oversight

School Meal Programs: Revenue and Expense Information from Selected States

Published by the Government Accountability Office on 2003-05-09.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

             United States General Accounting Office

GAO          Report to Congressional Requesters




May 2003
             SCHOOL MEAL
             PROGRAMS

             Revenue and Expense
             Information from
             Selected States




GAO-03-569
                                                May 2003


                                                SCHOOL MEAL PROGRAMS

                                                Revenue and Expense Information from
Highlights of GAO-03-569, a report to
Congressional Requesters                        Selected States



The National School Lunch and                   Revenue from federal reimbursements and the sale of food were the
Breakfast Programs provide                      principal sources of revenue for school food services in the six states GAO
millions of children with low-cost              reviewed for school years 1996-97 through 2000-01. Federal reimbursements
or free nutritious meals each                   decreased slightly in proportion to the total, while revenues from food sales
school day. In school year 1996-97,             increased slightly. Funds from state governments and other sources
the Department of Agriculture
instituted more stringent
                                                represented a relatively small portion of total revenues and remained
requirements for the nutritional                relatively stable as a share of total revenues.
content of school meals. GAO was
asked to study the school food                  Labor and food purchases were the principal expenses for the six states,
service revenues and expenses and               sharing nearly equal proportions and changing only slightly. Labor expenses,
how they have changed since the                 which included salaries and benefits for food service employees, grew
requirements went into effect. This             slightly while food expenses decreased slightly. Other expenses, such as
report includes information on the              contract services, made up a smaller portion of expenses, and this portion
sources of revenues available for               remained constant.
providing meals, the expenses of
producing meals, the revenues                   The six states had a small though increasing shortfall in total revenue
compared to expenses, and the
approaches that local school food
                                                compared to expenses over the 5-year period, as shown below. Their total
authorities have adopted to manage              expenses increased by about 22 percent, while their total revenues increased
their school food service finances.             by about 20 percent. The portion of total school food service expenses
It uses data from six selected                  covered by federal reimbursements declined from 54 to 51 percent, and the
states. This report does not provide            portion of expenses paid by state funds was small and declined slightly.
specific information on the
expense of producing a                          Changes in Total School Food Service Revenues and Expenses in Six States
reimbursable school lunch or
breakfast.                                      Dollars (in billions)
                                                4.2



                                                4.0



                                                3.8



                                                3.6



                                                3.4



                                                3.2



                                                3.0
                                                 1996-97                        1997-98                        1998-99                     1999-2000   2000-01
                                                      School year

                                                                 Revenues
www.gao.gov/cgi-bin/getrpt?GAO-03-569.                           Expenses
                                                Source: Florida, Missouri, New York, Ohio, Texas, and Virginia Departments of Education.
To view the full report, including the scope
and methodology, click on the link above.
                                                To limit their expenses and maximize their revenues, local school food
For more information, contact David D. Bellis   authority officials reported buying food in bulk, hiring more part-time staff,
at (415) 904-2272.                              expanding a la carte food sales and catering programs, and other strategies.
Contents


Letter                                                                                   1
               Results in Brief                                                          3
               Background                                                                5
               Federal Reimbursements and Food Sales Were the Principal
                 Sources of Revenue over the Period, with Slight Changes in
                 Their Proportionate Share of the Total                                  8
               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                                       12
               States Experienced a Small but Increasing Revenue Shortfall              16
               States Used a Variety of Expense-Containment and Revenue-
                 Producing Strategies to Manage School Food Service Finances            20
               Conclusions                                                              24
               Agency Comments and Our Evaluation                                       25

Appendix I     Scope and Methodology                                                    27



Appendix II    Federal School Meal Cash Reimbursement Rates,
               School Years 1996-97 through 2002-03                                     30



Appendix III   GAO Contact and Staff Acknowledgments                                    31
               GAO Contact                                                              31
               Staff Acknowledgments                                                    31


Table
               Table 1: Minimum School Meal Programs Reimbursement Rates,
                        School Year 2002-03                                              7


Figures
               Figure 1: Sources of Revenues for School Food Services in Six
                        States, School Years 1996-97 through 2000-01                     9
               Figure 2: School Food Service Revenue Components as a
                        Percentage of Total Revenues in Six States, School Years
                        1996-97 through 2000-01                                         10



