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New Strategies to Finance Healthy School Meals . Arianne Corbett, RD, SNS, Center for Science in the Public Interest Zoë Neuberger, Center on Budget and Policy Priorities Rosemary O’Connell and Jessica Saracino, United States Department of Agriculture

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New Strategies to Finance Healthy School Meals

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new strategies to finance healthy school meals
New Strategies to Finance Healthy School Meals
  • Arianne Corbett, RD, SNS, Center for Science in the Public Interest
  • Zoë Neuberger, Center on Budget and Policy Priorities
  • Rosemary O’Connell and Jessica Saracino, United States Department of Agriculture
  • Anita Pereira-Sekhon, United States Department of Agriculture
  • Marla Caplon, RD, LD, Director of Food and Nutrition Services for Montgomery County Schools
revenues from paid lunches fall short
Revenues From Paid Lunches Fall Short

Source: U.S. Department of Agriculture, Food and Nutrition Service, School Nutrition Dietary Assessment Study III, November 2007, p. 50.

revenues from competitive foods fall short
Revenues From Competitive Foods Fall Short

Source: Source: U.S. Department of Agriculture, Food and Nutrition Service, School Lunch and Breakfast Cost Study II, April 2008, p. 7-8.

paid lunch equity and nonprogram food revenue

Paid Lunch Equity and Nonprogram Food Revenue

Presented by: FNS, Child Nutrition Division - Rosemary O’Connell and Jess Saracino

paid lunch equity ple
Paid Lunch Equity (PLE)

Interim Rule: NSLP School Food Service Account Revenue

Intent: To ensure that sufficient funds are provided to the food service account for paid lunches


School food authorities (SFAs) compare the average price for paid lunches to the difference between the per meal Federal reimbursement for free and paid lunches

For SY 2011-2012, if SFA’s average price for paid lunches is $2.46 or more, it is in compliance

Other SFAs must determine whether they must take action

increasing revenue for paid lunch
Increasing Revenue for Paid Lunch
  • If an SFA’s average price for lunches is less than the difference between free & paid reimbursements, it must increase the revenue by 2% plus inflation by either
      • Increasing the average price charged for paid meals OR
      • Adding non-Federal funds to the food service account
increasing paid meal prices
Increasing Paid Meal Prices
  • In any year, any new average price increase may be—
      • Rounded down to the nearest 5 cents
      • Limited to a maximum required increase of 10 cents
  • In SY 2011-2012, most SFAs will need to increase their average paid prices by five cents or less
increasing paid meal prices10
Increasing Paid Meal Prices
  • SFAs have the flexibility to determine how they wish to distribute the average price increase among their schools to reach the new average lunch price
  • SFAs may increase their average paid meal prices more than the required amount
  • A “credit” for future required increases will be given to SFAs for any amount increase over the required amount
non federal funding source
Non-Federal Funding Source
  • Financial support from non-Federal sources must be cash for direct support for paid lunches, including but not limited to:
    • per-lunch reimbursements specifically for paid lunches (or the proportion attributable for paid lunches) provided by States, counties, school districts and others
    • funds provided by organizations for paid lunches
    • any portion of State revenue matching funds that exceeds the minimum requirement established in 7 CFR 210.17 and is provided for paid lunches
non federal funding sources
Non-Federal Funding Sources
  • Some examples of unallowable non-Federal support are:
    • in-kind contributions and a la carte sales
    • any payments, including additional per-meal reimbursements, provided for support of the School Breakfast Program or other Child Nutrition Program
    • any payments, including additional per-meal reimbursements, provided specifically to support free and reduced price meals; and
    • any in-kind contributions converted to direct cash expenditures after July 1, 2011
non federal funding sources13
Non-Federal Funding Sources
  • Exceptions for School Year 2011-2012 only:
    • SFAs may include any non-Federal cash contribution, except for in-kind contributions and revenues from foods and beverages sold in competition with reimbursable meals
    • The limitations for non-Federal contributions do not apply
non federal funding source14
Non-Federal Funding Source
  • Exceptions for School Year 2011-2012 only:
    • SFAs which raised their prices and met the non-Federal revenue requirement in SY 2011-12, may “roll over” the non-Federal revenue exception into SY 2012-13
paid lunch equity average price calculation example
Paid Lunch Equity Average Price Calculation Example

