Federal Grant Indirect-Cost Cap

The Office of Management and Budget has proposed capping indirect costs on federal grants to nonprofit organizations at 10% of direct costs, applied as a flat ceiling regardless of an organization's size or its own negotiated rate. NANA opposes a blanket cap on the grounds that indirect costs (rent, accounting, HR, and the staff time spent administering a grant rather than doing the funded work) do not shrink in proportion to a smaller organization's grant. Senior Policy Manager Farah Qureshi-Lindgren, who tracks NANA's federal-grant files, says the proposal treats a negotiated rate as padding to be trimmed rather than as the documented cost of running a federally funded program, which is what it represents for member associations that have gone through the federal negotiation process.

A capped rate hits small association grantees hardest, because their fixed overhead does not scale down with a smaller award. Obadiah Fenwick, executive director of the Chesapeake Watermen's Cooperative Association, runs a three-person office that relies on federal grants to fund fisheries-monitoring work for its 48 member co-ops. "You can shrink the direct-cost side of a grant," Fenwick has said. "You can't shrink rent." Some larger association members have negotiated indirect-cost rates in the 25–35% range, reflecting years of audit, compliance, and reporting overhead; a 10% ceiling would apply to those organizations too, though the effect is proportionally smaller for an association that can spread the same overhead across a larger grant portfolio. For a small grantee, the shortfall has to come from unrestricted funds most associations don't have, or from scaling back the grant-funded program itself, since the overhead required to run it does not disappear along with the funding.

NANA is asking the Office of Management and Budget to preserve the existing negotiated indirect-cost-rate process rather than replacing it with a flat cap, or at minimum to exempt grantees whose negotiated rate predates the proposed rule. Member associations that hold federal grants are asked to file their own comments, and small grantees with negotiated rates above 10% are asked to submit their specific dollar impact rather than a general objection, since a concrete figure carries more weight with the agency than anecdotal opposition. NANA's Fall Policy Forum includes a session on the proposed cap timed to the comment period, and the Federal Grant Indirect-Cost Brief walks members through estimating their own exposure before they file.