               Page i                                      GAO-03-569 School Meal Programs
Figure 3: School Food Service Revenue Components by State,
         School Year 2000-01                                                              12
Figure 4: School Food Service Expense Components in Six States,
         School Years 1996-97 through 2000-01                                             13
Figure 5: Changes in Proportion of School Food Service Expense
         Components in Six States, School Years 1996-97 through
         2000-01                                                                          14
Figure 6: School Food Service Expense Components by State,
         School Year 2000-01                                                              15
Figure 7: Changes in Total School Food Service Revenues and
         Expenses in Six States, School Years 1996-97 through
         2000-01                                                                          17
Figure 8: Proportion of Total School Food Service Expenses Paid
         by Revenue Component in Six States, School Years 1996-
         97 through 2000-01                                                               18
Figure 9: Federal Reimbursements as a Percentage of Total School
         Food Service Expenses by State, School Years 1996-97
         and 2000-01.                                                                     20




Abbreviations

SFA               school food authority
USDA              U.S. Department of Agriculture




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Page ii                                                GAO-03-569 School Meal Programs
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.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.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


                                   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.



                                   Page 1                                                  GAO-03-569 School Meal Programs
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.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.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


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).




Page 2                                                 GAO-03-569 School Meal Programs
                   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.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.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.


                   The principal sources of revenue for school food services in the six states
Results in Brief   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




                   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.




                   Page 3                                                 GAO-03-569 School Meal Programs
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


Page 4                                        GAO-03-569 School Meal Programs
             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.


             The National School Lunch Act and the Child Nutrition Act of 1966
Background   authorized the school lunch and school breakfast programs, respectively.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.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




             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.




             Page 5                                               GAO-03-569 School Meal Programs
states and the District of Columbia, Guam, Puerto Rico, and the Virgin
Islands.9

The amount that SFAs may charge for their school meals depends on the
family income of participating children.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,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



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.




Page 6                                                GAO-03-569 School Meal Programs
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

                                                   Minimum reimbursement rates
 Reimbursement category                            Lunch      Breakfast       Snack
 Full price                                         $0.20         $0.22        $0.05
 Reduced price                                       1.74          0.87         0.29
 Free                                                2.14          1.17         0.58
Source: USDA.



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.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 foods13 from USDA, valued in school year
2002-03 at 15.5 cents for each lunch served in the previous school year.




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.




Page 7                                                  GAO-03-569 School Meal Programs
                          Federal reimbursements and sales revenues, which include student and
Federal                   adult meal payments, were the largest sources of school food service
Reimbursements and        revenues in the six states during school years 1996-97 through 2000-01,
                          with the share of federal reimbursements declining slightly and sales
Food Sales Were the       revenues increasing slightly. Funds from state governments and other
Principal Sources of      sources represented a small portion of total revenues during this period.
                          Specific to sales revenues, student payments for a la carte sales increased
Revenue over the          as a percentage of total school food service sales revenue. Finally,
Period, with Slight       although federal reimbursements and revenues from sales were
Changes in Their          consistently the most significant revenue sources in each of the six states,
                          their share of total revenues varied considerably by state.
Proportionate Share
of the Total

School Food Service       Total school food service revenues reported by the six states increased
Revenues Come Primarily   from about $3.3 billion in school year 1996-97 to almost $4 billion in school
from Two Sources          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.14 Figure 1 shows the various sources of revenues for school
                          years 1996-97 through 2000-01.




                          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.




                          Page 8                                                 GAO-03-569 School Meal Programs
                        Figure 1: Sources of Revenues for School Food Services in Six States, School
                        Years 1996-97 through 2000-01

                        Dollars (in billions)
                        2.5



                        2.0



                        1.5



                        1.0



                        0.5



                          0
                                    1996-97                   1997-98                  1998-99                     1999-2000   2000-01
                              School year

                                         Federal reimbursements

                                         Sales revenues

                                         State funds

                                         Other funds

                        Source: Florida, Missouri, New York, Ohio, Texas, and Virginia Departments of Education.



