This is the accessible text file for GAO report number GAO-03-569 
entitled 'School Meal Programs: Revenue and Expense Information from 
Selected States' which was released on May 09, 2003.

This text file was formatted by the U.S. General Accounting Office 
(GAO) to be accessible to users with visual impairments, as part of a 
longer term project to improve GAO products' accessibility. Every 
attempt has been made to maintain the structural and data integrity of 
the original printed product. Accessibility features, such as text 
descriptions of tables, consecutively numbered footnotes placed at the 
end of the file, and the text of agency comment letters, are provided 
but may not exactly duplicate the presentation or format of the printed 
version. The portable document format (PDF) file is an exact electronic 
replica of the printed version. We welcome your feedback. Please E-mail 
your comments regarding the contents or accessibility features of this 
document to Webmaster@gao.gov.

This is a work of the U.S. government and is not subject to copyright 
protection in the United States. It may be reproduced and distributed 
in its entirety without further permission from GAO. Because this work 
may contain copyrighted images or other material, permission from the 
copyright holder may be necessary if you wish to reproduce this 
material separately.

On January 4, 2004, this document was revised to add various 
footnote references missing in the text of the body of the document.

Report to Congressional Requesters:

United States General Accounting Office:

GAO:

May 2003:

School Meal Programs:

Revenue and Expense Information from Selected States:

GAO-03-569:

GAO Highlights:

Highlights of GAO-03-569, a report to Congressional Requesters 

Why GAO Did This Study:

The National School Lunch and Breakfast Programs provide millions of 
children with low-cost or free nutritious meals each school day. In 
school year 1996-97, the Department of Agriculture instituted more 
stringent requirements for the nutritional content of school meals. 
GAO was asked to study the school food service revenues and expenses 
and how they have changed since the requirements went into effect. 
This report includes information on the sources of revenues available 
for providing meals, the expenses of producing meals, the revenues 
compared to expenses, and the approaches that local school food 
authorities have adopted to manage their school food service finances. 
It uses data from six selected states. This report does not provide 
specific information on the expense of producing a reimbursable school 
lunch or breakfast. 

What GAO Found:

Revenue from federal reimbursements and the sale of food were the 
principal sources of revenue for school food services in the six 
states GAO reviewed for school years 1996-97 through 2000-01. Federal 
reimbursements decreased slightly in proportion to the total, while 
revenues from food sales increased slightly. Funds from state 
governments and other sources represented a relatively small portion 
of total revenues and remained relatively stable as a share of total 
revenues.

Labor and food purchases were the principal expenses for the six 
states, sharing nearly equal proportions and changing only slightly. 
Labor expenses, which included salaries and benefits for food service 
employees, grew slightly while food expenses decreased slightly. Other 
expenses, such as contract services, made up a smaller portion of 
expenses, and this portion remained constant.

The six states had a small though increasing shortfall in total 
revenue compared to expenses over the 5-year period, as shown below. 
Their total expenses increased by about 22 percent, while their total 
revenues increased by about 20 percent. The portion of total school 
food service expenses covered by federal reimbursements declined from 
54 to 51 percent, and the portion of expenses paid by state funds was 
small and declined slightly.

To limit their expenses and maximize their revenues, local school food 
authority officials reported buying food in bulk, hiring more part-
time staff, expanding a la carte food sales and catering programs, and 
other strategies.

www.gao.gov/cgi-bin/getrpt?GAO-03-569.

To view the full report, including the scope and methodology, click on 
the link above. For more information, contact David D. Bellis at (415) 
904-2272.

[End of section]

Contents:

Letter:

Results in Brief:

Background:

Federal Reimbursements and Food Sales Were the Principal Sources of 
Revenue over the Period, with Slight Changes in Their Proportionate 
Share of the Total:

Labor and Food Were the Principal School Food Service Expenses over the 
5-Year Period, with Slight Changes in Their Proportionate Share of the 
Total:

States Experienced a Small but Increasing Revenue Shortfall:

States Used a Variety of Expense-Containment and Revenue-Producing 
Strategies to Manage School Food Service Finances:

Conclusions:

Agency Comments and Our Evaluation:

Appendix I: Scope and Methodology:

Appendix II: Federal School Meal Cash Reimbursement Rates, School Years 
1996-97 through 2002-03:

Appendix III: GAO Contact and Staff Acknowledgments:

GAO Contact:

Staff Acknowledgments:

Table:

Table 1: Minimum School Meal Programs Reimbursement Rates, School Year 
2002-03:

Figures:

Figure 1: Sources of Revenues for School Food Services in Six States, 
School Years 1996-97 through 2000-01:

Figure 2: School Food Service Revenue Components as a Percentage of 
Total Revenues in Six States, School Years 1996-97 through 2000-01:

Figure 3: School Food Service Revenue Components by State, School Year 
2000-01:

Figure 4: School Food Service Expense Components in Six States, School 
Years 1996-97 through 2000-01:

Figure 5: Changes in Proportion of School Food Service Expense 
Components in Six States, School Years 1996-97 through 2000-01:

Figure 6: School Food Service Expense Components by State, School Year 
2000-01:

Figure 7: Changes in Total School Food Service Revenues and Expenses in 
Six States, School Years 1996-97 through 2000-01:

Figure 8: Proportion of Total School Food Service Expenses Paid by 
Revenue Component in Six States, School Years 1996-97 through 2000-01:

Figure 9: Federal Reimbursements as a Percentage of Total School Food 
Service Expenses by State, School Years 1996-97 and 2000-01.

Abbreviations:

SFA: school food authority:

USDA: U.S. Department of Agriculture:

United States General Accounting Office:

Washington, DC 20548:

May 9, 2003:

The Honorable Tom Harkin:

Ranking Minority Member:

Committee on Agriculture,

Nutrition, and Forestry:

United States Senate:

The Honorable Tom Daschle 

The Honorable Tim Johnson 
The Honorable Jay Rockefeller 
United States Senate:

The National School Lunch and the School Breakfast Programs provide 
millions of children with nutritious meals each school day. The U.S. 
Department of Agriculture's (USDA) Food and Nutrition Service provides 
states with federal cash reimbursements for each meal served that meets 
federal requirements.[Footnote 1] USDA also provides states with 
donated commodities for each school lunch served. Any child at a 
participating school may purchase these meals, and children from 
certain low-income households may receive the meals free or at a 
reduced price. A comprehensive study conducted a decade ago concluded 
that the combined federal reimbursements paid to states for the free 
breakfasts and lunches that students received covered the expenses of 
producing them.[Footnote 2] However, the study was conducted before 
USDA established more stringent requirements for the nutritional 
content of school meals, beginning in school year 1996-97. The effect 
of these revised requirements on school food service finances is not 
known. Meanwhile, a recent rise in the percentage of children who are 
overweight or obese underscores the importance of these programs, since 
they are designed to provide children with nutritionally balanced meals 
and to help them develop healthy eating habits.[Footnote 3]

To participate in these programs, states provide a partial match to the 
federal reimbursements. They usually fund and operate the programs 
through their departments of education, which in turn have agreements 
with school food authorities (SFA). SFAs are local offices that are 
responsible for the administration of school food services in one or 
more schools. In addition to receiving federal cash reimbursements and 
state funds, SFAs may also receive funds from student and adult food 
sales and other sources, such as catering services, interest on 
deposits, and revenues from the sale of used equipment.

