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Sequim council directs staff to define indirect costs and limit municipal funding support to 15% for overhead
Summary
Council wrestled with how municipal funding grants may be used for administrative costs and asked staff to return with guidance defining direct vs. indirect/administrative expenses and a 15% cap on indirect costs as the working direction.
Sequim City Council on Feb. 24 gave staff direction to revise municipal funding guidance so applicants submit itemized budgets and staff can track administrative time and overhead. Councilors and staff discussed whether municipal funds may pay for organizational overhead, salaries and indirect expenses and settled on returning with a recommended definition and a 15% cap.
What council directed: Staff will come back with revised guidelines that clarify the difference between direct program costs and indirect or administrative costs, require itemized budgets from applicants, and implement a 15% cap on indirect costs as the working guidance for this municipal funding cycle.
Why it matters: The city's municipal funding program has been available since 2020; staff found Washington law (as researched) is vague about whether municipal funds may support an organization generally versus a discrete program or project. Staff reported (citing a prior review) that municipal funds may support a project or program but not the organization writ large; if a project includes staff time, that time must be tracked.
Staff presentation and council discussion: A staff member leading the municipal funding program said the city has typically seen municipal awards applied to administrative costs and that the new guidance needs to make clear how applicants account for staff time and overhead. The staff member summarized the legal research: "municipal funds may not go to support an organization but may go to support an organization's project or program," and if staff time is included it must be tracked.
Several councilors noted the difficulty small nonprofits face funding administrative costs and supported allowing a reasonable indirect-cost allowance so projects can be administered effectively. One councilor said the federal de minimis indirect-cost rate currently used by some grant programs is 15% and suggested aligning the municipal guidance to that benchmark. Councilors asked staff to require itemized budgets and indicated a preference for a 15% cap on indirect costs (defined for staff to return with wording consistent with 2 CFR Part 200 guidance).
Next steps: Staff will revise the municipal funding guidelines and application to require itemized budgets, propose a definition distinguishing direct program costs from indirect/administrative costs (using standard federal guidance as a reference as appropriate), and present a draft to council at the next meeting so applicants can be notified before the June 15 application deadline.
Ending note: Council asked staff to prepare a webinar and offer applicant meetings after the guidelines are posted so applicants can adjust proposals to the clarified rules.
