 
requirements of Executive Order 12866, the Secretary invites comment on 
whether there may be further opportunities to reduce any potential 
costs or increase potential benefits resulting from these proposed 
regulations without impeding the effective and efficient administration 
of the program.

Regulatory Flexibility Act Certification

    The Secretary certifies that these proposed regulations would not 
have a significant economic impact on a substantial number of small 
entities. For the most part these revisions are proposed to provide 
additional information to grantees and to clarify existing departmental 
procedures or requirements. The proposed revisions will not result in 
major changes in departmental policy that might have significant 
economic impact on small entities.

Paperwork Reduction Act of 1980

    These proposed regulations have been examined under the Paperwork 
Reduction Act of 1980 and have been found to contain no information 
collection requirements.

Invitation to Comment

    Interested persons are invited to submit comments and 
recommendations regarding these proposed regulations.
    All comments submitted in response to these proposed regulations 
will be available for public inspection, during and after the comment 
period, in room 3636, Regional Office Building No. 3, Seventh and D 
Streets SW., Washington, DC, between the hours of 8:30 a.m. and 4 p.m., 
Monday through Friday of each week except Federal holidays.

Assessment of Educational Impact

    The Secretary particularly requests comments on whether the 
proposed regulations in this document would require transmission of 
information that is being gathered by or is available from any other 
agency or authority of the United States.

List of Subjects

34 CFR Part 75

    Education Department, Grant programs--education, Grant 
administration, Incorporation by reference.

34 CFR Part 76

    Education Department, Grant programs--education, Grant 
administration, Intergovernmental relations, State-administered 
programs.


(Catalog of Federal Domestic Assistance Number does not apply)

    Dated: January 10, 1994.
Richard W. Riley,
Secretary of Education.

    The Secretary proposes to amend parts 75 and 76 of title 34 of the 
Code of Federal Regulations as follows:

PART 75--DIRECT GRANT PROGRAMS

    1. The authority citation for part 75 continues to read as follows:


    Authority: 20 U.S.C. 1221e-3(a)(1) and 3474, unless otherwise 
noted.


    2. Section 75.129 is amended by revising paragraphs (a) (1) and (2) 
and adding paragraph (a)(3), to read as follows:


Sec. 75.129  Legal responsibilities of each member of the group.

    (a) * * *
    (1) The use of all grant funds;
    (2) Ensuring that the project is carried out by the group in 
accordance with Federal requirements; and
    (3) Ensuring that indirect cost funds are determined as required 
under Sec. 75.564(f).
* * * * *
    3. Section 75.560 is amended by revising paragraph (b), adding new 
paragraphs (c) and (d), and revising the authority, citation at the end 
of the section, to read as follows:


Sec. 75.560  General indirect cost rates; exceptions.

* * * * *
    (b) A grantee must have a current indirect cost rate agreement to 
charge indirect costs to a grant. To obtain an indirect cost rate, a 
grantee must submit an indirect cost proposal to the cognizant Federal 
agency and negotiate an indirect cost rate agreement.
    (c) The Secretary may establish a temporary indirect cost rate for 
a grantee that does not have an indirect cost rate agreement with its 
cognizant Federal agency.
    (d) The Secretary accepts an indirect cost rate negotiated by a 
grantee's cognizant Federal agency, but may establish a restricted 
indirect cost rate for a grantee to satisfy the statutory requirements 
of certain programs administered by the Department.


(Authority: 20 U.S.C. 1221e-3(a)(1) and 3474)


    4. Section 75.561 is amended by revising paragraph (c), to read as 
follows:


Sec. 75.561  Approval of indirect cost rates.

* * * * *
    (c) The Secretary generally approves indirect cost rate agreements 
annually. Indirect cost rate agreements may be approved for periods 
longer than a year if the Secretary determines that rates will be 
sufficiently stable to justify a longer rate period.