In view of the revised nutritional requirements, you asked us to study 
school food service revenues and expenses since the requirements went 
into effect. The objective of this report is to provide detailed 
information from school years 1996-97 through 2000-01 on the (1) 
sources of revenues available for providing school meals and how they 
have changed; (2) school food service expenses of producing meals and 
how they have changed; (3) school food service revenues, and 
particularly federal reimbursements, compared to the expenses of 
producing meals over this period; and (4) approaches that SFAs have 
adopted to manage their school food service finances. We are also 
issuing two other school meal related reports, one addresses the safety 
of the school meals and the other covers the efforts to serve 
nutritious meals and promote healthy eating in schools.[Footnote 4]

To address each of these objectives, we collected and analyzed school 
year 1996-97 through 2000-01 revenue and expense data as reported to 
state agencies by all public school SFAs located in six states: 
Florida, Missouri, New York, Ohio, Texas, and Virginia. We selected 
these states because, of those states able to provide us with the 
needed data, they had the highest school meal programs reimbursement 
amounts in six of the Food and Nutrition Service's seven 
regions.[Footnote 5] As a group, the six states received about 30 
percent of the total federal school lunch and breakfast reimbursement 
funds dispersed nationwide in fiscal year 2001. In addition, we 
interviewed each of the six states' school food service directors, and 
12 local SFA directors (2 in each state), to obtain information on 
approaches they took to manage their school food service finances in 
light of their overall revenue and expense picture.[Footnote 6] We did 
not verify the information collected for this study. However, we 
reviewed the data we collected for reasonableness and followed up where 
appropriate. Moreover, the data we collected provided information on 
SFA revenues and expenses but did not permit us to calculate the cost 
of producing a reimbursable meal. A more detailed description of our 
study methodology is provided in appendix I. The results of the 
financial data in our study are reported in nominal dollars that can be 
generalized only for those states included in our review. We conducted 
our work between October 2002 and March 2003 in accordance with 
generally accepted government auditing standards.

Results in Brief:

The principal sources of revenue for school food services in the six 
states combined for school years 1996-97 through 2000-01 were federal 
reimbursements and food sales; their proportionate share changed 
slightly over the 5-year period, with federal revenues decreasing from 
55 to 53 percent of total revenues and food sales increasing from 38 to 
39 percent of total revenues. Specific to food sales, revenue from a la 
carte foods, which are food items sold separately from the school meal 
programs and therefore not eligible for federal reimbursement, 
increased from about 40 percent of total food sales to about 43 percent 
over the period. Funds from state governments and other sources 
represented a relatively small portion of total revenues. Combined, 
total revenues grew from about $3.4 billion to about $4 billion in the 
six states over the period. While federal reimbursements and sales were 
consistently the largest revenue sources in each of the six states, 
their share of total revenues varied considerably by state.

Labor and food purchases were the principal expenses in the six states 
combined, sharing nearly equal proportions and changing slightly over 
the period. Labor expenses, which include salaries and benefits for 
food service employees, grew from about 43 percent of total expenses to 
44 percent. Food, which includes the value of USDA-donated commodities 
as well as purchased food, decreased from about 42 to 41 percent of 
total expenses during the period. Other expenses, such as contract 
services and capital expenditures, remained constant at about 15 
percent of total expenditures. Combined, total school food service 
expenses increased from about $3.4 billion to about $4.1 billion over 
the period. While labor and food represented the principal expenses of 
school food services across the six states, their share of total 
expenses varied somewhat by state. There were greater variations among 
the states, however, in the proportion of their labor expenses made up 
of salaries and benefits. For example, in New York salaries and 
benefits ranged from about 90 and 10 percent respectively, while in 
Florida they ranged from about 74 and 26 percent respectively.

The six states' SFAs had a small though increasing shortfall in their 
total revenues compared to expenses over the 5-year period. Their total 
expenditures increased by about 22 percent, while their total revenues 
increased by about 20 percent. Although the federal reimbursements are 
adjusted annually for inflation, the portion of total school food 
service expenses they covered declined from 54 to 51 percent. The 
portion of total expenses covered by state funds declined by less than 
1 percentage point to less than 3 percent. At the same time, the 
portion of expenses paid by other sources of revenue increased 
slightly, and the portion of expenses paid by revenues from school food 
service sales remained essentially unchanged over the period. We cannot 
determine the reason for the decline in the portion of total expenses 
covered by federal reimbursements because of data limitations. However, 
the decline in the portion of total expenses covered by state funds is 
likely a result of the federal method of calculating the state matching 
contributions, which are based on school year 1980-81 data and are not 
adjusted for inflation. Finally, the percentage of total expenses 
covered by federal reimbursements varied by state.

Local SFA officials reported adopting a variety of measures to both 
limit expenses and enhance revenues in order to manage their school 
food service finances. To contain expenses, they focused primarily on 
food and labor costs. To reduce food costs, for example, they purchased 
food in bulk, found new ways to shop for lower-priced foods, and 
planned menus around USDA-donated commodities. To contain labor costs, 
they reduced staff numbers, replaced full-time staff with part-time 
staff, and served more pre-packaged foods that required less 
preparation. To increase revenues, they reported efforts to encourage 
more students to purchase their meals at school, such as increasing the 
number of food choices and enhancing the atmosphere of the school 
cafeteria. Officials also reported expanding their a la carte sales and 
catering. Raising school meal prices, another option for increasing 
revenues, was viewed as a last resort by most officials. Despite these 
strategies, many SFAs experienced year-end shortfalls, which were 
covered by their school districts' general revenue funds. However, some 
SFA officials expressed concern that their districts are also facing 
tighter budgets and may not be able to absorb the shortfalls in the 
future.

Background:

The National School Lunch Act and the Child Nutrition Act of 1966 
authorized the school lunch and school breakfast programs, 
respectively.[Footnote 7] These school meal programs provide federal 
cash reimbursements to help states pay for nutritious lunches and 
breakfasts for children in participating public and private schools and 
residential child care institutions. The federal per meal cash 
reimbursement is adjusted annually for inflation.[Footnote 8] 
Administered by the USDA's Food and Nutrition Service, the school meal 
programs are usually operated by state departments of education that 
have agreements with about 20,000 SFAs to provide the meals. SFAs that 
choose to take part in the school meal programs receive a federal cash 
reimbursement for each qualifying school lunch and breakfast they serve 
to children. SFAs participating in the school lunch program may also 
receive a federal reimbursement for snacks served to children 
participating in supervised after school educational or enrichment 
activities. These school meal programs are available in the 50 states 
and the District of Columbia, Guam, Puerto Rico, and the Virgin 
Islands.[Footnote 9]

The amount that SFAs may charge for their school meals depends on the 
family income of participating children.[Footnote 10] SFAs may charge 
for school meals according to the following categories:

* Full price meals. Children from families with incomes above 185 
percent of the poverty level pay the meal price set by their SFA. There 
are no set limits on the amount that schools may charge students for a 
full price meal; however, participating SFAs must agree to operate a 
nonprofit school food service.

* Reduced price meals. Children from families with incomes between 130 
percent and 185 percent of the poverty level may not be charged more 
than 40 cents for lunch and 30 cents for breakfast.

* Free meals. Children from families with incomes at or below 130 
percent of the poverty level receive their meals free.

To receive federal reimbursement, SFAs must process an individual 
household application for most participants in the free and reduced 
price programs,[Footnote 11] verify eligibility for at least a sample 
of households that apply, and keep daily track of school meals provided 
by eligibility category.