For SY 2011-2012, SFAs that choose to increase paid lunch prices must increase their average paid lunch price by 2% plus 1.14% (or 3.14%)

SFAs must use their paid lunch prices from the previous (2010) October to calculate their new average paid lunch price

paid lunch equity tool
Paid Lunch Equity Tool
  • A PLE tool will be available on the FNS website. The tool will help SFAs calculate:
    • Average price across the SFA
    • New required average price across SFA
    • Distribution of price increases across SFA
    • Non-Federal source contribution amount
revenue from nonprogram food
Revenue From Nonprogram Food

Intent: To ensure that revenues from the sale of nonprogram foods generate at least the same proportion as they contribute to SFA food costs

revenue from nonprogram food19
Revenue From Nonprogram Food

A nonprogram food is a food sold in a participating school other than a reimbursable meal and is purchased using funds from the school food service account

revenue from nonprogram food20
Revenue From Nonprogram Food
  • To implement this requirement SFAs will need to:
    • Identify the proportion of total food costs attributable to nonprogram food in order to establish its revenue target
    • Price nonprogram food items to ensure that revenues will meet the requirement
    • Track nonprogram food revenues separately from all other revenue items
revenue from nonprogram food21
Revenue From Nonprogram Food
  • Example
  • SFA has the following characteristics:
    • Total Costs: $1,000,000
    • Total Food Costs: $500,000
      • Nonprogram Food Costs: $50,000
      • Reimbursable meals Food Costs: $450,000
    • Total Revenue: $1,000,000
revenue from nonprogram food22
Revenue From Nonprogram Food
  • Revenue Requirement:
    • Minimum Proportion of Revenue Required from Nonprogram Food Sales: $50,000/$500,000 = 10%
    • Minimum Dollar Revenue Required from Nonprogram Food Sales: 10% x 1,000,000 = $100,000
  • If this SFA earns $100,000 in revenue from nonprogram food sales, they are in compliance
monitoring compliance
Monitoring Compliance

For SY 2011-2012, State agencies need to work with SFAs to provide guidance and technical assistance on how to meet the requirements

Assure that all SFAs make a good faith effort to comply

FNS will be updating CRE and ME guidance to incorporate review of these requirements

reporting paid lunch prices
Reporting Paid Lunch Prices
  • SFAs must report the most frequently charged paid meal price for–
      • Elementary
      • Middle
      • High
  • State agencies submit SFA data to FNS at end of November
  • FNS is required to publish results
  • Further guidance on reporting is under development
sfa paid lunch price report26
SFA Paid Lunch Price Report

An Excel version of the report will be made available in the future for State agencies to collect and transmit the data for all of their SFAs to us directly

  • Interim Rule:
  • Paid Lunch Equity Q&A:
  • Paid Lunch Equity Tool:
indirect costs
Indirect Costs

Ani Pereira-Sekhon

Child Nutrition DivisionFood and Nutrition Services

U. S. Department of Agriculture

  • 307(a): Required FNS to issue guidance to SFAs on program rules pertaining to indirect costs in the NSLP and SBP (collectively referred to as the SMPs in the indirect cost guidance and this presentation)
  • This section of the presentation will provide an overview on the indirect cost guidance issued by FNS on July 8, 2011
  • The information provided in the guidance does not impose any new requirements on the SA or SFA


indirect costs in a reimbursement program
Indirect costs in a reimbursement program
  • Before we discuss direct and indirect costs, it will be helpful to briefly summarize how reimbursement works in the SMPs
  • In many other programs, program operators bill the Federal awarding agency for program costs for reimbursement
  • In SMPs, subgrantee SFAs report the number of paid, reduced-price, and free meals served (not program costs) to their SAs


indirect costs in a reimbursement program contd
Indirect costs in a reimbursement program, contd.

