CalNonprofits Articles

Fairer overhead rates continue to be an urgent and crucial matter for nonprofits with government contracts and/or foundation grants. Although two of the bills CalNonprofits, along with the CA Nonprofit Contracting Coalition, brought to the legislature this year were overhead related, neither one got to the finish line.

So it's tremendously heartening to see that under the Biden Administration, the Office of Management and Budget (OMB) is proposing changes that – if adopted – will help nonprofits immensely. Right now the office is accepting comments from the public by December 4.

Call to action: Let the US Office of Management & Budget (OMB) know you support their proposed change to a 15% minimum overhead rate for government grants with nonprofits that involve federal dollars! Here is the complete text and instructions on where to send comments.

Key provisions:

  • Increases the minimum/default overhead rate from 10% to 15%
  • Increases the threshold for requiring a Single Audit from $750,000 to $1 million
  • Indexes the Single Audit threshold to the cost of living
  • A state or local agency making grants using federal funds cannot browbeat or pressure nonprofits to accept lower indirect direct rates. And nonprofits will be able to complain directly to OMB (currently nonprofits can only complain to the local agency).
  • By clarifying terms and simplifying categories, OMB is demonstrating marked progress towards the goal of "plain language"

OMB is calling this a "fundamental rewrite" of the Uniform Grants Guidance. Unfortunately, overhead rates can still be under 15% if such rates are written into the legislation, as they are with HeadStart, VISTA, and some other programs. Still, these are substantial and meaningful improvements that will allow nonprofits to work more efficiently and effectively, and reduce administrative headaches a bit.

These proposals are another sign that the movement is growing for fairer, more reasonable funding practices between governments and nonprofits. Stay tuned for whether these proposals are adopted, and for next steps by the Nonprofit Contracting Coalition.

Thank you to Portland-based finance consultant Kay Sohl for assistance on this article.

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