The levels of federal reimbursement per meal also vary according to the 
three categories. According to USDA, the per meal federal cash 
reimbursement is intended to cover the average expense of producing a 
school meal nationwide. The reimbursement rates shown in table 1 are 
the minimum amounts reimbursed to the contiguous states. Alaska and 
Hawaii receive higher reimbursement rates. Higher reimbursement rates 
are also established for SFAs in certain low-income areas and districts 
identified by states as having critical needs.

Appendix II provides a more detailed listing of the school meal 
programs reimbursement rates and how they varied for school years 1996-
97 through 2002-03.

Table 1: Minimum School Meal Programs Reimbursement Rates, School Year 
2002-03:

Reimbursement category: Full price; Minimum reimbursement rates: Lunch: 
$0.20; Minimum reimbursement rates: Breakfast: $0.22; Minimum 
reimbursement rates: Snack: $0.05.

Reimbursement category: Reduced price; Minimum reimbursement rates: 
Lunch: 1.74; Minimum reimbursement rates: Breakfast: 0.87; Minimum 
reimbursement rates: Snack: 0.29.

Reimbursement category: Free; Minimum reimbursement rates: Lunch: 2.14; 
Minimum reimbursement rates: Breakfast: 1.17; Minimum reimbursement 
rates: Snack: 0.58.

Source: USDA.

[End of table]

SFAs also receive revenues from states for their school meal programs. 
As a requirement of participation, states must provide annual revenues 
for their school lunch program operations.[Footnote 12] SFAs may also 
generate revenues by offering fee-based catering services and selling a 
la carte foods, which are food items that are sold separately from the 
school meal programs and therefore not eligible for federal 
reimbursement, as other methods of increasing their school food service 
revenues. Finally, SFAs may receive other cash revenues, such as the 
interest on deposits, and revenues from the sale of used equipment. In 
addition to cash reimbursements, SFAs may also receive donated 
commodity foods[Footnote 13] from USDA, valued in school year 2002-03 
at 15.5 cents for each lunch served in the previous school year.

Federal Reimbursements and Food Sales Were the Principal Sources of 
Revenue over the Period, with Slight Changes in Their Proportionate 
Share of the Total:

Federal reimbursements and sales revenues, which include student and 
adult meal payments, were the largest sources of school food service 
revenues in the six states during school years 1996-97 through 2000-01, 
with the share of federal reimbursements declining slightly and sales 
revenues increasing slightly. Funds from state governments and other 
sources represented a small portion of total revenues during this 
period. Specific to sales revenues, student payments for a la carte 
sales increased as a percentage of total school food service sales 
revenue. Finally, although federal reimbursements and revenues from 
sales were consistently the most significant revenue sources in each of 
the six states, their share of total revenues varied considerably by 
state.

School Food Service Revenues Come Primarily from Two Sources:

Total school food service revenues reported by the six states increased 
from about $3.3 billion in school year 1996-97 to almost $4 billion in 
school year 2000-01. Federal reimbursements, including the value of 
donated USDA commodities, accounted for the largest share of revenues. 
Sales revenues, which include student and adult (e.g., schools 
administrators, teachers, and parents) payments, were the second 
largest source of revenues in these states. Revenues from state and 
local governments and other sources, which include catering services, 
interest on deposits, and the sale of used equipment, provided a 
relatively small portion of total revenues.[Footnote 14] Figure 1 shows 
the various sources of revenues for school years 1996-97 through 2000-
01.

Figure 1: Sources of Revenues for School Food Services in Six States, 
School Years 1996-97 through 2000-01:

[See PDF for image]

[End of figure]

Federal Revenues Declined Slightly in Relation to Total Revenues, While 
Sales Revenues Increased Slightly:

As figure 2 shows, federal reimbursements declined modestly in 
proportion to total school food service revenues during school years 
1996-97 through 2000-01. Federal reimbursements' share of total 
revenues decreased from about 55 to 53 percent. Conversely, during this 
period, revenues from food sales in relation to total revenues 
increased slightly from about 38 to 39 percent. Moreover, there was a 
less than 1 percentage point decrease in state funds to about 3 percent 
over this period and a 1 percentage point increase in other revenues to 
about 5 percent.

Figure 2: School Food Service Revenue Components as a Percentage of 
Total Revenues in Six States, School Years 1996-97 through 2000-01:

[See PDF for image]

[End of figure]

Specifically regarding revenue from food sales, information from five 
states that were able to separate the payments for a la carte foods 
from other meal sales showed an increase in a la carte revenues from 
about 40 percent of total sales revenues in school year 1996-97 to 
about 43 percent of total sales revenues in school year 2000-01. 
Because a la carte foods are not part of the school meal programs, they 
are not covered by the programs' nutritional requirements. As a result, 
some a la carte foods are nutritious, while others may have limited 
nutritional value.[Footnote 15]

Share of Federal Reimbursements and Sales Revenues to Total Revenue 
Varied Considerably among the States:

Although federal reimbursements and sales comprised the principal 
source of revenues for the school food services in each of the six 
states, their share of total revenues varied from state to state. As 
shown in figure 3, during school year 2000-01, federal reimbursements 
as a share of total revenue ranged from about 59 percent in Texas to 
about 39 percent in Ohio. A number of factors may be responsible for 
the variation in the share of federal reimbursements to total revenues 
reported across the six states. For example, a state may have a high 
proportion of low-income students that qualify for free or reduced 
price meals that receive a higher federal reimbursement rate, thereby 
increasing the relative share of its federal reimbursements. Another 
reason may be higher a la carte food sales that could increase the 
proportion of revenue from nonreimbursable food sales. Differences in 
the extent to which states utilize available USDA commodities may also 
account for some of the variation in federal reimbursements as a share 
of total revenues between states. However, because of data limitations, 
we cannot determine the reason for the variation. Sales revenues ranged 
from about 30 percent of total revenues in New York to about 56 percent 
in Ohio during the period. State revenues ranged from about 1 percent 
of total revenues in Missouri to about 6 percent in New York. Other 
revenues ranged from zero percent of total revenues in Missouri to 
almost 12 percent of total revenues in New York during the period.

Figure 3: School Food Service Revenue Components by State, School Year 
2000-01:

[See PDF for image]

[End of figure]

Labor and Food Were the Principal School Food Service Expenses over the 
5-Year Period, with Slight Changes in Their Proportionate Share of the 
Total:

Labor and food purchases accounted for most of the expenses of 
operating the school food services, with nearly equal shares of the 
expenditures and slight changes in their relative shares during school 
years 1996-97 through 2000-01. Other school food service expenses 
represented a smaller, but significant, portion of total expenditures. 
During this period, labor expenses slightly increased as a portion of 
total expenses, while food expenses slightly decreased. While labor and 
food were consistently the most significant expenses of operating the 
school food services in each of the six states, their share of total 
expenses varied somewhat by state.

Labor and Food Accounted for a Significant Portion of Expenses:

Total school food service expenses reported by the six states have 
increased from about $3.4 billion to about $4.1 billion between school 
years 1996-97 and 2000-01. Labor and food purchases accounted for 
significant and nearly equal portions of the total expenses during the 
period. Labor expenses include the cost of salary and benefits of food 
service staff. Food expenses include the cost of purchased food and the 
value of USDA commodities used by schools in all food service 
activities. Finally, other school food service expenses, such as 
supplies, contract services, and capital expenditures, account for the 
remaining portion. Figure 4 shows the various expense components for 
school years 1996-97 through 2000-01.