Federal Revenues        As figure 2 shows, federal reimbursements declined modestly in
Declined Slightly in    proportion to total school food service revenues during school years 1996-
Relation to Total       97 through 2000-01. Federal reimbursements’ share of total revenues
                        decreased from about 55 to 53 percent. Conversely, during this period,
Revenues, While Sales   revenues from food sales in relation to total revenues increased slightly
Revenues Increased      from about 38 to 39 percent. Moreover, there was a less than 1 percentage
Slightly                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.




                        Page 9                                                                           GAO-03-569 School Meal Programs
Figure 2: School Food Service Revenue Components as a Percentage of Total
Revenues in Six States, School Years 1996-97 through 2000-01

Percentage
60



50



40



30



10



 5



 0
1996-97                        1997-98                        1998-99                      1999-2000       2000-01
     School year

               Federal reimbursements
               Sales revenues
               State funds
               Other funds
Source: Florida, Missouri, New York, Ohio, Texas, and Virginia Departments of Education.



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.15




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.




Page 10                                                                          GAO-03-569 School Meal Programs
Share of Federal            Although federal reimbursements and sales comprised the principal
Reimbursements and Sales    source of revenues for the school food services in each of the six states,
Revenues to Total Revenue   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
Varied Considerably         revenue ranged from about 59 percent in Texas to about 39 percent in
among the States            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.




                            Page 11                                       GAO-03-569 School Meal Programs
                       Figure 3: School Food Service Revenue Components by State, School Year
                       2000-01
                       Percentage
                       60



                       50



                       40



                       30



                       20



                       10



                        0
                                 Florida             Missouri              New York                Ohio           Texas       Virginia

                                       Federal reimbursements

                                       Sales revenues

                                       State funds

                                       Other funds

                       Source: Florida, Missouri, New York, Ohio, Texas, and Virginia Departments of Education.



                       Labor and food purchases accounted for most of the expenses of
Labor and Food Were    operating the school food services, with nearly equal shares of the
the Principal School   expenditures and slight changes in their relative shares during school
                       years 1996-97 through 2000-01. Other school food service expenses
Food Service           represented a smaller, but significant, portion of total expenditures.
Expenses over the 5-   During this period, labor expenses slightly increased as a portion of total
                       expenses, while food expenses slightly decreased. While labor and food
Year Period, with      were consistently the most significant expenses of operating the school
Slight Changes in      food services in each of the six states, their share of total expenses varied
Their Proportionate    somewhat by state.

Share of the Total




                       Page 12                                                                          GAO-03-569 School Meal Programs
Labor and Food Accounted       Total school food service expenses reported by the six states have
for a Significant Portion of   increased from about $3.4 billion to about $4.1 billion between school
Expenses                       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

                               Dollars (in billions)
                               2.0




                               1.5




                               1.0




                               0.5




                                 0
                                           1996-97                   1997-98                   1998-99                    1999-2000   2000-01
                                     School year

                                                Labor

                                                Food

                                                Other

                               Source: Florida, Missouri, New York, Ohio, Texas, and Virginia Departments of Education.




                               Page 13                                                                          GAO-03-569 School Meal Programs
Labor Expenses Increased    As shown in figure 5, as a percentage of total school food service
Slightly in Proportion to   expenses, labor costs increased slightly—from about 43 to about 44
Total Expenses, While       percent—during school years 1996-97 through 2000-01. Food expenses as a
                            percentage of total expenses modestly decreased—from about 42 to about
Food Expenses Decreased     41 percent—during this period. Other expenses remained at about 15
Slightly                    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
                            Percentage
                            50



                            40



                            30



                            20



                            10



                              0
                             1996-97                        1997-98                       1998-99                      1999-2000       2000-01
                                 School year

                                            Labor
                                            Food
                                            Other
                            Source: Florida, Missouri, New York, Ohio, Texas, and Virginia Departments of Education.



                            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.




                            Page 14                                                                          GAO-03-569 School Meal Programs
Share of School Food   While labor and food represented the principal school food service
Service Expense        expenses across the six states, their share of total expenses varied by state
Components to Total    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 Varied        expenses in Florida and New York. Food expenses ranged from about 45
Somewhat among the     percent of total expenses in Missouri and Ohio to about 39 percent of total
States                 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


                       Percentage
                       50



                       40



                       30



                       20



                       10



                        0
                                 Florida             Missouri              New York                Ohio           Texas       Virginia

                                       Labor

                                       Food

                                       Other

                       Source: Florida, Missouri, New York, Ohio, Texas, and Virginia Departments of Education.




                       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


                       Page 15                                                                          GAO-03-569 School Meal Programs
                         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.


                         Total school food service expenses were greater than total revenues in
States Experienced a     school years 1996-97 through 2000-01, and the gap between expenses and
Small but Increasing     revenues grew slightly over this period for the six states combined.
                         Moreover, federal reimbursements paid a smaller portion of school food
Revenue Shortfall        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      During school years 1996-97 through 2000-01, total SFA expenses
Expenses Have Slightly   increased from about $3.4 billion to about $4.1 billion, or about 22 percent
Outpaced Increases in    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
Revenues                 shortfall grew slightly over the 5-year period.




                         Page 16                                        GAO-03-569 School Meal Programs
                            Figure 7: Changes in Total School Food Service Revenues and Expenses in Six
                            States, School Years 1996-97 through 2000-01

                            Dollars (in billions)
                            4.2



                            4.0



                            3.8



                            3.6



                            3.4



                            3.2



                            3.0
                             1996-97                        1997-98                        1998-99                     1999-2000      2000-01
                                  School year

                                             Expenses
                                             Revenues
                            Source: Florida, Missouri, New York, Ohio, Texas, and Virginia Departments of Education.




Total School Food Service   As figure 8 shows, the proportion of total school food service expenses
Expenses Covered by         paid by federal reimbursements and state funds declined slightly during
Federal Reimbursements      school years 1996-97 through 2000-01 for the six states combined. Federal
                            reimbursements paid a smaller portion of total expenses, declining from
and State Funds Have        about 54 to 51 percent. The proportion of total expenses paid by state
Declined                    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.




                            Page 17                                                                          GAO-03-569 School Meal Programs
Figure 8: Proportion of Total School Food Service Expenses Paid by Revenue
Component in Six States, School Years 1996-97 through 2000-01
Percentage
60



50



40



30



20



10



 0
1996-97                        1997-98                        1998-99                      1999-2000       2000-01
     School year

                Federal reimbursements
                Sales revenues
                State funds
                Other funds
Source: Florida, Missouri, New York, Ohio, Texas, and Virginia Departments of Education.



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



Page 18                                                                          GAO-03-569 School Meal Programs
                           for program operations that equal 30 percent of the full price
                           reimbursement for each eligible lunch they served in school year 1980-81.16
                           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     The proportion of expenses covered by federal reimbursements varied
as a Percentage of Total   among the six states. As figure 9 shows, during school year 2000-01,
Expenses Varied by State   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.




                           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).




                           Page 19                                                 GAO-03-569 School Meal Programs
                            Figure 9: Federal Reimbursements as a Percentage of Total School Food Service
                            Expenses by State, School Years 1996-97 and 2000-01.

                            Percentage
                            70


                            60


                            50


                            40


                            30


                            20


                            10


                             0
                                     Florida              Missouri             New York                 Ohio           Texas       Virginia

                                            1996-97

                                            2000-01

                            Source: Florida, Missouri, New York, Ohio, Texas, and Virginia Departments of Education.




                            In an effort to minimize their revenue shortfalls, local SFAs employed two
States Used a Variety       overall approaches to manage school food service finances—containing
of Expense-                 expenses and enhancing revenues. Efforts to contain school food service
                            expenses focused primarily on food and labor—which comprised the
Containment and             largest share of all expenses. In order to contain these expenses, SFAs
Revenue-Producing           reduced expenditures, changed the way they purchased foods and the
                            types of foods they purchased, reduced labor hours, and took steps to
Strategies to Manage        operate more efficient programs. SFAs further managed school food
School Food Service         service finances by augmenting their food service revenues through
Finances                    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,        Although fewer than half of the 14 local officials we interviewed said that
Officials Focused on Food   their overall food expenses had increased in recent years because of
and Labor                   USDA’s revised school meal nutritional requirements, most of these
                            officials said they saw the need to control food expenses. The approaches



                            Page 20                                                                          GAO-03-569 School Meal Programs
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.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


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.




Page 21                                               GAO-03-569 School Meal Programs
                             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.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 employed a variety of strategies to increase the amount of revenues
SFAs Promoted the School     available for their school food services. Almost all of the 14 SFAs we
Meal Programs and Also       spoke with enhanced revenues for their food services by encouraging all
                             students to purchase meals at school rather than bring lunch from home
Increased a la Carte Sales   or buy it off campus. SFAs engaged in various activities to promote



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




                             Page 22                                                 GAO-03-569 School Meal Programs
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.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.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


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.




Page 23                                                GAO-03-569 School Meal Programs
                            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           Many state and local SFA officials noted that, despite using strategies to
Sometimes Covered by        enhance revenues and contain school food service expenses, SFAs often
Carryover Funds and Local   have difficulty breaking even financially in a given school year. SFAs
                            sometimes maintain a limited fund balance containing excess money
Revenues                    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.


                            According to our data, SFA revenues have not kept pace with expenses
Conclusions                 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


                            Page 24                                       GAO-03-569 School Meal Programs
                     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.


                     We requested comments on a draft of this report from the Secretary of
Agency Comments      Agriculture or her designee. On April 21, 2003, officials from the
and Our Evaluation   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


                     Page 25                                       GAO-03-569 School Meal Programs
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




Page 26                                       GAO-03-569 School Meal Programs
             Appendix I: Scope and Methodology
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,


             Page 27                                       GAO-03-569 School Meal Programs
Appendix I: Scope and Methodology




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.1 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




1
  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.




Page 28                                                  GAO-03-569 School Meal Programs
Appendix I: Scope and Methodology




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.




Page 29                                      GAO-03-569 School Meal Programs
                                               Appendix II: Federal School Meal Cash
Appendix II: Federal School Meal Cash          Reimbursement Rates, School Years 1996-97
                                               through 2002-03


Reimbursement Rates, School Years 1996-97
through 2002-03

                                                            Lunch                                       Breakfast
                                             Less than 60%
                                                 of lunches       60% or more of
                                              served free or lunches served free
 School year               Meal type       at reduced price or at reduced price            Nonsevere need         Severe need            Snacks
 1996-97
                           Full price              $0.1775                   $0.1975                 $0.1975            $0.1975          $0.0450
                           Reduced price            1.4375                    1.4575                  0.7175             0.9125           0.2525
                           Free                     1.8375                    1.8575                  1.0175             1.2125           0.5050
 1997-98
                           Full price               0.1800                    0.2000                  0.2000             0.2000           0.0400
                           Reduced price            1.4900                    1.5100                  0.7450             0.9450           0.2600
                           Free                     1.8900                    1.9100                  1.0450             1.2450           0.5175
 1998-99
                           Full price               0.1800                    0.2000                  0.2000             0.2000           0.0400
                           Reduced price            1.5425                    1.5625                  0.7725             0.9775           0.2675
                           Free                     1.9425                    1.9625                  1.0725             1.2775           0.5325
 1999-2000
                           Full price                    0.19                    0.21                    0.21               0.21             0.05
                           Reduced price                 1.58                    1.60                    0.79               1.00             0.27
                           Free                          1.98                    2.00                    1.09               1.30             0.54
 2000-01
                           Full price                    0.19                    0.21                    0.21               0.21             0.05
                           Reduced price                 1.62                    1.64                    0.82               1.03             0.27
                           Free                          2.02                    2.04                    1.12               1.33             0.55
 2001-02
                           Full price                    0.20                    0.22                    0.21               0.21             0.05
                           Reduced price                 1.69                    1.71                    0.85               1.07             0.28
                           Free                          2.09                    2.11                    1.15               1.37             0.57
 2002-03
                           Full price                    0.20                    0.22                    0.22               0.22             0.05
                           Reduced price                 1.74                    1.76                    0.87               1.10             0.29
                           Free                          2.14                    2.16                    1.17               1.40             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.




                                               Page 30                                                     GAO-03-569 School Meal Programs
                  Appendix III: GAO Contact and Staff
Appendix III: GAO Contact and Staff
                  Acknowledgments



Acknowledgments

                  Kay E. Brown (202) 512-3674 (Brownke@gao.gov)
GAO Contact
                  In addition to the individual named above, Peter M. Bramble, Jr., Cynthia
Staff             G. Decker, and Michelle C. Verbrugge made key contributions to this
Acknowledgments   report.




(130188)
                  Page 31                                      GAO-03-569 School Meal Programs
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