(Authority: 20 U.S.C. 1221e-3(a)(1) and 3474)


    5. Section 75.562 is revised to read as follows:


Sec. 75.562  Indirect cost rates for educational training projects.

    (a) Educational training grants provide funding for training or 
other educational services. Examples of the work supported by training 
grants are summer institutes, training programs for selected 
participants, the introduction of new or expanded courses, and similar 
instructional undertakings, including special research training 
programs, that are separately budgeted and accounted for by the 
sponsoring institution. These grants do not usually support activities 
involving research, development, and dissemination of new educational 
materials and methods. Training grants largely implement previously 
developed materials and methods and require no significant adaptation 
of techniques or instructional services to fit different circumstances.
    (b) The Secretary determines which grants are educational training 
grants.
    (c) Indirect cost reimbursement on a training grant is limited to 
the amount computed by applying the grantee's negotiated indirect cost 
rate or a rate of eight percent, whichever is less, to a modified total 
direct cost base determined by the Secretary.
    (1) The eight percent limit also applies to cost-type contracts 
under grants, if these contracts are for training as defined in this 
section.
    (2) The eight percent limit does not apply to agencies of State or 
local governments, including federally recognized Indian tribal 
governments, as defined in 34 CFR 80.3.
    (3) Indirect costs in excess of the eight percent limit may not be 
charged directly, used to satisfy matching or cost-sharing 
requirements, or be charged to another Federal award.
    (d) A grantee using the training rate of eight percent is required 
to have documentation available for audit that shows that its 
negotiated indirect cost rate is at least eight percent.


(Authority: 20 U.S.C. 1221e-3(a)(1) and 3474)


    6. Section 75.563 is revised to read as follows:


Sec. 75.563  Restricted indirect cost rate--programs covered.

    If a grantee decides to charge indirect costs to a program that has 
a statutory requirement prohibiting the use of Federal funds to 
supplant non-Federal funds, the grantee shall use a restricted indirect 
cost rate computed under 34 CFR 76.564-76.569.


(Authority: 20 U.S.C. 1221e-3(a)(1) and 3474)


    7. Sections 75.564 through 75.568 are removed.
    8. A new Sec. 75.564 is added to read as follows:


Sec. 75.564  Reimbursement of indirect costs.

    (a) Reimbursement of indirect costs is subject to the availability 
of funds and statutory or administrative restrictions. The extent to 
which indirect costs are reimbursed is a matter for determination 
between the Secretary and the grantee.
    (b) The application of the rates and the determination of the 
direct cost base by a grantee must be in accordance with the indirect 
cost rate agreement approved by the grantee's cognizant Federal agency.
    (c) Indirect cost reimbursement is not allowable under grants for--
    (1) Fellowships and similar awards if Federal financing is 
exclusively in the form of fixed amounts such as scholarships, stipend 
allowances, or the tuition and fees of an institution;
    (2) Construction grants;
    (3) Grants to individuals;
    (4) Grants to organizations located outside the territorial limits 
of the United States;
    (5) Grants to Federal organizations; and
    (6) Grants in support of conferences.
    (d) Indirect cost reimbursement on grants received under programs 
with statutory restrictions or other limitations on indirect costs must 
be made in accordance with the restrictions in 34 CFR 76.564-76.569.
    (e) Under programs with matching or cost-sharing requirements, 
indirect costs that are unallowable as charges to Federal funds may not 
be used to satisfy matching or cost-sharing requirements.
    (f) Indirect costs for a group of eligible parties (see 
Secs. 75.127-75.129) are limited to the amount derived by applying the 
rate of the applicant, or a restricted rate when applicable, to the 
grant in keeping with the terms of the applicant's indirect cost rate 
agreement.


(Authority: 20 U.S.C. 1221e-3(a)(1) and 3474)

PART 76--STATE-ADMINISTERED PROGRAMS

    9. The authority citation for part 76 continues to read as follows:


    Authority: 20 U.S.C. 1221e-3(a)(1), 2831(a), 2974(b), and 3474, 
unless otherwise noted.