Figure 4: School Food Service Expense Components in Six States, School 
Years 1996-97 through 2000-01:

[See PDF for image]

[End of figure]

Labor Expenses Increased Slightly in Proportion to Total Expenses, 
While Food Expenses Decreased Slightly:

As shown in figure 5, as a percentage of total school food service 
expenses, labor costs increased slightly--from about 43 to about 44 
percent--during school years 1996-97 through 2000-01. Food expenses as 
a percentage of total expenses modestly decreased--from about 42 to 
about 41 percent--during this period. Other expenses remained at about 
15 percent of the total throughout the period.

Figure 5: Changes in Proportion of School Food Service Expense 
Components in Six States, School Years 1996-97 through 2000-01:

[See PDF for image]

[End of figure]

Specifically regarding labor expenses, salaries and benefits changed 
less than 1 percentage point during this period, with salary expenses 
comprising about four-fifths of total labor expenses and benefit 
expenses comprising about one-fifth of the total across the states.

Share of School Food Service Expense Components to Total Expenses 
Varied Somewhat among the States:

While labor and food represented the principal school food service 
expenses across the six states, their share of total expenses varied by 
state as shown in figure 6. Labor expenses ranged from about 45 percent 
of total expenses in Missouri, Texas, and Virginia to about 42 percent 
of total expenses in Florida and New York. Food expenses ranged from 
about 45 percent of total expenses in Missouri and Ohio to about 39 
percent of total expenses in Florida in school year 2000-01. Other 
expenses ranged from 10 percent of total revenues in Missouri to about 
19 percent of total revenues in Florida during that school year.

Figure 6: School Food Service Expense Components by State, School Year 
2000-01:

[See PDF for image]

[End of figure]

Variations in the portion of labor expenses representing either 
benefits (e.g., health insurance and pensions) or salaries were more 
significant among the states. As a portion of total labor expenses, 
school year 2000-01 salaries ranged from about 90 percent in New York 
to 74 percent in Florida; conversely, benefits ranged from about 26 
percent in Florida to 10 percent in New York. Over this period, the 
salary increases in two states--Florida and New York--grew more quickly 
relative to their benefit increases, whereas benefits grew more quickly 
than salaries in the other four states. The salary increases in Florida 
and New York were responsible for the overall increase in salaries 
outpacing the overall increase in benefits across the six states.

States Experienced a Small but Increasing Revenue Shortfall:

Total school food service expenses were greater than total revenues in 
school years 1996-97 through 2000-01, and the gap between expenses and 
revenues grew slightly over this period for the six states combined. 
Moreover, federal reimbursements paid a smaller portion of school food 
service expenses during the period, as did state revenues. Conversely, 
the portion of expenses paid by other sources of revenues slightly 
increased, while the portion of expenses paid by revenues from school 
food service sales remained essentially unchanged during the period. 
Finally, federal reimbursements as a percentage of total expenses 
varied considerably by state.

School Food Service Expenses Have Slightly Outpaced Increases in 
Revenues:

During school years 1996-97 through 2000-01, total SFA expenses 
increased from about $3.4 billion to about $4.1 billion, or about 22 
percent across the six states, while total SFA revenues increased from 
about $3.3 billion to about $4.0 billion, or about 20 percent. As 
figure 7 indicates, the shortfall grew slightly over the 5-year period.

Figure 7: Changes in Total School Food Service Revenues and Expenses in 
Six States, School Years 1996-97 through 2000-01:

[See PDF for image]

[End of figure]

Total School Food Service Expenses Covered by Federal Reimbursements 
and State Funds Have Declined:

As figure 8 shows, the proportion of total school food service expenses 
paid by federal reimbursements and state funds declined slightly during 
school years 1996-97 through 2000-01 for the six states combined. 
Federal reimbursements paid a smaller portion of total expenses, 
declining from about 54 to 51 percent. The proportion of total expenses 
paid by state funds also declined by less than 1 percentage point to 
less than 3 percent during the same period. Conversely, the proportion 
of total expenses paid from other funds grew by about 1 percentage 
point to almost 5 percent, while revenues from meal sales as a 
proportion of total expenses were essentially unchanged at about 38 
percent during the period.

Figure 8: Proportion of Total School Food Service Expenses Paid by 
Revenue Component in Six States, School Years 1996-97 through 2000-01:

[See PDF for image]

[End of figure]

The proportionate decline in federal reimbursement overall reflects the 
fact that total school food service expenses grew more quickly than 
federal reimbursement revenue. This may have occurred because the 
federal per meal reimbursement rate may not have risen as quickly as 
the cost per meal. However, without data on the average cost of 
reimbursable meals, we cannot determine if this is a reason for the 
decline. There are other possible reasons. For example, the growth in 
expenses may have exceeded the growth in federal reimbursement because 
schools are serving more a la carte foods, which could increase both 
expenses for nonreimbursable meals and revenue from nonreimbursable 
food sales, potentially decreasing the federal share. As another 
reason, a smaller proportion of students in an SFA may be eligible for 
or receiving free or reduced price school meals.

The decrease in the share of expenses paid by state revenues is the 
result of the federal funding requirement for states. To participate in 
the school lunch program, states must provide annual matching cash 
contributions for program operations that equal 30 percent of the full 
price reimbursement for each eligible lunch they served in school year 
1980-81.[Footnote 16] Because each state's contribution is calculated 
on the fixed 1980-81 school year dollar amount, the contribution 
continues to decline each year as a share of the total school food 
service revenues and expenses.

Federal Reimbursements as a Percentage of Total Expenses Varied by 
State:

The proportion of expenses covered by federal reimbursements varied 
among the six states. As figure 9 shows, during school year 2000-01, 
federal reimbursements covered about 37 percent of total expenses in 
Ohio and about 59 percent of total expenses in Texas. There are several 
potential explanations for this difference. For example, suppose that 
the sale of a la carte foods as a percentage of total revenues is 
higher in one state than another. This means that the proportion of 
expenses covered by a la carte revenues is also higher for that state, 
and therefore the proportion of expenses covered by federal 
reimbursements is lower. Further, improvements in a state's economic 
situation could result in fewer children eligible for free or reduced 
price meals. This change in eligibility category would result in 
schools receiving less federal reimbursement as a percentage of 
expenses. However, because of data limitations, we cannot determine 
specifically why the difference exists. Despite the variation among the 
states, the proportion of federal reimbursements as a percentage of 
total expenses was lower in school year 2000-01 than in school year 
1996-97, ranging from less than 1 percentage point in Texas to about 6 
percentage points in Florida.

Figure 9: Federal Reimbursements as a Percentage of Total School Food 
Service Expenses by State, School Years 1996-97 and 2000-01.

[See PDF for image]

[End of figure]

States Used a Variety of Expense-Containment and Revenue-Producing 
Strategies to Manage School Food Service Finances:

In an effort to minimize their revenue shortfalls, local SFAs employed 
two overall approaches to manage school food service finances--
containing expenses and enhancing revenues. Efforts to contain school 
food service expenses focused primarily on food and labor--which 
comprised the largest share of all expenses. In order to contain these 
expenses, SFAs reduced expenditures, changed the way they purchased 
foods and the types of foods they purchased, reduced labor hours, and 
took steps to operate more efficient programs. SFAs further managed 
school food service finances by augmenting their food service revenues 
through increased sales from a la carte food items and catering; 
increased participation in the school meal programs; and in some cases, 
raising meal prices.