*Rate of Reimbursement

F/RP/P meals





  • To be reimbursable under the SMPs, each meal served must meet all the requirements set by program regulation


what does this mean
What does this mean?
  • SFAs receive certain monies (rate of reimbursement) for each meal served
  • This is not free money, there are strings attached:
    • Meals must conform to program regulations
    • SA and SFA must adhere to Department-wide and program-specific regulations (i.e., Federal cost principles, procurement regulations, etc.)
nonprofit school food service account
Nonprofit school food service account
  • One of the major responsibilities that accompany the decision to participate in the SMPs is the management of the nonprofit school food service account, which requires those limited funds to be spent solely on the SMPs
  • This account must contain all reimbursements and other revenues from all food service operations conducted by the SFA, principally for the benefit of school children, and used only for the operation or improvement of the nonprofit school food service
federal cost principles
Federal cost principles
  • They are the government-wide principles for determining allowable costs under contracts, grants, and other agreements with the various entities that operate Federal programs
    • 2 CFR Part 225 (OMB Circular A-87) applies to State, local, or Indian Tribal governments
    • 2 CFR Part 230 (OMB Circular A-122) applies to nonprofits
why are they important
Why are they important?
  • Funds in the nonprofit school food service account can only be used to pay for allowable costs (applies to both direct and indirect cost)
  • The OMB guidance provides general definitions regarding the applicability and allowability of different types of costs
  • Federal cost principles provide a uniform method of allocating shared costs to grants from each of its Federal awarding agencies
complementary costs
Complementary costs
  • Total program costs generally include direct and indirect costs

Total Program Cost = Direct Cost + Indirect Cost

  • This is why direct costs must be included when discussing indirect costs
direct costs
Direct costs
  • Direct costs are incurred specifically for a program or other cost objective, and can be readily identified to a particular objective such as school food service
  • Examples of direct costs in SMPs include:
    • Food,
    • Wages and salaries of the staff working in the school food service,
    • Supplies specifically used in the school food service
direct costs contd
Direct costs, contd.

2 CFR Part 225 describes direct costs as, “those that can be identified specifically with a particular final cost objective”

Costs that cannot be exclusively attributable to the SMPs should generally be treated as indirect costs

A good question to help understand “identified specifically” is -- Who benefitted from the SFA having incurred the cost (i.e., just school food service)?

indirect costs39
Indirect costs
  • Indirect costs are incurred for the benefit of multiple programs, functions, or other cost objectives and therefore cannot be identified readily and specifically with a particular program or other cost objective
  • They typically support administrative overhead functions:
    • Fringe benefits,
    • Accounting,
    • Payroll,
    • Purchasing,
    • Facilities management,
    • Utilities, etc.
indirect costs contd
Indirect Costs, contd.

2 CFR Part 225 describes indirect costs as those: “(a) incurred for a common or joint purpose benefiting more than one cost objective, and (b) not readily assignable to the cost objectives specifically benefitted, without effort disproportionate to the results achieved”

Costs that can be allocated to multiple programs or other cost objectives are always an indirect cost

how are indirect costs assigned
How are indirect costs assigned?

Allocation -- mathematical exercise used to assign indirect costs to particular programs and other cost objectives, such that each program or other cost objective bears a portion of the indirect costs that is commensurate with the benefit received from such costs

What does this mean?

how are indirect costs assigned contd
How are indirect costs assigned, contd.

Allocation is a method to assign to school food service their fair share of indirect costs (i.e., portion of utility bills in kitchen and cafeteria)

This methodology normally entails applying a calculated indirect cost rate to a direct cost base

indirect cost rate
Indirect cost rate
  • U.S. Department of Education (ED) requires each SEA to negotiate an indirect cost methodology for any LEA under its jurisdiction that requests one
  • SEA generally distributes an “indirect cost rate proposal (ICRP)” form to its LEAs and uses the data collected to develop each LEA’s indirect cost rate
  • Once the SEA approves the ICRP, the end result is an indirect cost rate agreement between the SEA and the LEA
  • Key information from indirect cost rate:
    • Current and approved indirect cost rate (established for a specific fiscal year); and
    • Corresponding direct cost base
classifying cost as direct or indirect
Classifying cost as direct or indirect?
  • Many times, cost can be treated either way – direct or indirect
  • The treatment of a cost as direct or indirect is almost always driven by its treatment in the program operator’s accounting system 
  • The indirect cost methodology the SEA prescribes for a school district may call for direct-indirect distinctions
    • The SFA must defer to such instructions from the SEA, since their authority to issue them is based on Federal regulations issued by the U.S. Department of Education
consistent treatment
Consistent treatment

The SFA is required to treat each item of cost in a consistent manner as a direct or indirect cost in accordance with the Federal cost principles

