What is the Definition of ‘Administrative Costs’

FAQ 69

What is the Definition of ‘Administrative Costs’

Proposition 39 of 2000 added the following language to the California Constitution, Article XIIIA, Section 1.(b)(3)(A), which states, “A requirement that the proceeds from the sale of the bonds be used only for the purposes specified in Article XIII A, Section 1(b)(3), and not for any other purpose, including teacher and administrator salaries (emphasis added) and other school operating expenses.

While “teacher … salaries” is relatively easy to understand, “administrator salaries” is more challenging to define, and there is no guidance in Proposition 39, its implementing State statutory provisions or other elements of Proposition 39.

This lack of definition caused confusion to school construction bond personnel until then-California Attorney General Bill Lockyer issued his Opinion No. 04-1101 on November 9, 2004, which concludes, “A school district may use Proposition 39 school bond proceeds to pay the salaries of district employees to the extent they perform administrative oversight work on construction projects authorized by a voter-approved bond measure.”  In the absence of statutory or case law, an Attorney General opinion is generally regarded as the best available legal authority.  This opinion essentially disallows charging the general administrative salaries of a district, such as those of the Superintendent, to school construction bond funds, but allows the charging of such costs for administrative oversight work on construction projects authorized by bond measures approved by the voters.

The question of what administrative salaries and other administrative expenses can be charged to Prop. 39 school construction bond funds can be very complex, and such issues are frequently referred to district bond counsel.  If a CBOC has questions about whether questionable costs are being charged, it should ask the district for its legal and accounting justification.  It is possible that a district would refuse to provide a bond counsel opinion on the grounds of legal privilege; many districts will provide such information, and related information such as accounting department procedures and memos, references to Generally Accepted Accounting Procedures (GAAP), and Government GAAP, and indirect cost allocation plans.

We note that the Attorney General’s opinion should not be regarded as authorizing all facilities-related costs of a district to be charged to SCHOOL CONSTRUCTION BONDS funds.  For example, an Assistant Superintendent for Business or Facilities Manager may spend a portion of their time on non-SCHOOL CONSTRUCTION BONDS projects (construction projects not funded with Proposition 39 bond funds, maintenance, and repair projects).  The salary and benefits allocation of a position jointly funded with Proposition 39 bond funds and other funds (i.e., general fund) should be based on the actual hours worked for each fund.  The allocation should not be based on an arbitrary percentage (i.e., 50% bond construction fund and 50% general fund).  Arbitrary percentage allocations of a joint fund position could result in the bond funds subsidizing the general fund.

(See also FAQs 10. and 11., “What can be funded with bond proceeds and what is not permitted?”  and “What can a Bond Oversight Committee member do when the District spends money on projects not authorized or are questionable in nature?” respectively.)  Also, FAQ 39, “What is the meaning of ‘administrative salaries’ for determining allowable changes to Proposition 39 School Construction Bond (SCHOOL CONSTRUCTION BONDS) funds?”