To Contain Expenses, Officials Focused on Food and Labor:

Although fewer than half of the 14 local officials we interviewed said 
that their overall food expenses had increased in recent years because 
of USDA's revised school meal nutritional requirements, most of these 
officials said they saw the need to control food expenses. The 
approaches used to contain food expenses varied by SFA. Many officials, 
for example, said they participated in food cooperative arrangements 
with other SFAs that allowed them to purchase bulk food items at lower 
cost. Some small SFAs reported that this arrangement was particularly 
useful for them because it provided them with greater purchasing power 
than they would have individually. Other officials attended local food 
shows that allowed them to shop competitively for lower-priced food 
items. To offset the costs of buying fresh fruits and vegetables, one 
SFA located in a state that participates in a "farm-to-school" pilot 
program with the USDA, obtained this produce from small farmers at low 
cost.[Footnote 17] Taking another approach, one SFA reduced the number 
of school menu offerings and purchased fewer fresh fruits and 
vegetables for the school meal programs. Other officials planned their 
school meal menus around the donated food commodities from the USDA, 
which reduced the amount of additional food that needed to be 
purchased.

SFAs attempted to contain labor expenses by reducing the amount of 
labor and sought ways to increase the efficiency of the staff. 
According to most state and local officials, certain aspects of labor 
expenses have been rising, particularly salary scales and benefits. 
However, both are usually determined at the school district level and 
are therefore beyond the control of the SFA. In addition, a few local 
officials noted that many food service employees who are a part of the 
"baby boom generation" have begun to retire, and SFAs have, in some 
cases, found it necessary to offer higher salaries and more benefits to 
replace them.

Many local officials reduced their overall labor expenses by modifying 
staff numbers and hours--factors over which they did have control. For 
example, many local officials did not replace food service staff that 
retired, and they also reduced the number of hours worked by existing 
food service staff. According to three state directors we interviewed, 
SFAs were replacing full-time staff with part-time staff in order to 
reduce salary and benefit expenses. In addition, 10 SFAs reduced labor 
hours, and therefore labor expenses, by altering the type of foods they 
purchased. Officials of these SFAs said they reduced labor expenses by 
purchasing more prepared or prepackaged food items--such as chicken 
nuggets and frozen pizza--that required very little staff time to 
prepare. In addition, one SFA no longer offered sandwiches at lunch, 
because preparing them was too labor-intensive, and only provided 
fruits such as apples and bananas that did not need to be sliced. While 
some SFA officials noted that prepared food items tended to be more 
costly to purchase than "scratch" food items, many officials felt that 
these food cost increases were more than offset by the decrease in 
labor expenses.

In addition to reducing food and labor expenses, a small number of SFAs 
reported that they reduced overall school food service expenses by 
delaying or eliminating expensive kitchen equipment purchases. For 
example, when a dishwasher broke down in one SFA, officials there opted 
to use paper plates and plastic utensils rather than purchase a new 
machine.

A few SFA officials said that they undertook a variety of additional 
strategies that improved efficiency. In fact, five state directors told 
us that SFAs must operate meal programs as business-like operations 
with special focus on cutting costs wherever possible. One state agency 
reported that it sponsored seminars on increasing staff productivity 
and controlling costs for local directors. In another state, officials 
reported that an electronic point-of-sale system for the payment of 
food purchases improved staff productivity by increasing the number of 
students each staff member can serve by shortening the amount of time 
needed to pay for each meal.[Footnote 18] A few SFAs sought to reduce 
costs by consolidating food production and storage to a few sites. In 
addition, some SFAs increased the use of self-serve meal lines to 
reduce the number of staff needed in the cafeteria. In one local SFA, 
the director reduced the number of staff breaks as a way to increase 
staff efficiency. In another SFA, staff reduced food waste by 
monitoring food items discarded by students and eliminating those items 
from the school menu.

To Enhance Revenues, SFAs Promoted the School Meal Programs and Also 
Increased a la Carte Sales:

SFAs employed a variety of strategies to increase the amount of 
revenues available for their school food services. Almost all of the 14 
SFAs we spoke with enhanced revenues for their food services by 
encouraging all students to purchase meals at school rather than bring 
lunch from home or buy it off campus. SFAs engaged in various 
activities to promote participation, including increasing food choices 
for the reimbursable school meal programs, enhancing the atmosphere of 
the eating environment, and seeking input from students on food 
options. For example, 1 SFA offered students their choice of 10 
different entrée options each day, while a national study has shown 
that most schools offer students 3 or fewer entrée options each 
day.[Footnote 19] At another SFA, students were surveyed regarding 
which food items they preferred in the school cafeteria. Using yet 
another strategy, 1 SFA sought to increase the participation of 
students eligible for free or reduced price lunches by sending letters 
home to parents notifying them that although their children were 
approved to receive these meals, they were not participating.

For many SFAs, a la carte food items generated additional revenues for 
their school food services that allowed them to make ends meet 
financially. According to five state directors, a la carte sales have 
become an increasingly important source of revenue for SFAs. Unlike 
reimbursable school meals, a la carte food items are generally not 
subject to USDA's nutritional requirements.[Footnote 20] A la carte 
offerings vary greatly by SFA--from snack and dessert items such as ice 
cream and potato chips in some SFAs to lunch items such as pizzas, 
hamburgers, and chicken nuggets in others. Some officials noted that a 
la carte programs might actually reduce participation in the 
reimbursable school meal programs, by drawing students away from a 
reimbursable school lunch. Moreover, a couple of officials noted that 
the growth in a la carte programs might be "at odds" with the goal of 
providing a nutritious meal to students.

Catering for school functions such as banquets and teacher training 
days was another important source of revenue for a few SFAs. Some SFAs 
also provided catering services to private schools, senior citizens, 
and others. For example, 1 SFA catered lunch a few days a week for a 
nearby senior citizen center as a way to raise additional revenue.

While a small number of officials we interviewed indicated that 
increasing the price of a full price meal was a viable option for 
increasing revenue for the school food services, most officials viewed 
raising the meal price as a last resort. Although the local director 
can in most cases request or recommend a meal price increase to the 
local school board or superintendent, some state and local officials 
indicated that such proposals were likely to be met with resistance 
from board members and parents. In addition, officials noted that 
increases in meal prices often resulted, at least initially, in fewer 
students purchasing a school meal.

Revenue Shortfall Sometimes Covered by Carryover Funds and Local 
Revenues:

Many state and local SFA officials noted that, despite using strategies 
to enhance revenues and contain school food service expenses, SFAs 
often have difficulty breaking even financially in a given school year. 
SFAs sometimes maintain a limited fund balance containing excess money 
carried over from year to year for the school food service, and this 
funding can be used to cover a revenue shortfall in a given year. 
However, when SFAs were unable to cover their school food service 
expenses, many officials told us that local school districts, using 
general revenue funds, normally covered any shortage of funds. Since 
local school districts are facing tighter budgets than in years past, 
many officials noted that it was unclear whether school districts would 
continue to provide funding for school food services if they had a 
revenue shortfall. In fact, several state officials told us that school 
food service-related expenses that were previously paid by local school 
districts were being transferred to SFAs. Although the costs of these 
services--such as trash removal, pest control, linen services, and 
utilities--were attributable to the school food services, school 
districts had provided these services at no cost to the SFAs in better 
financial times.

Conclusions:

According to our data, SFA revenues have not kept pace with expenses 
during school years 1996-97 through 2000-01; however, the extent of the 
shortfall could be considered modest to date. To cope with these 
shortfalls and to minimize the gap between revenues and expenses, some 
options are within the control of SFAs, while others are not. On the 
revenue side, federal law establishes the per meal reimbursement rates, 
the minimum state contribution, and the maximum rates SFAs can charge 
for reduced price meals. Options available to SFAs include increasing 
the number of students who obtain their meals at the school, expanding 
a la carte and catering sales, and increasing charges for full price 
meals. However, SFAs sometimes face resistance from parents and local 
officials to meal price increases. On the expense side, because SFAs 
usually do not set the salaries and benefits of food service personnel, 
available options to reduce their labor expenses include limiting the 
hours of their employees, cutting the number of employees, altering the 
types and costs of foods they purchase for the programs, and enhancing 
other efficiencies related to labor and food expenses.