A cost may be assigned to the nonprofit school food service as a direct cost only if that cost item under the same circumstances has not been charged to other programs or cost objectives as an indirect cost

how does the school district recover indirect costs
How does the school district recover indirect costs?
  • A school district generally has two options to recover the indirect costs benefiting the school food service, yet paid from the general fund:
    • Directing the general fund to rely on its own allotments, or
    • Billing the school food service
  • School food service is not allowed to pay any amount in excess of the properly billed indirect costs (the portion of costs that do not support the operation or improvement of the food service) with funds from the nonprofit school food serviced account
how to avoid incorrect indirect costs
How to avoid incorrect indirect costs?
  • Errors can occur for a variety of reasons:
    • Mathematical error
    • User assessment
  • SFA needs the necessary tools – both the indirect cost rate and direct cost base because each is useless without the other
    • Indirect cost rate can only be applied to items in the direct cost base
retroactive billing
Retroactive billing
  • Many school districts have never billed indirect costs to the nonprofit school food service account, because the general fund contained enough funds to cover such costs and they wanted to support school food service
  • There is no Federal requirement that prohibits an SFA from changing its internal fiscal policy regarding the recovery of indirect costs (i.e., originally chose to absorb all indirect costs and then later felt it couldn’t keep paying for indirect costs out of general fund)
    • This can only be done prospectively
retroactive billing contd
Retroactive billing, contd.
  • It is unallowable to bill the nonprofit school food service account for indirect costs that were paid from the general fund in prior years unless an agreement exists to show that the district had been “loaning” the nonprofit school food service account funds to cover the indirect costs in one or more prior years
  • Proper documentation needed -- an official “inter-fund” transaction had been posted to the accounting records of the general fund and the school food service each year that such a “loan” had been made
error found
Error found?
  • Steps an SFA should take if indirect costs charged to the nonprofit school food service account result from mathematical error or user assessment:
    • The appropriate officials should be notified and the ICRP and indirect cost methodology corrected as soon as possible;
    • If there is a disagreement between the SFA and the appropriate officials, the SA or SEA should be contacted to discuss the issue; and
  • The SFA should not pay for any costs resulting from the mathematical error or user assessment until the issue has been appropriately remedied

Note: The SA or SEA should seek FNS’ guidance, if needed, by contacting the appropriate FNS Regional Office

indirect cost study
Indirect cost study
  • Section 307(b): Report to Congress on results of the indirect cost study is due by October 1, 2013
  • Study will assess extent to which indirect costs are charged


healthy meals who says there s an increase in food cost
Healthy Meals – who says there’s an increase in food cost….
  • All 132 elementary schools in the county have received the HUSSC challenge award at the bronze level
  • at least 51% grains are whole
  • 3 different dark/leafy greens per week
  • at least 1 legume per week
  • a different fruit is served each day

No trans fat

  • All serving lines have fresh fruit available at
  • all meals
  • Wellness policy in place
  • All a la carte guidelines in compliance with
  • wellness regulations
  • A la carte pricing is determined so that
  • meals do not subsidize snacks

Meal Pricing

Elementary School Secondary School

Breakfast Breakfast

Full Price: $1.30 Full Price: $1.30

Reduced Price Eligible: no charge** Reduced Price Eligible: no charge**

Free Eligible Student: no charge Free Eligible Student: no charge

Lunch Lunch

Full Price: $2.50 Full Price: $2.75

Reduced Price Elig: .40 Reduced Price Elig: .40

Free Eligible Student: no charge Free Eligible Student: no charge

** The Division of Food and Nutrition Services absorbs the .30 cost for the reduced price breakfast to make breakfast more accessible to a student in need.


Flavored milk is fat free; white milk is

  • fat free or 1% fat
  • All vending machines are in compliance
  • with USDA regulations and wellness
  • policy guidelines
  • The Division of Food and Nutrition
  • Services has oversight over the
  • vending contract

How does this happen?

  • Take advantage of all available programs
    • Universal breakfast
    • Fresh Fruit and Vegetable
    • After School Snack/Supper Programs
    • Summer Food Service Program
    • Commodity Food Program

Cost Saving Measures

  • Controlling Overtime
  • Drop Shipments
  • Take advantage of payment discounts
  • Utilizing Commodities
  • Controlling food and labor costs