A bill for an act relating to indirect costs charged to state-funded grants, and including applicability provisions.

HB 642 establishes a 5% cap on indirect costs (overhead expenses like administration, utilities, and shared services) charged to state-funded grants in Iowa, effective July 1, 2026. It directly affects state departments awarding grants and grantees (including nonprofits, schools, and local governments) receiving state funds. The bill requires separate budgeting for direct costs (program-specific expenses) and indirect costs, mandates documentation of cost allocations, and prohibits reclassifying indirect costs as direct costs to bypass the cap. Grantees must maintain records for 10 years, and departments must monitor compliance to disallow excess costs or recover funds.