All of the SFA officials we spoke with had implemented some combination 
of these options, and without such measures the gap between revenue and 
expenses would likely have been greater. It is not clear from our work 
whether or not the SFAs could take additional measures to improve 
efficiency and further close the gap. Nor is it clear whether the gap 
will remain, decrease, or continue to grow. Nevertheless, the 
strategies SFAs have chosen for limiting expenses and enhancing 
revenues can have varying effects on achieving the goal of the school 
meal programs to ensure that the nation's youth consume nutritional and 
affordable meals while they are in school. Serving reimbursable meals 
that are more appealing to the student population could well encourage 
more students to eat a nutritious meal. On the other hand, relying more 
heavily on proceeds from the sale of a la carte items, which are not 
covered by the school meal programs' nutritional standards, could 
undermine that goal or at least offer less assurance that students are 
eating balanced meals. Such choices can, therefore, have critical 
consequences, especially given the current health and nutritional 
trends among the nation's children.

Agency Comments and Our Evaluation:

We requested comments on a draft of this report from the Secretary of 
Agriculture or her designee. On April 21, 2003, officials from the 
Department's Food and Nutrition Service, Child Nutrition Division, and 
Office of Analysis and Nutrition Evaluation, and the Department's 
Economic Research Service, provided us with the following oral comments 
on the draft. The officials said they were in general agreement with 
the findings as presented in the report. However, they said that 
recipients of our report should be aware that the report does not 
identify the cost of preparing a reimbursable school meal. They also 
noted that there are many factors that can contribute to the revenue 
and cost differences that we found between states, such as school meal 
program participation levels, changes in the household income of 
students, and the extent to which states use donated USDA commodities.

In addition, the officials provided data on the proportion of free, 
reduced price, and full price meals served for 4 of the 5 years in our 
study. The number of full price lunches served increased modestly in 
proportion to the number of free and reduced price lunches in five of 
our six states. This change may help explain the slight decline in 
federal reimbursement relative to other revenues and the declining 
share of total food service expenses covered by federal reimbursements. 
However, without additional information, such as the increase in the 
number of a la carte foods sold, we are unable to determine the extent 
to which these changes in school meal participation played a role in 
the declining share of federal reimbursement. Finally, in addition to 
these observations, USDA provided technical comments that we have 
incorporated as appropriate.

We are sending copies of this report to the Secretary of USDA, 
appropriate congressional committees, and other interested parties. In 
addition, the report will be available at no charge on the GAO Web site 
at http://www.gao.gov.

If you or your staff have questions concerning this report, please call 
me on (415) 904-2272 or Kay E. Brown on (202) 512-3674. Key contact and 
staff acknowledgments are listed in appendix III.

David D. Bellis 
Director, Education, Workforce, and Income Security Issues:

Signed by David D. Bellis: 

[End of section]

Appendix I: Scope and Methodology:

This appendix discusses in more detail the scope and methodology for 
developing the revenue and expense information presented and for 
identifying the actions taken by school food authority (SFA) officials 
to manage their school food service finances. The scope of our review 
included the National School Lunch Program and the School Breakfast 
Program as they relate to public SFAs in selected states.

From the Food and Nutrition Service we obtained nationwide school meal 
programs information, including the (1) applicable federal 
reimbursement rates, (2) student participation, (3) number of school 
meals and snacks served, (4) cash reimbursements, and (5) commodity 
values.

To obtain statewide data on the revenues available to SFAs for 
providing school food services and the expenses of operating school 
food services, we selected seven states--one state from each of the 
Food and Nutrition Service's seven regions. We selected states that (1) 
were able to provide both school food service revenue and expense 
information for all of their SFAs and (2) received the highest amount 
of federal reimbursements in their respective region during fiscal year 
2001. Five of the seven states selected--California, Florida, Missouri, 
New York, and Texas--received the largest federal cash reimbursements 
in their respective regions during fiscal year 2001. The two remaining 
states, Ohio and Virginia, received the second and third largest amount 
of federal reimbursements to the states in their respective regions.

We requested that each state provide annual school food service expense 
and revenue data as reported to state agencies by all of the public 
SFAs for school years 1994-95 through 2001-02, or for the years that 
were available during the period. We requested information on the (1) 
total annual amounts of revenues provided by federal, state, and other 
sources, and the value of USDA donated commodities and (2) expenses 
associated with producing school meals, including food service staff 
salaries and benefits, and food purchases. Six of the seven states were 
able to provide the requested data for school years 1996-97 through 
2000-01. We were unable to obtain sufficient data to report on school 
years 1994-95 and 1995-96. In addition, during the course of our study, 
California notified us that it was unable to provide all of the data 
needed. For this reason, the revenue and expense information contained 
in this report does not include California.

We did not verify the data collected for this study. However, we 
reviewed the data for reasonableness and requested additional 
information when appropriate. First, we compared annual totals of 
certain data fields from year to year. If there were unusual jumps in 
these totals from year to year, we asked the responsible agency to 
offer an explanation. Second, for the states that provided SFA-level 
data, we compared the number of SFAs in the data with the number of 
SFAs reported by the responsible agency. Third, we examined the 
relationship of data elements to identify any illogical associations. 
Fourth, we conducted interviews related to data reliability with the 
state food service directors. In our interviews with the responsible 
agency, we presented graphs that were created using the data provided 
us. We asked why certain patterns occurred in the graphs. Finally, in 
addition to the steps that we took to assess the reliability of the 
data, federal regulations require that each SFA participating in the 
school meal programs be routinely reviewed to determine its compliance 
with performance and regulatory standards. As a part of these reviews, 
SFAs must meet minimum reporting and record-keeping requirements. 
Reviews are generally conducted by appropriate state agencies and 
include evaluation of financial reporting systems.

To the extent possible, we excluded from our analyses other federal 
child nutrition programs, private schools, and residential child care 
institutions, which also participate in the school meals programs. 
While we collected only public SFA information for our study, the 
Missouri expense and revenue information includes both public and 
private SFA data because they were not tracked separately; however, the 
dollar amounts attributed to private schools are relatively small. 
Also, SFAs without full information for school years 1996-97 through 
2000-01 were excluded from the analysis.

To identify actions taken by SFA officials to manage their school food 
service finances, we conducted phone interviews with the appropriate 
manager at each of the seven state agencies administering the school 
meals programs and with two local SFA managers within each state. We 
selected SFAs that both (1) experienced expenses that were larger than 
revenues during the past few years and (2) had large increases in 
expenses related to either food or labor.[Footnote 21] We gathered 
information from these managers on the sources and amounts of funds 
available for school food service operations, the cost of producing 
meals, and what approaches SFAs were using to manage their food service 
finances. We also obtained their insights regarding revenue and expense 
changes and their observations regarding how these changes may have 
affected the school food services that they manage.

The results of the financial data described in our study are not 
generalizable beyond the six states that provided the required data. In 
addition, we cannot determine whether the changes we identified are 
statistically significant because we do not know the standard errors of 
our estimates. We conducted our work between October 2002 and March 
2003 in accordance with generally accepted government auditing 
standards.