    10. Section 76.560 is amended by revising paragraph (b), adding new 
paragraphs (c) and (d), and revising the authority citation at the end 
of the section, to read as follows:


Sec. 76.560  General indirect cost rates; exceptions.

* * * * *
    (b) A grantee must have a current indirect cost rate agreement to 
charge indirect costs to a grant. To obtain an indirect cost rate, a 
grantee must submit an indirect cost proposal to the cognizant Federal 
agency and negotiate an indirect cost rate agreement.
    (c) The Secretary may establish a temporary indirect cost rate for 
a grantee that does not have an indirect cost rate agreement with its 
cognizant Federal agency.
    (d) The Secretary accepts an indirect cost rate negotiated by a 
grantee's cognizant Federal agency, but may establish a restricted 
indirect cost rate for a grantee to satisfy the statutory requirements 
of certain programs administered by the Department.


(Authority: 20 U.S.C. 1221e-3(a)(1), 2831(a), 2974(b), and 3474)


    11. Section 76.563 is revised to read as follows:


Sec. 76.563  Restricted indirect cost rate--programs covered.

    Sections 76.564-76.569 apply to agencies of State and local 
governments, and their subgrantees, that are grantees under programs 
with a statutory requirement prohibiting the use of Federal funds to 
supplant non-Federal funds.


(Authority: 20 U.S.C. 1221e(a)(1), 2831(a), 2974(b), and 3474)


    12. A new Sec. 76.564 is added to read as follows:


Sec. 76.564  Restricted indirect cost rate--formula.

    (a) An indirect cost rate for a grant covered by Sec. 76.563 or 34 
CFR 75.563 is determined by the following formula:


Restricted indirect cost rate=(General management costs + Fixed 
costs)  (Other expenditures)


    (b) General management costs, fixed costs, and other expenditures 
must be determined under Secs. 76.565-76.567.
    (c) Under the programs covered by Sec. 76.563, a subgrantee of an 
agency of a State or a local government (as those terms are defined in 
34 CFR 80.3) or a grantee subject to 34 CFR 75.563 that is not a State 
or local government agency may use--
    (1) An indirect cost rate computed under paragraph (a) of this 
section; or
    (2) An indirect cost rate of eight percent unless the Secretary 
determines that the subgrantee or grantee would have a lower rate under 
paragraph (a) of this section.
    (d) Indirect costs that are unrecovered as a result of these 
restrictions may not be charged directly or be charged to another 
Federal award.


(Authority: 20 U.S.C. 1221e-3(a)(1), 2831(a), 2974(b), and 3474)


    13. A new Sec. 76.565 is added to read as follows:


Sec. 76.565  General management costs--restricted rate.

    (a) As used in Sec. 76.564, general management costs means the 
costs of activities that are for the direction and control of the 
grantee's affairs that are organization-wide. The term organization-
wide does not include divisional administration or other activities 
that are limited to one activity, one component of the grantee, one 
subject, one phase of operations, or other single responsibility.
    (b) General management costs include the costs of performing a 
service function, such as accounting, payroll preparation, or personnel 
management, that is normally at the grantee's level even if the 
function is physically located elsewhere for convenience or better 
management. The term also includes certain occupancy and space 
maintenance costs as determined under Sec. 76.568.
    (c) The term does not include expenditures for--
    (1) The governing body of the grantee;
    (2) Compensation of the chief executive officer of the grantee;
    (3) Compensation of the chief executive officer of any component of 
the grantee; and
    (4) Operation of the immediate offices of these officers.
    (d) For purposes of this section--
    (1) The chief executive officer of the grantee is the individual 
who is the head of the executive office of the grantee and exercises 
overall responsibility for the operation and management of the 
organization. The chief executive officer's immediate office includes 
any deputy chief executive officer or similar office along with 
immediate support staff of these individuals. The term does not include 
the governing body of the grantee, such as a board or a similar elected 
or appointed governing body; and
    (2) Components of the grantee are those organizational units 
supervised directly or indirectly by the chief executive officer. These 
organizational units generally exist one management level below the 
executive office of the grantee. The term does not include the office 
of the chief executive officer or a deputy chief executive officer or 
similar position.


(Authority: 20 U.S.C. 1221e-3(a)(1), 2831(a), 2974(b), and 3474)


    14. A new Sec. 76.566 is added to read as follows:


Sec. 76.566  Fixed costs--restricted rate.

    As used in Sec. 76.564, fixed costs means contributions of the 
grantee to fringe benefits and similar costs, but only those associated 
with salaries and wages that are charged as indirect costs, including--
    (a) Retirement, including State, county, or local retirement funds, 
Social Security, and pension payments;
    (b) Unemployment compensation payments; and
    (c) Property, employee, health, and liability insurance.


(Authority: 20 U.S.C. 1221e-3(a)(1), 2831(a), 2974(b), and 3474)


    15. A new Sec. 76.567 is added to read as follows:


Sec. 76.567  Other expenditures--restricted rate.

    (a) As used in Sec. 76.564, other expenditures means the grantee's 
total expenditures for its federally- and non-federally-funded 
activities in the most recent year for which data are available. The 
term also includes direct occupancy and space maintenance costs as 
determined under Sec. 76.568 and costs related to the chief executive 
officers of the grantee and components of the grantee and their offices 
(see Sec. 76.565(c) and (d)).
    (b) The term does not include--
    (1) General management costs determined under Sec. 76.565;
    (2) Fixed costs determined under Sec. 76.566;
    (3) Capital outlay;
    (4) Debt service;
    (5) Fines and penalties;
    (6) Contingencies; and
    (7) Election expenses. However, the term does include election 
expenses that result from elections required by a program statute.


(Authority: 20 U.S.C. 1221e-3(a)(1), 2831(a), 2974(b), and 3474)

    16. A new Sec. 76.568 is added to read as follows:


Sec. 76.568  Occupancy and space maintenance costs--restricted rate.

    (a) As used in the calculation of a restricted indirect cost rate, 
occupancy and space maintenance costs means such costs as--
    (1) Building costs whether owned or rented;
    (2) Janitorial services and supplies;
    (3) Building, grounds, and parking lot maintenance;
    (4) Guard services;
    (5) Light, heat, and power;
    (6) Depreciation and amortization; and
    (7) All other related space costs.
    (b) Occupancy and space maintenance costs associated with 
organization-wide service functions (accounting, payroll, personnel) 
may be included as general management costs if a space allocation or 
use study supports the allocation.
    (c) Occupancy and space maintenance costs associated with functions 
that are not organization-wide must be included with other expenditures 
in the indirect cost formula. These costs may be charged directly to 
affected programs only to the extent that statutory supplanting 
prohibitions are not violated. This reimbursement must be approved in 
advance by the Secretary.


(Authority: 20 U.S.C. 1221e-3(a)(1), 2831(a), 2974(b), and 3474)


    17. A new Sec. 76.569 is added to read as follows:


Sec. 76.569  Using the restricted indirect cost rate.

    (a) Under the programs referenced in Sec. 76.563, the maximum 
amount of indirect costs under a grant is determined by the following 
formula:


    Indirect costs=(Restricted indirect cost rate) x (Total direct 
costs of the grant minus capital outlays, subgrants, and other 
distorting or unallowable items as specified in the grantee's 
indirect cost rate agreement)


    (b) If a grantee uses a restricted indirect cost rate, the general 
management and fixed costs covered by that rate must be excluded by the 
grantee from the direct costs it charges to the grant.


(Authority: 20 U.S.C. 1221e-3(a)(1), 2831(a), 2974(b), and 3474)

[FR Doc. 94-905 Filed 1-13-94; 8:45 am]
BILLING CODE 4000-01-P