[End of section]

Appendix II: Federal School Meal Cash Reimbursement Rates, School Years 
1996-97 through 2002-03:

School year: 1996-97: 

Meal type: Full price; Lunch: Less than 60% of lunches served free or 
at reduced price: $0.1775; Lunch: 60% or more of lunches served free 
or at reduced price: $0.1975; Breakfast: Nonsevere need: 
$0.1975; Breakfast: Severe need: $0.1975; Snacks: $0.0450.

Meal type: Reduced price; Lunch: Less than 60% of lunches served free 
or at reduced price: 1.4375; Lunch: 60% or more of lunches served 
free or at reduced price: 1.4575; Breakfast: Nonsevere 
need: 0.7175; Breakfast: Severe need: 0.9125; Snacks: 0.2525.

Meal type: Free; Lunch: Less than 60% of lunches served free 
or at reduced price: 1997-98: 1.8375; Lunch: 60% or more of lunches 
served free or at reduced price: 1997-98: 1.8575; 1997-98
Breakfast: Nonsevere need: 1997-98: 1.0175; Breakfast: Severe need: 
1997-98: 1.2125; Snacks: 1997-98: 0.5050.

School year: 1997-98: 

Meal type: Full price; Lunch: Less than 60% of lunches served free or 
at reduced price: 0.1800; Lunch: 60% or more of lunches served free 
or at reduced price: 0.2000; Breakfast: Nonsevere need: 
0.2000; Breakfast: Severe need: 0.2000; Snacks: 0.0400.

Meal type: Reduced price; Lunch: Less than 60% of lunches served free 
or at reduced price: 1.4900; Lunch: 60% or more of lunches served 
free or at reduced price: 1.5100; Breakfast: Nonsevere 
need: 0.7450; Breakfast: Severe need: 0.9450; Snacks: 0.2600.

Meal type: Free; Lunch: Less than 60% of lunches served free 
or at reduced price: 1.8900; Lunch: 60% or more of lunches 
served free or at reduced price: 1.9100; 1998-99
Breakfast: Nonsevere need: 1.0450; Breakfast: Severe need: 
1.2450; Snacks: 0.5175.

School year: 1998-99: 

Meal type: Full price; Lunch: Less than 60% of lunches served free or 
at reduced price: 0.1800; Lunch: 60% or more of lunches served free 
or at reduced price: 0.2000; Breakfast: Nonsevere need: 
0.2000; Breakfast: Severe need: 0.2000; Snacks: 0.0400.

Meal type: Reduced price; Lunch: Less than 60% of lunches served free 
or at reduced price: 1.5425; Lunch: 60% or more of lunches served 
free or at reduced price: 1.5625; Breakfast: Nonsevere 
need: 0.7725; Breakfast: Severe need: 0.9775; Snacks: 0.2675.

Meal type: Free; Lunch: Less than 60% of lunches served free 
or at reduced price: 1.9425; Lunch: 60% or more of lunches 
served free or at reduced price: 1.9625; [Empty]; 
Breakfast: Nonsevere need: 1.0725; Breakfast: Severe need: 
1.2775; Snacks: 0.5325.

School year: 1999-2000: 

Meal type: Full price; Lunch: Less than 60% of lunches served free or 
at reduced price: 0.19; Lunch: 60% or more of lunches served free or 
at reduced price: 0.21; Breakfast: Nonsevere need: 0.21; 
Breakfast: Severe need: 0.21; Snacks: 0.05.

Meal type: Reduced price; Lunch: Less than 60% of lunches served free 
or at reduced price: 1.58; Lunch: 60% or more of lunches served free 
or at reduced price: 1.60; Breakfast: Nonsevere need: 
0.79; Breakfast: Severe need: 1.00; Snacks: 0.27.

Meal type: Free; Lunch: Less than 60% of lunches served free 
or at reduced price: 1.98; Lunch: 60% or more of lunches 
served free or at reduced price: 2000-01: 2.00; 
Breakfast: Nonsevere need: 1.09; Breakfast: Severe need: 2000-
01: 1.30; Snacks: 0.54.

School year: 2000-01: 

Meal type: Full price; Lunch: Less than 60% of lunches served free or 
at reduced price: 0.19; Lunch: 60% or more of lunches served free or 
at reduced price: 0.21; Breakfast: Nonsevere need: 0.21; 
Breakfast: Severe need: 0.21; Snacks: 0.05.

Meal type: Reduced price; Lunch: Less than 60% of lunches served free 
or at reduced price: 1.62; Lunch: 60% or more of lunches served free 
or at reduced price: 1.64; Breakfast: Nonsevere need: 
0.82; Breakfast: Severe need: 1.03; Snacks: 0.27.

Meal type: Free; Lunch: Less than 60% of lunches served free 
or at reduced price: 2.02; Lunch: 60% or more of lunches 
served free or at reduced price: 2.04; [Empty]; 
Breakfast: Nonsevere need: 1.12; Breakfast: Severe need: 2001-
02: 1.33; Snacks: 0.55.

School year: 2001-02: 

Meal type: Full price; Lunch: Less than 60% of lunches served free or 
at reduced price: 0.20; Lunch: 60% or more of lunches served free or 
at reduced price: 0.22; Breakfast: Nonsevere need: 0.21; 
Breakfast: Severe need: 0.21; Snacks: 0.05.

Meal type: Reduced price; Lunch: Less than 60% of lunches served free 
or at reduced price: 1.69; Lunch: 60% or more of lunches served free 
or at reduced price: 1.71; Breakfast: Nonsevere need: 
0.85; Breakfast: Severe need: 1.07; Snacks: 0.28.

Meal type: Free; Lunch: Less than 60% of lunches served free 
or at reduced price: 2002-03: 2.09; Lunch: 60% or more of lunches 
served free or at reduced price: 2002-03: 2.11; 2002-03
Breakfast: Nonsevere need: 2002-03: 1.15; Breakfast: Severe need: 2002-
03: 1.37; Snacks: 2002-03: 0.57.

School year: 2002-03: 

Meal type: Full price; Lunch: Less than 60% of lunches served free or 
at reduced price: 0.20; Lunch: 60% or more of lunches served free or 
at reduced price: 0.22; Breakfast: Nonsevere need: 0.22; 
Breakfast: Severe need: 0.22; Snacks: 0.05.

Meal type: Reduced price; Lunch: Less than 60% of lunches served free 
or at reduced price: 1.74; Lunch: 60% or more of lunches served free 
or at reduced price: 1.76; Breakfast: Nonsevere need: 
0.87; Breakfast: Severe need: 1.10; Snacks: 0.29.

Meal type: Free; Lunch: Less than 60% of lunches served free 
or at reduced price: Less than 60% of lunches served free or at reduced 
price: 2.14; Lunch: 60% or more of lunches served free or at reduced 
price: 60% or more of lunches served free or at reduced price: 2.16; 
2.16Breakfast: Nonsevere need: Nonsevere need: 1.17; 
Breakfast: Severe need: Severe need: 1.40; Snacks: Snacks: 0.58.

Source: Federal Registers and USDA.

Note: Higher reimbursements are provided to SFAs in which 60 percent or 
more of the lunches were served at a free or reduced price. Higher 
breakfast reimbursement rates are established for "severe need" SFAs in 
which 40 percent or more of the lunches were served free or at a 
reduced price and the nonsevere need rate is insufficient to cover the 
costs of the breakfast program. USDA provides higher school meal and 
snack reimbursement amounts in Alaska and Hawaii.

[End of section]

[End of table]

Appendix III: GAO Contact and Staff Acknowledgments:

GAO Contact:

Kay E. Brown (202) 512-3674 (Brownke@gao.gov):

Staff Acknowledgments:

In addition to the individual named above, Peter M. Bramble, Jr., 
Cynthia G. Decker, and Michelle C. Verbrugge made key contributions to 
this report.

FOOTNOTES

[1] School lunches, for example, must meet the applicable 
recommendations of the Dietary Guidelines for Americans, which 
recommend that no more than 30 percent of an individual's calories come 
from fat and less than 10 percent from saturated fat. Regulations also 
establish a standard for school lunches to provide one-third of the 
Recommended Dietary Allowances of protein, Vitamin A, Vitamin C, iron, 
calcium, and calories. When schools serve meals that do not comply with 
federal nutrition requirements, program regulations allow the states to 
withhold federal reimbursements if the schools have not been acting in 
good faith to meet the requirements. However, USDA officials questioned 
whether holding back federal reimbursements offers a practical or 
realistic solution because of the possibility of program cutbacks or 
closure and the effect on the students, especially those receiving free 
or reduced price lunches.

[2] Abt. Associates, Inc., School Lunch and Breakfast Cost Study - 
Final Report, a special report prepared at the request of USDA, Oct. 
1994.

[3] The percentage of children ages 6 to 11 who are overweight has more 
than doubled, from about 7 percent in 1980 to about 14 percent in 1999, 
and the incidence of Type II diabetes--closely associated with obesity-
-has increased from 4 to 20 percent over the last decade. 

[4] U.S. General Accounting Office, School Meal Programs: Few Instances 
of Foodborne Outbreaks Reported, but Opportunities Exist to Enhance 
Outbreak Data and Food Safety Practices, GAO-03-530 (Washington, D.C.: 
May 9, 2003) and School Lunch Program: Efforts Needed to Improve 
Nutrition and Encourage Healthy Eating, GAO-03-506 (Washington, D.C.: 
May 9, 2003). 

[5] We also requested the same data from California, the state in the 
seventh Food and Nutrition Service region with the highest school meal 
reimbursement amount; however, state officials were not able to provide 
us with the needed data. USDA does not require these data, and not all 
states collect them.

[6] We were also able to interview the California state director and 2 
local SFA directors, and we include their responses in objective 4.

[7] The National School Lunch Act, as amended (42 U.S.C. 1751-1769), 
and the Child Nutrition Act of 1966, as amended (42 U.S.C. 1773).

[8] School lunch and breakfast reimbursement rates are adjusted 
annually by law to reflect the programs' operating expenses as 
indicated by the change in the series for food away from home of the 
Consumer Price Index for all Urban Consumers, published by the Bureau 
of Labor Statistics of the U.S. Department of Labor. 

[9] The programs are also available to the children of armed forces 
personnel who attend schools overseas operated by the U.S. Department 
of Defense.

[10] After school snack reimbursements are provided to SFAs on the same 
basis as the income eligibility categories for school meals.

[11] In some cases, SFAs are not required to process an application. 
For example, children from households that participate in the Food 
Stamp Program, Temporary Assistance for Needy Families, or Food 
Distribution Program on Indian Reservations, are categorically eligible 
to receive free school meals and their families may not have to 
complete an application.

[12] 42 U.S.C. 1756 requires, generally, that states annually provide 
revenues for the operation of the School Lunch Program of not less than 
30 percent of a portion of the federal reimbursements they received for 
the school year beginning July 1, 1980.

[13] One of the 50 states receives cash in lieu of USDA commodities. 
Schools may also receive "bonus" commodities, as they are available 
from surplus agricultural stock.

[14] Available school meal program funds may also include unused 
program revenues, referred to as carryover, from prior school years, 
and unreported contributions from local governments, individuals, and 
other sources. 

[15] For more information on the use of a la carte foods in schools and 
their implications for children's food choices, see GAO-03-506. 

[16] The required contribution is reduced to less than 30 percent if a 
state's average per capita personal income is lower than the national 
average. Of the six states, New York and Virginia had personal per 
capita incomes above the national average; Florida, Missouri, Ohio, and 
Texas had personal per capita incomes below the national average in 
2001 (Annual State Personal Income, Bureau of Economic Analysis, U.S. 
Department of Commerce: Feb. 6, 2003).

[17] The Small Farms/School Meals Initiative is a partnership program 
among USDA's Food and Nutrition Service and Agricultural Marketing 
Service, and the Department of Defense that encourages small farmers to 
sell fresh produce to schools and schools to buy this produce from 
small farmers. This is a cooperative program among federal, state, and 
local governments, as well as local farm and educational organizations.

[18] This state's electronic point-of-sale system used a credit-card-
like device to conduct a cashless payment transaction. 

[19] U.S. Department of Agriculture, Food and Nutrition Service, School 
Nutrition Dietary Assessment Study-II Final Report, Report No. CN-01-
SNDAIIFR (Alexandria, VA: 2001). According to this study, 68 percent of 
all schools offered students 3 or fewer different entrée options for 
lunch each day.

[20] School meal regulations prohibit the sale of foods of minimum 
nutritional value, which includes carbonated beverages, certain 
candies, chewing gum, and water ices, in the school cafeteria during 
meal periods.

[21] Since the available data from California and Missouri did not 
allow us to identify the local SFAs that met our criteria, the state 
managers for the meal programs provided us with the names of SFAs they 
felt met our criteria.

GAO's Mission:

The General Accounting Office, the investigative arm of Congress, 
exists to support Congress in meeting its constitutional 
responsibilities and to help improve the performance and accountability 
of the federal government for the American people. GAO examines the use 
of public funds; evaluates federal programs and policies; and provides 
analyses, recommendations, and other assistance to help Congress make 
informed oversight, policy, and funding decisions. GAO's commitment to 
good government is reflected in its core values of accountability, 
integrity, and reliability.

Obtaining Copies of GAO Reports and Testimony:

The fastest and easiest way to obtain copies of GAO documents at no 
cost is through the Internet. GAO's Web site ( www.gao.gov ) contains 
abstracts and full-text files of current reports and testimony and an 
expanding archive of older products. The Web site features a search 
engine to help you locate documents using key words and phrases. You 
can print these documents in their entirety, including charts and other 
graphics.

Each day, GAO issues a list of newly released reports, testimony, and 
correspondence. GAO posts this list, known as "Today's Reports," on its 
Web site daily. The list contains links to the full-text document 
files. To have GAO e-mail this list to you every afternoon, go to 
www.gao.gov and select "Subscribe to e-mail alerts" under the "Order 
GAO Products" heading.

Order by Mail or Phone:

The first copy of each printed report is free. Additional copies are $2 
each. A check or money order should be made out to the Superintendent 
of Documents. GAO also accepts VISA and Mastercard. Orders for 100 or 
more copies mailed to a single address are discounted 25 percent. 
Orders should be sent to:

U.S. General Accounting Office

441 G Street NW,

Room LM Washington,

D.C. 20548:

To order by Phone: 	

	Voice: (202) 512-6000:

	TDD: (202) 512-2537:

	Fax: (202) 512-6061:

To Report Fraud, Waste, and Abuse in Federal Programs:

Contact:

Web site: www.gao.gov/fraudnet/fraudnet.htm E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470:

Public Affairs:

Jeff Nelligan, managing director, NelliganJ@gao.gov (202) 512-4800 U.S.

General Accounting Office, 441 G Street NW, Room 7149 Washington, D.C.

20548: