National School Lunch Program: School Food Service Account Revenue Amendments Related to the Healthy, Hunger-Free Kids Act of 2010, 35301-35318 [2011-14926]
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Rules and Regulations
Federal Register
Vol. 76, No. 117
Friday, June 17, 2011
This section of the FEDERAL REGISTER
contains regulatory documents having general
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are keyed to and codified in the Code of
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DEPARTMENT OF AGRICULTURE
Food and Nutrition Service
7 CFR Part 210
RIN 0584–AE11
National School Lunch Program:
School Food Service Account Revenue
Amendments Related to the Healthy,
Hunger-Free Kids Act of 2010
Food and Nutrition Service,
USDA.
ACTION: Interim rule.
AGENCY:
This rule amends National
School Lunch Program (NSLP)
regulations to conform to requirements
contained in the Healthy, Hunger-Free
Kids Act of 2010 (Pub. L. 111–296)
regarding equity in school lunch pricing
and revenue from nonprogram foods
sold in schools. This rule requires
school food authorities (SFAs)
participating in the NSLP to provide the
same level of financial support for
lunches served to students who are not
eligible for free or reduced price lunches
as is provided for lunches served to
students eligible for free lunches. This
rule also requires that all food sold in
a school and purchased with funds from
the nonprofit school food service
account, other than meals and
supplements reimbursed by the
Department of Agriculture, must
generate revenue at least equal to the
cost of such foods.
DATES: Effective date: This rule is
effective on July 1, 2011.
Comment dates: Comments on rule
provisions: Mailed comments on the
provisions in this rule must be
postmarked on or before September 15,
2011; e-mailed or faxed comments must
be submitted by 11:59 p.m. on
September 15, 2011; and hand-delivered
comments must be received by 5 p.m.
September 15, 2011 to be assured of
consideration.
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SUMMARY:
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Comments on Paperwork Reduction
Act requirements: Comments on the
information collection requirements
associated with this rule must be
received by August 16, 2011.
ADDRESSES: The Food and Nutrition
Service (FNS) invites interested persons
to submit comments on this interim
rule. Comments may be submitted by
any of the following methods:
• Federal eRulemaking Portal: Go to
https://www.regulations.gov. Follow the
online instructions for submitting
comments.
• Fax: (703) 305–2879, attention Julie
Brewer.
• Mail: Julie Brewer, Chief, Policy
and Program Development Branch,
Child Nutrition Division, Food and
Nutrition Service, Department of
Agriculture, 3101 Park Center Drive,
Room 640, Alexandria, Virginia 22302–
1594.
• Hand Delivery or Courier: Deliver
comments to 3101 Park Center Drive,
Room 640, Alexandria, Virginia 22302–
1594, during normal business hours of
8:30 a.m.–5 p.m.
All submissions received in response
to this interim rule will be included in
the record and will be available to the
public. Please be advised that the
substance of the comments and the
identity of the individuals or entities
submitting comments will be subject to
public disclosure. FNS may also make
the comments publicly available by
posting a copy of all comments on
https://www.regulations.gov.
FOR FURTHER INFORMATION CONTACT: Julie
Brewer, Chief, Policy and Program
Development Branch, Child Nutrition
Division, Food and Nutrition Service,
3101 Park Center Drive, Alexandria,
Virginia 22302, or by telephone at (703)
305–2590.
SUPPLEMENTARY INFORMATION:
I. Discussion of Interim Rule
This interim rule promulgates the
provisions from sections 205 and 206 of
Public Law 111–296, the Healthy,
Hunger-Free Kids Act of 2010 (the Act).
Section 205 amended section 12 of the
Richard B. Russell National School
Lunch Act (NSLA) (42 U.S.C. 1760) by
adding a new subsection (p), ‘‘Price for
a Paid Lunch’’ which addresses, for the
first time, requirements for SFAs in
establishing prices for paid
reimbursable lunches (hereinafter called
paid lunches). The amendments made
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by Section 205 provide SFAs with some
flexibility in phasing-in any increases in
paid lunch prices and in using nonFederal funds to supplement paid lunch
revenue to enable them to maintain
lower prices for paid lunches. There is
also a requirement in section 205
requiring the Department of Agriculture
(USDA) to establish procedures to
annually collect and publish the paid
lunch prices charged by SFAs. These
provisions do not apply to the revenue
from or prices charged for either
afterschool snacks or for school
breakfasts offered in 7 CFR part 220.
Section 206 of Public Law 111–296
amended section 12 of the NSLA by
adding a paragraph (q), ‘‘Nonprogram
Food Sales.’’ This provision addresses
food sold in schools outside of
reimbursable meals and meal
supplements, which is purchased with
funds from the nonprofit school food
service account. Included are foods sold
in competition with the reimbursable
meal programs as provided in section 10
of the Child Nutrition Act (42 U.S.C.
1779). The law now requires that the
proportion of total school food service
revenue provided by the sale of
nonprogram foods to the total revenue
of the school food service account be
equal to or greater than the proportion
of total food costs associated with
obtaining nonprogram foods to the total
costs associated with obtaining program
and nonprogram foods from the
account.
FNS currently has no regulatory
requirements regarding pricing of paid
lunches, the amount of revenue
generated by paid lunches or on the
revenue generated by selling
nonprogram foods. Following is a
discussion of the Act’s provisions and
the conforming regulatory amendments
being made in response. In addition to
this interim rule, USDA will issue
guidance and provide technical
assistance as needed to assist SFAs and
State agencies in complying with these
new provisions.
Reimbursement Levels
There are three levels of Federal cash
reimbursement for lunches, breakfasts,
and meal supplements served to
children in schools that participate in
the NSLP and the School Breakfast
Program (SBP). Schools receive the
highest amount of reimbursement for
meals served to students certified
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eligible for free meals, a lesser amount
of reimbursement for students certified
eligible for reduced price meals, and the
lowest reimbursement for meals served
to students who are not certified eligible
for free or reduced price meals (i.e., paid
meals).
Children in families with income at or
below 130 percent of the income
poverty guidelines prescribed by the
U.S. Department of Health and Human
Services are eligible for free meals. In
addition, children who are categorically
eligible because they receive other
assistance (for example, receipt of
Supplemental Nutrition Assistance
Program benefits or enrollment in Head
Start) are eligible for free meals.
Children in families with income
between 130 and 185 percent of the
income poverty guidelines are eligible
for reduced price meals. The maximum
charge for a reduced price lunch is
established in section 9(b)(9) of the
NSLA and cannot exceed 40 cents. A
maximum reduced price charge is also
established for afterschool snacks and
school breakfasts. Any child not
certified for a free or reduced price meal
must pay the meal price set by the
school food authority.
Revenue From Paid Lunches
The Act defines the term paid lunch
as a reimbursable lunch served to
students who are not certified to receive
free or reduced price meals. NSLP
regulations at 7 CFR 210.2 are amended
to incorporate this definition.
The Act requires SFAs to evaluate the
prices they charge for paid lunches in
relation to the Federal paid and free
reimbursement rates. For each school
year, beginning July 1, 2011, SFAs must
annually establish paid meal prices in
accordance with the procedures in the
Act. Those procedures are contained in
a new paragraph (e) added to § 210.14.
In addition, § 210.19(a)(2) is amended to
require each State agency administering
the NSLP to ensure that SFAs comply
with the procedures. FNS developed a
fact sheet to help schools understand
the procedures. The Equity in School
Lunch Pricing Fact Sheet can be found
at https://www.fns.usda.gov/cnd/
Governance/Legislation/Pricing_Equity_
Facts.pdf. A summary of the procedures
follows.
The Act requires SFAs to determine
the average price charged for paid
lunches in the previous school year (for
the school year beginning July 1, 2011,
the previous school year is the school
year beginning July 1, 2010). The school
food authority must determine the
average price charged based on the total
number of paid lunches claimed at each
price in the school food authority for the
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month of October of the prior school
year. October data is used because it
conforms to current data collection
practices in the NSLP and is
representative of the number of days of
operation and number of meals served.
Choosing a later month in the school
year could unnecessarily delay pricing
decisions by SFAs.
Calculating the average lunch price
based on the number of meals claimed
at each price across the school food
authority most accurately indicates the
revenue generated from paid lunches,
which is the intent of Section 205.
Requirements for determining the
average paid lunch price are in
§ 210.14(e).
Once this average is determined, the
school food authority must calculate the
difference between the free lunch per
meal reimbursement rate and the paid
lunch per meal reimbursement rate in
effect for the previous school year (the
‘‘reimbursement difference’’). The lunch
reimbursement rates used in this
calculation must be those received by
the school food authority (e.g., taking
into account locality (contiguous United
States, Alaska or Hawaii) and additional
Federal per meal reimbursement when
60 percent of lunches served in the
second preceding year were served free
or reduced price).
If a school food authority’s average
price of a paid lunch is equal to or
greater than the reimbursement
difference, the school food authority is
not required to make any adjustments in
lunch prices or to add revenue as long
as it continues to charge an average
price that is not less than the amount of
the reimbursement difference. Further,
the school food authority has the option
to round the average price down to the
nearest five cents. A school food
authority may reduce its average price
of a paid lunch if an equivalent amount
of financial support is added from nonFederal sources of funds (other than inkind contributions). These provisions
are added by this rule at § 210.14(e)(2),
(e)(4) and (e)(5).
If a school food authority’s average
price of a paid lunch is less than the
reimbursement difference, the school
food authority must increase prices for
paid lunches, as described in
§ 210.14(e)(3), or add financial support
from non-Federal sources to the school
food service account. To determine the
price increase, the school food authority
must establish an average price for a
paid lunch that is not less than the price
charged in the previous school year as
adjusted by a percentage equal to the
sum obtained by adding two percent
and the percentage change in the
Consumer Price Index for All Urban
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Consumers (food away from home
index) used to increase the Federal
reimbursement rate, as set forth in the
annual notice announcing adjustments
to the national average payments issued
by USDA in the Federal Register on or
about July 1 of each year. SFAs should
refer to the Federal Register notice from
the prior July to obtain the Consumer
Price Index. For determining increases
required for the school year beginning
July 1, 2011, SFAs should use the notice
published on July 19, 2010 (75 FR
41796, ‘‘National School Lunch, Special
Milk, and School Breakfast Programs,
National Average Payments/Maximum
Reimbursement Rates’’).
Section 205 of the Act amended the
NSLA to permit SFAs to round the
adjusted average price for a paid lunch
down to the nearest five cents following
that calculation. Additionally, SFAs are
not required to raise prices more than 10
cents annually. SFAs may, at their
discretion, increase prices for paid
lunches by more than 10 cents. In lieu
of increasing prices, a school food
authority may reduce the average price
of a paid lunch if an equivalent amount
of financial support is added from nonFederal sources of funds (other than inkind contributions). These provisions
are found at § 210.14(e)(4) and (e)(5).
If a school food authority chooses to
contribute financial support from nonFederal sources in lieu of raising prices
for paid lunches, Section 12(p) of the
NSLA specifically excludes in-kind
contributions and revenue from foods
sold in competition with reimbursable
meals from qualifying as support from
non-Federal sources for this purpose.
This rule codifies those prohibitions in
§ 210.14(e)(5)(ii). In addition,
§ 210.14(e)(5)(iii) requires that financial
support from non-Federal sources must
be cash for direct support for paid
lunches, including but not limited to
per-lunch reimbursements for paid
meals provided by States, counties,
school districts and others; funds
provided by organizations, such as
school-related or community groups to
support 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; and a
proportion attributable to paid lunches
from direct payments made from school
district funds to support the lunch
service. Some examples of unallowable
non-Federal support would include any
payments, including additional permeal reimbursements, provided to the
school food authority for support of the
SBP or other Child Nutrition Program;
any payments, including additional permeal reimbursements, provided
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specifically to support free and reduced
price meals; and any in-kind
contributions converted to direct cash
expenditures after July 1, 2011.
In recognition of the short timeframes
for implementation, this interim rule
allows SFAs to count any non-Federal
cash contribution, except for in-kind
contributions and revenues from foods
sold in competition with reimbursable
meals, for School Year 2011–2012 only.
This limited allowance is established by
this rule in § 210.14(e)(6)(iii). In
addition, State agencies should focus
their efforts in the initial year of
implementation to providing SFAs with
technical assistance to ensure
compliance.
We also recognize that this rule was
published after many SFAs have made
pricing decisions for School Year 2011–
2012. Therefore, those SFAs that can
demonstrate that they raised their prices
and met the non-Federal cash
contribution allowance described above
for School Year 2011–2012, may count
any non-Federal cash contribution,
except for in-kind contributions and
revenues from foods sold in competition
with reimbursable meals, toward the
revenue requirements for School Year
2012–2013. FNS will issue guidance on
how adjustments to the School Year
2012–2013 requirement will be
determined in these situations.
If an SFA with an average price lower
than the reimbursement difference is
not required in any school year to
increase its average price, due to lowinflation and rounding rules, the school
food authority must use the unrounded
average price as the basis for
calculations for the next school year.
This approach helps ensure that over
time the appropriate additional
revenues are provided to support paid
lunches. Also, if a school food authority
has an average price lower than the
reimbursement difference and chooses
in any school year to increase paid
lunch prices more than is required, the
amount attributable to the SFAs
discretionary additional increase may be
carried forward to the next school
year(s) to meet the paid lunch pricing
requirements. SFAs must keep sufficient
records to document and carry forward
the average price calculations. These
requirements are established by this
interim rule in § 210.14(e)(6)(i) and
(e)(6)(ii).
As amended by Section 205 of the
Act, Section 12(p) of the NSLA also
requires that USDA establish procedures
to annually collect and publish the paid
meal prices charged by SFAs. While the
statute refers to the collection of paid
meal prices, this interim rule requires
that SFAs report only paid lunch prices.
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This approach minimizes reporting
burden on SFAs and State agencies, and
is consistent with the other
requirements of Section 205, which all
pertain to paid lunches. USDA invites
commenters to provide input on
whether this approach is appropriate, or
whether reporting should be expanded
to include prices charged for paid
breakfasts. The new reporting
requirements for SFAs and State
agencies, respectively, are contained in
amendments to § 210.15(a) and
§ 210.20(a) made by this rule. This
annual report would coincide with
other reporting for the month of
October.
Revenue From Nonprogram Foods
NSLP regulations are amended by this
interim rule to include the new
statutory definition of nonprogram food
in a new paragraph at § 210.14(f).
Section 12(p) of the NSLA as amended
by the Act defines nonprogram food as
‘‘food sold in a participating school
other than a reimbursable meal
provided’’ under the NSLA or the Child
Nutrition Act of 1966 (42 U.S.C. 1771 et
seq.) and which is ‘‘purchased using
funds from the nonprofit school food
service account of the school food
authority * * *.’’ The definition also
specifically identifies as nonprogram
food ‘‘food that is sold in competition
with a program established under’’ the
NSLA or the Child Nutrition Act of
1966. Nonprogram beverages are also
considered nonprogram food.
Effective July 1, 2011, Section 12(q) of
the NSLA, as amended by Section 206
of the Act, requires that the proportion
of total school food service revenue
provided by the sale of nonprogram
foods to the total revenue of the school
food service account shall be equal to or
greater than the proportion of total food
costs associated with obtaining
nonprogram foods to the total costs
associated with obtaining program and
nonprogram foods from the account.
The Act also amended the NSLA to
require that all revenue from the sale of
nonprogram foods accrue to the
nonprofit school food service account of
a participating SFA. These revenue and
accrual requirements are incorporated
into NSLP regulations in this interim
rule by adding a new paragraph (f) to
§ 210.14.
Technical Amendments
The definition of ‘‘Nonprofit school
food service account’’ in § 210.2 is
revised by adding references to the new
procedures in § 210.14(e) and (f)
regarding revenue. In addition, the
requirements in § 210.9(b) for the
agreement between the State agency and
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SFAs are amended by adding a
reference to these new provisions. Other
amendments are made to § 210.15(b)
and § 210.20(b) (for SFAs and State
agencies, respectively) to provide for the
records that must be retained to
document compliance with the newly
established provisions in § 210.14(e)
and (f).
II. Procedural Matters
Issuance of an Interim Rule and Date of
Effectiveness
USDA, under the provisions of the
Administrative Procedure Act at 5
U.S.C. 553(b)(B), finds for good cause
that use of prior notice and comment
procedures for issuing this interim rule
is impracticable. Sections 205 and 206
of the Healthy, Hunger-Free Kids Act of
2010, Public Law 111–296, enacted on
December 13, 2010, requires
implementation of those provisions on
July 1, 2011. USDA concludes that there
is insufficient time to issue a proposed
rule prior to the statutory
implementation deadline. As a result,
this interim rule is necessary to comply
with the requirements of Sections 205
and 206 of Public Law 111–296 and
ensure that those provisions are
implemented and effected by State
agencies and SFAs on July 1, 2011.
For the same reason of
impracticability due to the statutory
implementation deadline, under the
provisions of the Congressional Review
Act at 5 U.S.C. 808(2), USDA for good
cause is issuing this rule with an
effective date of July 1, 2011, which is
less than the latest of the 60-day delay
in effective date prior to, either the
submission of a report to Congress, or
after publication of the rule in the
Federal Register, as required under
section 801(a)(3)(A) of the Congressional
Review Act.
USDA invites public comment on this
interim rule. USDA will consider
amendments to the rule based on
comments submitted during the 90-day
comment period. The agency will
address comments and affirm or amend
the interim rule in a final rule.
Executive Order 12866 and Executive
Order 13563
Executive Orders 12866 and 13563
direct agencies to assess all costs and
benefits of available regulatory
alternatives and, if regulation is
necessary, to select regulatory
approaches that maximize net benefits
(including potential economic,
environmental, public health and safety
effects, distributive impacts, and
equity). Executive Order 13563
emphasizes the importance of
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quantifying both costs and benefits, of
reducing costs, of harmonizing rules,
and of promoting flexibility.
This interim rule has been designated
an ‘‘economically significant regulatory
action’’ under section 3(f) of Executive
Order 12866. Accordingly, the rule has
been reviewed by the Office of
Management and Budget.
Regulatory Impact Analysis
As required for all rules that have
been designated as significant by the
Office of Management and Budget, the
following Regulatory Impact Analysis
(RIA) was developed for this interim
rule: It is included as Appendix A at the
end of this document.
Initial Regulatory Impact Analysis
Title: National School Lunch Program:
School Food Service Account Revenue
Amendments Related to the Healthy,
Hunger-Free Kids Act of 2010
Nature of Action: Interim Rule
Need for Action: Codifies provisions of
Section 205 and 206 of the Healthy, HungerFree Kids Act of 2010 in regulation for the
National School Lunch Program (NSLP) and
the School Breakfast Program (SBP). These
provisions set requirements for student
payments or other non-Federal revenues to
`
ensure that the paid meals and a la carte
foods generate a level of total revenue for
local schools that is comparable to the
revenue generated by USDA payments for
free meals. In the aggregate, these
requirements provide additional revenue to
support nutritious and healthful meals for all
students.
Affected Parties: Those involved in the
operation and administration of the NSLP
and SBP, including State education agencies,
local school food authorities, schools,
students, and the food production,
distribution and service industry.
Background
The National School Lunch Program
(NSLP) is available to over 50 million
children each school day; an average of 31.6
million children per day ate a reimbursable
lunch in fiscal year (FY) 2010. The School
Breakfast Program (SBP) served an average of
11.6 million children daily. Schools that
participate in the NSLP and SBP receive
Federal reimbursement and USDA Foods
(donated commodities) for lunches and
breakfasts that meet program requirements.
The level of Federal support provided
varies by the household income of the
participating child, with the highest
payments for meals provided free to the
children with incomes below 130 percent of
poverty, a lower amount for meals provided
at reduced price to those with incomes
between 130 percent and 185 percent of
poverty, and a small amount for meals
provided to higher-income students (paid
meals). Recent data on the number of
participating students in each category is
presented in Table 1.
TABLE 1—NSLP/SBP AVERAGE DAILY PARTICIPATION, FY 2010
Children (millions) receiving
Program
Free meals
NSLP ........................................................................................................
SBP ..........................................................................................................
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While USDA subsidizes paid meals to
cover part of the cost of production, local
communities and State governments cover
the remainder of production costs, and have
the flexibility to do so from any non-Federal
source—student payments, State subsidies,
or local funds. Most schools depend on
student payments for paid school meals for
a part of their revenue. Based on data
collected by USDA from a national sample of
schools the full price of lunch for school year
2004–05 was $1.60 on average, and the most
common (modal) price was $1.50. The full
price ranged from $0.65 to $3.00; on average,
it was higher in secondary schools than in
elementary schools, and higher in large
schools than in smaller ones. The full price
was also higher in suburban and lowerpoverty schools than in schools not in those
categories.1
However, the revenue received by schools
for paid meals is often too low to cover the
cost of those meals. An examination of
school meal production costs shows that it
cost about $2.28 to produce a school lunch
in school year 2005–06.2 While USDA’s
reimbursement for a free meal ($2.50),
including cash and commodity foods, was
1 U.S. Department of Agriculture, Food and
Nutrition Service (2007). School Nutrition Dietary
Assessment Study–III (multiple volumes), Table
II.11. (SNDA–III) Report prepared by Mathematica
Policy Research. Available at www.fns.usda.gov/
ora/.
2 U.S. Department of Agriculture, Food and
Nutrition Service (2008). School Lunch and
Breakfast Cost Study–II p. ii. (SLBCS–II) Report
prepared by Abt Associates, Inc. Available at
www.fns.usda.gov/ora/.
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Reduced-price
meals
17.4
8.7
about 9 percent higher than reported
production costs, total revenues from a paid
meal—including the price charged to families
($1.60), USDA’s cash reimbursement ($0.21),
and the commodity entitlement ($0.175)—
was 13 percent less. Total revenue from a
paid meal represented only 80 percent of the
value of Federal support for a free meal.
Funding paid meals below the cost of their
production effectively shifts Federal
subsidies designed for the lowest-income
children to others. It can negatively affect all
children by limiting the funds available to
provide nutritious meals.
Schools are also authorized to prepare and
sell non-program foods and meals during the
meal period, as long as the revenue is
provided to the food service program
account. Revenues from non-reimbursable
foods fell short of the cost of producing them
by an average of about 29 percent in SY
2005–06.3 Combining reimbursable meals
and other foods, reported costs were
essentially equal to revenues (101 percent).
The average SFA used revenues from
3 School Lunch and Breakfast Cost Study–II. The
`
conclusion that schools price a la carte foods below
their cost may seem counter intuitive. Some school
`
meal providers may see a la carte food sales as a
source of additional revenue for relatively little
added cost. Many schools attribute overhead and
labor costs primarily to reimbursable meal
production and do not recognize that such costs
support all meal services, and should be allocated
in accordance with generally accepted accounting
principles. The research cited here allocates the
shared cost of overhead and labor that supports
`
both reimbursable and a la carte meal production
proportionately across these services.
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3.0
1.0
Paid meals
11.1
1.9
Total
31.6
11.6
reimbursable meals to offset the cost of
`
producing a la carte and other nonreimbursable food items.
The provisions in Section 205 and 206 of
the Healthy, Hunger-Free Kids Act of 2010
set requirements for student payments or
other non-Federal revenues to ensure that the
`
paid meals and a la carte foods generate a
level of total revenue for local schools that
is comparable to the revenue generated by
USDA payments for free meals. In the
aggregate, these requirements provide
additional revenue to support nutritious and
healthful meals for all students.
I. Summary of Requirements
This interim rule would codify nondiscretionary aspects of the following
provisions of the Healthy, Hunger-Free Kids
Act (Pub. L. 111–296; the Act) under 7 CFR
Part 210:
• Section 205 of the Act requires school
food authorities (SFAs) participating in the
NSLP to establish a price for paid lunches
that is on average equal to the difference
between free lunch reimbursement and paid
lunch reimbursement—the Section 11
reimbursement.4 An SFA charging less than
4 Federal reimbursement for NSLP lunches is the
sum of the values specified in Section 4 and Section
11 of the Richard B. Russell National School Lunch
Act (NSLA). A Section 4 reimbursement is
distributed to schools for all program lunches.
Lunches served to students eligible for free or
reduced-price school meals receive both a Section
4 and a Section 11 reimbursement. SFAs must
charge students a price equal to the Federal Section
11 rate (or contribute an equivalent sum from State
or local sources) for total per meal revenue from
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the required amount is required to gradually
increase the paid lunch price. The maximum
annual average required price increase is
limited to not more than 10 cents for any
SFA. In lieu of increasing the paid lunch
price, an SFA may choose to cover the
difference in revenue with non-Federal
funds. The Act requires the Secretary to
develop regulations to carry out this section,
including collecting and publishing the
prices that SFAs charge for paid meals
annually.
• Section 206 of the Act requires that all
food sold in a school and purchased with
funds from the nonprofit school food service,
other than a reimbursable meal provided
under the National School Lunch and School
Breakfast Programs, must generate revenue at
least equal to the cost of such foods.
• The Act makes these provisions effective
on July 1, 2011.
II. Cost/Benefit Assessment
A. Summary of Anticipated Impacts
While the rule will have little or no direct
impact on Federal expenditures, it will
require the contribution of additional funds
to the non-profit school meals program
account of participating SFAs:
• For the Section 205 provisions, these
funds could be derived from a combination
of sources, including program participants
who receive paid lunches and State and local
governments. State agencies administering
the NSLP and SFAs have flexibility to
determine which of these sources will
contribute revenues to meet the
requirements, and in what proportion.
• For the Section 206 provisions, funds
`
will derive from increased prices for a la
carte foods and beverages, and thus will all
be contributed by the families of school
children who choose to purchase these
products.
• School food authorities will be required
to incur additional administrative costs to
implement the rule, reflecting the need to
review food costs and revenue records, adjust
`
a la carte prices, and report the prices
charged for paid meals.
In addition, we expect that the rule will have
Federal budgetary effects as a result of
indirect impacts on participation in the
school meals programs. To the extent that the
Section 205 provisions result in increased
prices for paid meals, NSLP participation
may be lower than otherwise projected as
students choose not to eat, to bring lunch
from home, or to acquire it from other
sources, resulting in Federal savings in paid
reimbursements. To the extent that price
`
increases for a la carte foods result from
Section 206 provisions, school children and
their families could choose to substitute
`
reimbursable school meals for purchases of a
la carte foods, resulting in increased
participation and higher Federal meal
reimbursements.
Estimates of the overall impacts of the rule,
including both changes in SFA revenues and
Federal costs, are presented in Table 2. For
purposes of this analysis, the rule is assumed
to take effect on July 1, 2011, the start of
school year (SY) 2011–2012.
TABLE 2—PROJECTED IMPACT OF RULE
[All figures in millions]
Fiscal year
2011
SFA Revenues: 5
Section 205 ...........................................................................
Section 206 (non-reimbursable food sales) .........................
Section 206 (reimbursable meal sales) ................................
Administrative Costs .............................................................
2012
2013
2014
2015
Total
*
175
64
¥5
$9
1,148
416
¥9
$66
1,237
466
¥10
$104
1,320
484
¥10
$144
1,443
510
¥10
$323
5,324
1,939
¥44
Net SFA Revenues ........................................................
Federal Costs:
Section 205 (NSLP) ..............................................................
Section 206 (NSLP) ..............................................................
$234
$1,564
$1,760
$1,898
$2,086
$7,542
*
46
*
297
¥$3
338
¥$7
348
¥$10
362
¥$20
1,392
Total Federal Cost .........................................................
Participation Effects:
Net change in number of lunches served ............................
Net change in number of reimbursable breakfasts served ..
Baseline Federal Cost of NSLP ...........................................
Number of lunches ........................................................
Baseline Federal Cost of SBP ..............................................
Number of breakfasts ....................................................
$46
$297
$335
$342
$352
$1,372
25
**
$11,521
5,387
$3,115
2,091
155
**
$12,049
5,465
$3,338
2,187
151
**
$12,300
5,531
$3,470
2,253
146
**
$12,415
5,586
$3,557
2,298
143
**
$12,534
5,631
$3,629
2,332
620
**
$60,819
27,600
$17,108
11,160
* Equals less than $500,000.
* Small increase.
Section 205 directs SFAs to take steps to
equalize the per meal revenue generated by
reimbursable paid lunches and free lunches,
thus targeting SFAs whose non-Federal per
meal revenue is less than the Section 11
reimbursement for lunches (or $2.46 for
school year 2011–12). It permits State and
local governments to share, or assume fully,
the direct economic impact. Although we
cannot anticipate how States, local
governments, and SFAs will share the
responsibility for raising per-meal receipts
for paid lunches, we have estimated the total
amount of non-Federal revenue needed to
meet the requirements compared to the latest
observed levels.
We identified schools whose paid meal
prices fell short of the Section 11
reimbursement in school year 2004–2005
using data collected in the third School
Nutrition Dietary Assessment Study (SNDA–
III).6 This study collected data from a
nationally representative sample of 129
SFAs, 398 schools in those SFAs, and 2,314
children attending those schools (and their
parents) in School Year 2004–05. SFA
directors provided information on districtwide policies (such as menu-planning
paid meals to match total per meal revenue from
free meals. In school year 2010–11, schools earned
$2.72 for each free meal, $2.32 for each reduced
price meal, and $0.26 for each paid meal.
5 SFA revenues derive from increases in student
`
payments for paid lunches and a la carte foods,
additional contributions to SFA accounts from State
or local governments, and higher USDA
reimbursements for an expected increase in
participation in the reimbursable meals programs.
6 Because paid lunch price is a school-level
variable on the SNDA–III dataset rather than an
SFA-level variable, we perform our analysis at the
school level. We developed our estimate as though
the responsibility for raising paid lunch prices or
finding alternate non-federal revenue rests with
individual schools. In practice, Section 205
provides SFAs the flexibility to set prices at
individual schools however they see fit, as long as
the weighted average price across the SFA meets
the Section 205 target. For purposes of an aggregate
cost estimate, a school-level analysis and a
weighted average SFA-level analysis should give
comparable results.
Note: Entries in tables throughout this
analysis may not sum to totals due to
rounding.
B. SFA Impacts
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1. Revenue from Paid Lunches (Section 205)
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systems) and operations (such as food
purchasing). As part of the study, school
foodservice managers provided information
regarding their school’s foodservice
operations, including paid meal prices, and
policies on competitive foods available in or
near the foodservice area.
To estimate the number of schools that
charge less than the Section 11
reimbursement in FY 2011, we assumed that
the schools’ paid meal prices kept pace with
inflation adjustments in the lunch
reimbursement since SY 2004–2005. For this
analysis, the schools whose prices fall short
of the Section 11 rate today are the schools
that would have fallen short of a comparable
regulatory target in SY 2004–2005.7
• Throughout the forecast period we
assume annual increases in the Section 11
rate equal to the projected growth in the Food
Away From Home series of the Consumer
Price Index.8 We also assume that baseline
paid meal prices would have matched the
annual growth in the Section 11 rate. These
baseline prices represent what schools would
have charged for reimbursable paid meals in
the absence of the interim rule.
• The interim rule requires annual price
increases (or equivalent non-Federal
revenues) of 2 percent above the inflation
rate until prices meet the Section 11 target.
The rule also allows for annual rounding of
adjusted prices to the next lower 5 cents and
limits required price increases to no more
than 10 cents. SFAs and schools need not
round prices down, nor are they prohibited
from imposing annual increases above the 10
cent cap. For this estimate, however, we
assume that schools take advantage of both
provisions: we assume uniform rounding and
no optional price increases above 10 cents in
any year.
• The interim rule allows SFAs to
contribute financial support from nonFederal sources in lieu of part or all of
required paid lunch price increases. It
requires that financial support from nonFederal sources must be cash for direct
support for paid lunches, and may not be inkind contributions or revenue from foods
sold in competition with reimbursable meals.
For the first school year of implementation
(school year 2011–12), the interim rule
allows SFAs to count any non-Federal cash
contribution, except for cash revenues from
foods sold in outside of reimbursable meals,
as an offset for paid lunch price increases.
While the most recent analysis of school
meals costs and revenues suggests that State
and local authorities contribute substantial
non-Federal cash revenues to food service
accounts, data is not available to determine
the extent to which these revenues represent
direct support for paid lunches. For the
purpose of this analysis, we assume that
SFAs will be able to use existing
contributions to meet all of the required paid
meal revenue increase to meet the rule’s
requirements for school year 2011–12, and to
meet 25 percent of the requirements for
subsequent years.
• We assume that increases in paid meal
prices above the 2 percent annual inflation
rate reduce student consumption of paid
meals.9 We model this reduction with
evidence collected in SNDA–III, which
showed that over a range of paid meal prices
typical of those charged in SY 2004–2005,
student participation rate was lower by 0.11
percent for each additional cent in paid
lunch prices.10 In addition to impacts on SFA
revenues, this participation effect also
implies Federal savings; this is discussed
further under Federal Budgetary Impacts,
below.
The results of this analysis are presented
in Table 3:
TABLE 3—NON-FEDERAL REVENUE REQUIRED TO MEET PAID MEAL REVENUE EQUITY PROVISION
Fiscal year (millions)
2011
2012
2013
2014
2015
Total
Required non-Federal revenue increase based on current estimated paid meal student payments ............................................................................................................
Existing non-Federal, non-student payment contributions that offset required increase .........................................................................................................................
$8
$56
$87
$138
$192
$481
¥8
¥47
¥21
¥35
¥48
¥158
Net required non-Federal revenue increase ..................................................................
*
9
66
104
144
323
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Not all school districts will benefit from
this revenue increase. We estimate, based on
the distribution of paid lunch prices in SY
2004–05 found in SNDA–III, that about 6,000
of 102,000 schools will not have to increase
paid meal prices at all in SY 2011–12 to
comply with Section 205 because they
already charge prices above the $2.46 target
for SY 2011–12. An additional 19,000
schools have prices so low (no greater than
$1.59) that the 3.14 percent increase required
for SY 2011–12 results in an increase of less
than 5 cents, and thus in almost all cases
rounds down to zero.11 Almost all of the
remaining schools would have only a 5 cent
required increase in SY 2011–12.
Because the provision limits the increase to
no more than 10 cents per lunch per year, we
anticipate that increases in SFAs with the
largest difference between paid lunch prices
and the Section 11 rate will continue
gradually over many years, with about half of
all schools reaching the requirements of the
rule in 13 years, and many continuing to
work towards paid meal revenue parity for 20
years or more.12
SFAs have the option of meeting the
revenue requirements by adding funds to the
school food service account. However, to the
extent that SFAs choose instead to raise paid
meal prices, the change will affect students
(and their families) whose income exceeds
the statutory thresholds for free or reduced
price meals. While this spares families with
the lowest incomes from the revenue raising
objective of the provision, there may be some
concern that higher paid meal prices will fall
disproportionately on children with incomes
relatively close to the upper threshold for
reduced price benefits. Table 4 presents a
distribution of school-aged children by level
of family income: 13
7 It is worth noting that the observed relationship
between paid lunch and free lunch revenue is
relatively stable across the three SNDA studies,
which collected data from school years 1991–92,
1998–99, and 2004–05:
• In SY 1991–92, revenue for a paid meal was
79.9 percent of Federal revenue for a free meal.
• In SY 1998–99, revenue for a paid meal was
80.3 percent of Federal revenue for a free meal.
• In SY 2004–05, revenue for a paid meal was
82.2 percent of Federal revenue for a free meal.
8 The NSLA provides for annual increases in the
Section 11 rate equal to growth in the CPI–U’s Food
Away From Home series. We use projections in the
series prepared by OMB for use in the 2012
President’s Budget.
9 We expect that students that no longer consume
paid lunches because of price increases will either
bring food from home, choose not to eat during
school hours, or acquire food from other sources.
We do not have data that allows us to estimate the
relative frequency of these different responses.
10 Over the price range examined in SNDA–III,
this is an elasticity of ¥0.30. SNDA–I estimated an
elasticity of ¥0.25 over a range of prices from $1.20
to $1.60 in SY 1991–1992. (Table VII.3, p. 137) U.S.
Department of Agriculture, Food and Nutrition
Service (1993). The School Nutrition Dietary
Assessment Study. Report prepared by Mathematica
Policy Research. Available at www.fns.usda.gov/
ora/
11 These schools would face no required price
increase in SY 2011–12 if their SY 2010–11 baseline
prices were rounded to an even 5 cent increment.
As we note above, this analysis relies on the schoollevel SNDA–III dataset. Because SNDA–III data
indicate that nearly all schools charged prices in 5
cent increments in SY 2004–05, our analysis
assumes that all prices in SY 2010–11 are likewise
rounded to the nearest 5 cents.
12 We estimate that the ‘‘revenue gap’’ between
free reimbursement and paid meal revenue levels
would be reduced 28 percent by FY 2015, the end
of the accounting period for this analysis. The gap
would continue to shrink in future years.
13 The data in Table 4 reflect special tabulations
of Current Population Survey data prepared by
Mathematica Policy Research for FNS.
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35307
TABLE 4—CHILDREN BY AGE AND FAMILY INCOME, 2008
Children age 5–18
Years
(000s)
Family income as a percent of poverty
Percent of total
Percent of total
ineligible for free/
reduced meals
≤ 100% .................................................................................................................
100% to 130% .....................................................................................................
130% to 185% .....................................................................................................
185% to 200% .....................................................................................................
200% to 225% .....................................................................................................
225% to 250% .....................................................................................................
250% to 300% .....................................................................................................
> 300% .................................................................................................................
10,428
3,865
6,686
1,559
2,638
2,762
4,988
24,571
18.1
6.7
11.6
2.7
4.6
4.8
8.7
42.7
................................
................................
................................
4.3%
7.2
7.6
13.7
67.3
Total ..............................................................................................................
57,496
100.0
100.0
Program foods are the Federally
reimbursable lunches, breakfasts, and snacks
served in the NSLP and SBP. For purposes
`
of the interim rule, non-program foods are a
la carte and other items offered to students
other than NSLP or SBP meals.15 As
presented in the estimate, the costs for these
foods reflect the allocation of food costs
across program meals and non-program foods
as required under generally accepted
accounting principles, including those
ingredients and food components that might
be purchased and used to support both
`
reimbursable meal service and a la carte
service.
The sum of program revenue and nonprogram revenue in the second ratio is all
revenue in the SFA account. SFA revenue
includes Federal subsidies for reimbursable
meals, USDA food assistance, student
`
payment for program meals, revenue from a
la carte and other non-reimbursable food
sales, State and local contributions to the
SFA account, and a small amount from other
sources such as interest on deposits and the
sale of equipment.
The interim rule requires SFAs to generate
at least as great a share of total revenue from
non-program foods as non-program foods
contribute to total food costs. That is, SFAs
must ensure that their revenue ratio is at least
as great as their food cost ratio. With SLBCS–
II data, adjusted for growth in student
participation and school food prices, we
`
estimate that a la carte revenues fall short of
the amount necessary to balance SFA food
cost and revenue ratios as required by the
interim rule by almost $2.4 billion for the full
2011 fiscal year.16
14 One limitation of the SLBCS–II for this analysis
is that SFAs were not asked to provide separate
program and non-program costs. Developing an
estimate of the split between program and nonprogram costs was one of the objectives of the
study. Trained observers recorded the foods
selected by a sample of students and identified
those meals as reimbursable or non-reimbursable.
The study then estimated the cost of individual
food items based on SFA records of food prices, the
value of USDA Foods, school recipe records, and
school menus. With this information, the study
estimated the share of total food costs attributable
to non-program meals. That percentage was applied
to non food costs to estimate the overall split
between program and non-program costs.
15 An additional limitation of the SLBCS–II data
`
for this analysis is that financial data for a la carte
foods are combined with the data for adult meals,
some vending, and catering. Because we cannot
`
isolate a la carte’s contribution to these broader
measures of cost and revenue we overstate the cost
and revenue ratios for some SFAs.
16 For this analysis we assume that baseline
`
demand for a la carte foods grows at a rate
comparable to the growth in student consumption
of reimbursable paid lunches. We recognize the
limitations of paid meal participation as a proxy for
`
a la carte consumption. Our assumption of
comparable growth is intended to reflect changes in
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carte prices or invest additional sums in
program meals.
Required SFA Revenue Increase
Continued
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`
a. Direct Impacts on a la Carte Sales
The interim rule requires that, to the extent
`
that SFA revenues from a la carte foods fall
short of the rule’s cost-based target, SFAs
`
must take positive action to either raise a la
We estimate the SFA-level effects of this
provision with data collected as part of an
examination of school meal production costs
(School Lunch and Breakfast Cost Study–II
(SLBCS–II)). The SLBCS–II examined school
year 2005–2006 revenue and expense data for
a nationally representative sample of 120
school food authorities, and a representative
sample of 356 schools within those SFAs.
Financial statements, meal production
records, recipes, invoices, and other
documents were reviewed. Data collected
from those SFAs include the revenue
generated from program meals, the revenue
generated from non-program foods that
accrued to the school foodservice account,
and the cost of producing those meals and
food items, allocated between program and
non-program foods using generally-accepted
accounting practices. Data from interviews
with SFA and school district officials were
used to calculate unreported costs and
allocate labor costs among SFA activities.
Samples of meals taken by students were
observed to obtain data on menu items sold
in reimbursable and nonreimbursable
meals.14
We use these data to compute the
following two key statistics, specified by the
rule, for each of the study’s sampled SFAs:
The number of school age children with
family incomes just over the limit for school
meal benefits is substantial in absolute terms;
nearly 1.6 million school age children had
family incomes between 185 percent and 200
percent of the Federal poverty threshold in
2008. But this group represents roughly 4
percent of all children whose incomes place
them among potential paid meal participants.
2. Revenue From Non-Program Foods
(Section 206)
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Impacts of Price Changes on Student
`
Purchase of a la Carte Foods
The revenue increase required to balance
SFAs’ food and revenue ratios for FY 2011
is about 70 percent above projected baseline
`
a la carte receipts.17 For years beyond 2011,
adjustments are needed not only for price
`
inflation, but for changes in demand for a la
carte foods as a result of price increases,
absent other action by school or SFA
administrators.
• In the absence of a direct measure of
`
student sensitivity to price increases in a la
carte foods, we use the same price elasticity
estimate that we applied to our Section 205
analysis of paid lunches.18 For each one cent
increase in paid meal prices, SNDA–III
estimated a ¥0.11 percent decrease in
participation, a price elasticity of about
¥0.30.19
• Following the initial price adjustment to
comply with the rule in 2011, we assume that
growth in prices charged for and demand for
`
a la carte foods matches growth in the
aggregate Federal reimbursement for paid
lunches, using the same assumptions for
growth in paid lunch participation and
reimbursement rates reflected in the FY 2012
President’s Budget.20
• It is plausible to image that, over time,
the effect of increased prices in reducing
demand will decay, as consumers grow
accustomed to the higher prices. We have not
factored this into our analysis, but to the
extent that it occurs, we would expect to see
demand increase and overall SFA revenue
grow.
Through FY 2015, we estimate that SFA
`
revenues for a la carte foods will increase as
a result of the interim rule by the amounts
in Table 5.
`
TABLE 5—INCREASED SFA REVENUE FROM A LA CARTE FOODS 21
Fiscal year (millions)
2011
2012
2013
2014
2015
Total
`
Baseline a la carte revenue .....................................................................
Revenue increase due to price increase .................................................
Revenue decrease due to reduced demand ...........................................
$500
357
¥182
$3,279
2,342
¥1,194
$3,533
2,524
¥1,286
$3,769
2,693
¥1,372
$4,119
2,942
¥1,499
$15,200
10,858
¥5,534
`
Total adjusted a la carte revenue ............................................................
675
4,427
4,770
5,090
5,561
20,524
`
Net projected increase in a la carte revenue ..........................................
175
1,148
1,237
1,320
1,443
5,324
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It should be noted that this estimate
`
assumes that the mix of a la carte foods
remains equally popular among students
relative to price as the foods sold in SY
`
2004–05 (when the most recent data on a la
carte foods was collected), and that schools
`
make no effort to adjust their a la carte
offerings to increase their popularity. To the
extent that schools make such adjustments,
the net revenue increase of the rule would
grow.
In addition, the Healthy, Hunger-Free Kids
Act of 2010 requires USDA to promulgate
nutrition standards for all foods sold in
school. Because these standards have not yet
been proposed, we did not factor them into
this analysis. To the extent that these
standards ultimately require schools to
eliminate popular items, they could cause a
`
net reduction in demand for a la carte foods,
and reduce the revenues generated by this
rule.
We would expect that some portion of the
`
reduced demand for a la carte foods due to
price increases would be redirected as
additional demand for and participation in
the school meals programs.
• We assume that roughly 46 percent of
`
lost demand for a la carte foods due to price
increases would be redirected as additional
demand for and participation in the school
meals programs.22 For simplicity, and
`
because the consumption of a la carte foods
at breakfast is relatively low compared to the
`
consumption of a la carte foods at lunch, we
`
model the shift from a la carte to program
foods as one that takes place at lunchtime
only.23 We expect that students that do not
choose to participate in school meals or
`
purchase higher-priced a la carte foods will
either bring food from home, choose not to
eat during school hours, or acquire food from
other sources. We do not have data that
allows us to estimate the relative frequency
of these different responses.
• Data is not available about the income
`
distribution of students who purchase a la
carte. We make the assumptions that (1) lowincome children are less-frequent consumers
of these foods that higher-income children
and (2) they are more likely than higherincome children to reduce purchases in
response to price increases. We therefore
`
assume that a la carte sales reductions are
distributed across school meal eligibility
levels in proportion to their share of total
program participation.24
Our estimate of the increase in SFA
revenues that derives from Federal
reimbursements and student payments for a
larger number of NSLP meals served through
FY 2015 as a result of the interim rule is
shown in Table 6. This reflects an increase
of about 2.9 percent in lunches over the
Federal baseline, or about 92 million free
lunches, 16 million reduced-price lunches,
and 58 million paid lunches in 2015. In
the size of the student population that chooses to
consume school foods but is ineligible for free or
reduced price meals.
17 This is the targeted revenue increase prior to
`
a price-induced drop in demand for a la carte foods.
18 We find the estimated price elasticity for paid
lunches from SNDA–III to be a reasonable substitute
`
for this analysis of a la carte consumption given that
it measures student response to price increases in
a school setting where available substitutes are
comparably limited.
19 For FY 2011, we estimate that SFAs will need
to raise prices to generate $357 million in increased
revenue for the period July 1—September 30. This
would require, on average, a 71 percent increase in
`
a la carte prices. We then apply a 3.0 percent
`
reduction in student purchases of a la carte foods
for each 10 percent increase in price, estimating
`
that total revenue from a la carte sales will fall by
about 21 percent ($182 million). Net SFA revenues
thus will increase $175 million, rather than the
$357 million that would be raised under an
assumption of constant sales.
20 This means that we assume SFA prices charged
`
for a la carte foods keep pace with increases in the
broader market prices of food and labor reflected in
the CPI’s ‘‘food away from home’’ index.
21 Reflects a drop in demand following the initial
`
a la carte price increase.
22 SNDA–III estimates that participation in the
reimbursable lunch program is 4.6 percentage
points higher in schools that disallow the sale of
non-program foods during meal times than in
schools that allow non-program food sales (SNDA–
III, vol. 2, p. 117). SNDA–I found that 10 percent
of students who consumed meals at school
`
purchased their food from a la carte lines, vending
machines, or school stores (Table VII.1, p. 131). An
overall program participation increase of 4.6
percent from the 10 percent of students who
purchase competitive foods implies that 46 percent
of students who purchase competitive foods will
turn to reimbursable meals if competitive food sales
are suspended. For this analysis we assume that the
percentage increase in program participation by
students who stop purchasing competitive foods
due to price is the same as the percentage increase
in program participation by students whose
competitive food option is eliminated entirely.
23 SNDA–III found that competitive foods were
consumed by 29 percent of NSLP non-participants
during the lunch period in SY 2004–2005 (Vol. 2,
Table VI.9, p. 196), but that competitive foods were
consumed by just 5 percent of SBP non-participants
during the breakfast period (SNDA–III, Vol. 2, Table
VII.9, p. 264).
24 We assume that 55 percent of children who
`
stop purchasing a la carte foods in response to
higher prices are eligible for free school meals, 10
percent are eligible for reduced price meals, and 35
percent are eligible for paid meals. This is the
distribution of NSLP participants in FY 2010. If the
`
children who currently purchase a la carte foods are
more likely to be eligible for paid meals, estimated
revenues would be less than estimated here,
especially in the years before the full effect of
Section 205 are realized.
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addition to impacts on SFA revenues, this
participation effect is reflected in increased
Federal costs discussed further under Federal
Budgetary Impacts, below. (The amounts
shown in Table 6 include the Federal costs
shown in Table 10, plus additional amounts
derived from student payments or other nonFederal revenue sources for non-free meals.)
`
TABLE 6—INCREASED SFA REVENUE DUE TO SHIFT FROM A LA CARTE TO NSLP PARTICIPATION
Fiscal year (millions)
2011
`
Projected increase in SFA revenue from a la carte/NSLP shift ..............
3. SFA Administrative Cost
There are no current regulatory
requirements regarding pricing of paid
lunches, the amount of revenue generated by
paid lunches or the revenue generated by
selling non-program foods. The interim rule
would thus entail new administrative tasks,
requiring school food authorities to use
information on paid lunch prices, food costs,
and revenue records to determine the price
2012
$64
2013
$416
2014
$466
`
changes needed for these meals and a la carte
foods.
The rule also requires State agencies and
school food authorities to annually provide
and report to USDA the paid meal prices
charged by school food authorities. We
estimate that this will require, in aggregate,
roughly 323,000 hours in additional work for
States and SFAs each year, increasing
administrative costs by about $10 million per
year.25 However, it is important to recognize
2015
$484
Total
$510
$1,939
that, to the extent States and SFAs make use
of options to add other non-Federal sources
to the school food service account in place
of part of all of the price increase, additional
administrative costs could result from the
need to account for these other revenue
sources and amounts. In either case, most
additional administrative cost occurs at the
SFA level.
Projected administrative costs are shown in
Table 7:
TABLE 7—ADMINISTRATIVE COSTS
Fiscal year (millions)
2011
Administrative Costs ......................................................................................................
C. Federal Budgetary Impacts
We estimate that the interim rule has some
impacts on Federal expenditures as well.
While no measurable direct Federal costs for
the implementation of this provision are
anticipated, the impact of the pricing and
revenue provisions on participation in the
2012
$5
2013
$9
NSLP and SBP will change Federal costs for
these programs.
To the extent that the Section 205
provisions result in increased prices for paid
meals, NSLP participation may be marginally
lower than otherwise projected, resulting in
Federal savings in paid reimbursements. We
model this reduction with SNDA–III data
2014
$10
2015
$10
Total
$10
$44
which suggests that the student participation
rate was lower by 0.11 percent for each
additional cent in paid lunch prices in SY
2004–05. We anticipate that average daily
participation by students receiving paid
meals will change as a result of this provision
as follows:
TABLE 8—FEWER CHILDREN CONSUMING PAID MEALS DUE TO HIGHER PRICES
Fiscal year
2011
Change in number of children consuming paid meals due to higher
prices ....................................................................................................
`
To the extent that price increases for a la
carte foods result from Section 206
provisions, this could lead to substitution of
NSLP/SBP participation for purchases of
2012
*
2013
¥7,000
these foods, resulting in a marginal
participation increase and Federal costs for
meal reimbursements. We anticipate that
average daily program participation will
2014
¥55,000
¥88,000
2015
¥124,000
`
increase among students switching from a la
carte to program meals as a result of this
provision as follows:
`
TABLE 9—MORE CHILDREN CONSUMING PROGRAM MEALS DUE TO HIGHER A LA CARTE PRICES
Fiscal year
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2011
2012
2013
2014
2015
`
Children shifting from a la carte to free meals ..................................................
`
Children shifting from a la carte to reduced price meals ..................................
`
Children shifting from a la carte to paid meals .................................................
76,000
13,000
48,000
482,000
83,000
306,000
494,000
85,000
313,000
499,000
86,000
316,000
509,000
88,000
322,000
Total newly-participating children ...............................................................
137,000
871,000
892,000
901,000
919,000
25 Based on estimated recordkeeping and
reporting requirements for 57 State agencies and
nearly 21,000 SFAs. These requirements are
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expected to impose a burden of about 15 hours per
year per respondent (valued at about $30 per hour).
We estimate that just half of a full year’s worth of
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these administrative expenses will be incurred in
FY 2011.
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The impacts of these effects on Federal
expenditures are shown in Table 10.
TABLE 10—FEDERAL BUDGETARY IMPACTS
Fiscal year (millions)
2011
2012
2013
2014
2015
Total
Section 205—NSLP participation ............................................................
Section 206—NSLP participation ............................................................
$0
46
*
$297
¥$3
338
¥$7
348
¥$10
362
¥$20
1,392
Total ..................................................................................................
46
297
335
342
352
1,372
* Less than $500,000.
D. Uncertainties
No regulatory requirements currently exist
regarding the prices of paid lunches or nonprogram foods, and limited data are available
to estimate the cost and participation impacts
of the interim rule’s provisions. Therefore,
we made several simplifying assumptions in
developing this cost estimate, reflecting gaps
in available data and evidence. In this
section, we describe the impact of several
alternative assumptions on the estimate. The
effects of these alternatives on our primary
estimates are presented in Table 11.
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1. More Rapid Increase in Paid Lunch Prices
As noted above, Section 205 directs SFAs
charging less than the required paid meal
price to gradually increase revenue per paid
lunch until the requirement is met, with an
annual average increase limited to not more
than 10 cents. However, schools may choose
to raise prices more rapidly than required,
and thus generate additional revenue to
support their operations.
While our main estimate assumes that
schools make only the increases required by
the interim rule, Table 11, Section A shows
the estimated impact if schools with low paid
meal prices raise prices 5 percent above the
rate of inflation each year until the
requirement is met. This assumption results
in an additional $287 million in revenue over
five years relative to the main estimate in
Table 3.
2. Alternative Participation Effects Increased
Paid Lunch Prices
Our main estimate of the participation
impact of paid lunch price increases relies on
data from SNDA–III, which suggests that over
a 50 cent range in paid meal prices (from
$1.50 to $2.00 in SY 2004–05) participation
was 0.11 percent lower for each one cent
increase in price.
We have modeled two alternative
assumptions here:
• Table 11, Section B shows the estimated
impact if participation decreases at a higher
rate—0.25 percent for each one cent increase
in price. This assumption results in a
reduction of $160 million in revenue over
five years relative to the main estimate in
Table 3.
26 SLBCS–II,
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18:58 Jun 16, 2011
• Table 11, Section C shows the estimated
impact if participation decreases at a lower
rate—0.05 percent for each one cent increase
in price. This would result in $69 million in
additional revenue over five years relative to
the main estimate in Table 3.
3. Alternative Assumptions for Reductions in
`
a la Carte Food Sales
Our main estimate assumes that a 10
`
percent increase in prices for a la carte foods
will reduce purchase and consumption of
those foods by 3.0 percent.
Two alternative assumptions about the
`
price elasticity of demand for a la carte foods
are presented here:
• Table 11, Section D shows the estimated
impact if a 10 percent increase in prices for
`
a la carte food sales relative to food costs
reduces purchase and consumption of those
foods by 5.0 percent. This assumption results
in a reduction of $3.8 billion in revenue over
five years relative to the main estimate from
Table 5.
• Table 11, Section E shows the estimated
impact if a 10 percent increase in prices for
`
a la carte food sales relative to food costs
reduces purchase and consumption of those
foods by 1.0 percent. This assumption results
in $3.7 billion in additional revenue over five
years relative to the main estimate from Table
5.
4. Alternative Levels of NSLP/SBP
`
Participation as a Substitution for a la Carte
Sales
Our main estimate assumes that 46 percent
`
of lost demand for a la carte foods due to
price increases would be redirected as
additional school meals program
participation. Two alternative assumptions
about this substitution effect are presented:
• Table 11, Section F shows the estimated
impact if 20 percent of lost demand was
substituted as school meals program
participation. This assumption results in a
reduction of $787 million in revenue over
five years relative to the main estimate in
Table 10.
• Table 11, Section G shows the estimated
impact if 60 percent of lost demand was
substituted as school meals program
participation. This assumption results in an
increase of $424 million in revenue over five
27 See
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years relative to the main estimate in Table
10.
E. Benefits
The primary social benefits of the statute
as implemented by this interim rule are to
ensure that school pricing policies and other
non-Federal contributions increase the
revenue available to local school food service
operations to support production of healthful
school meals that are consistent with Federal
nutrition standards. It does this by
eliminating two unintended Federal
`
subsidies—for paid meals and a la carte
foods—that are drawn from payments to
support free meals for the lowest-income
children. The diversion of these funds
negatively affects all children by limiting the
funds available to provide nutritious meals.
• USDA’s research shows that it cost about
$2.28 to produce a school lunch in SY 2005–
06.26 While USDA’s reimbursement for a free
meal ($2.50), including cash and commodity
foods, was about 9 percent higher than
reported production costs, total revenues
from a paid meal—including the price
charged to families ($1.60), USDA’s cash
reimbursement ($0.21), and the commodity
entitlement ($0.175)—was 13 percent less.
Total revenue from a paid meal was only 80
percent of the value of Federal support for a
free meal.
• Research also shows that revenues in SY
2005–06 from non-reimbursable foods fell
short of the cost of producing them by an
average of about 29 percent.27 The average
SFA used revenues from reimbursable meals
`
to offset the cost of producing a la carte and
other non-reimbursable food items.
The provision of additional revenue to the
non-profit food service account will provide
important financial support to improve the
quality of all reimbursable meals. USDA has
estimated that the cost of compliance with its
proposed rule updating nutrition standards
for school meals based on recommendations
from the Institute of Medicine (IOM) (RIN
0584–AD59, published January 13, 2011)
would increase total costs by roughly 12
percent when fully implemented. The
estimated impact of this regulation could
increase revenues sufficiently to cover those
increased costs,
SLBCS–II.
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TABLE 11—COST OF RULE UNDER ALTERNATE ASSUMPTIONS
Fiscal year
2011
2012
2013
2014
2015
Total
Section A. More Rapid Increase in Paid Lunch Prices
Net required non-Federal revenue increase ............................................
$0
$19
$138
$197
$256
$610
Increase Over Primary Estimate ..............................................................
0
10
72
93
112
287
Section B. Greater Sensitivity of Paid Meal Participation to Price
Net required non-Federal revenue increase ............................................
$0
$5
$36
$52
$69
$163
Decrease From Primary Estimate ...........................................................
0
¥4
¥30
¥51
¥76
¥160
Section C. Lesser Sensitivity of Paid Meal Participation to Price
Net required non-Federal revenue increase ............................................
$0
$11
$79
$126
$177
$392
Increase Over Primary Estimate ..............................................................
0
2
13
22
32
69
`
Section D. Greater Price Elasticity of Demand for a la Carte Foods
`
SFA a la Carte Revenue .........................................................................
$51
$335
$360
$385
$420
$1,551
Decrease From Primary Estimate ...........................................................
¥124
¥814
¥877
¥936
¥1,022
¥3,773
`
Section E. Lesser Price Elasticity of Demand for a la Carte Foods
`
SFA a la Carte Revenue .........................................................................
$296
$1,941
$2,091
$2,231
$2,438
$8,997
Increase Over Primary Estimate ..............................................................
121
792
854
911
995
3,673
`
Section F. Lesser Substitution of School Meals Participation for a la Carte Sales
USDA Paid Meal Reimbursements .........................................................
$20
$129
$147
$151
$158
$605
Decrease From Primary Estimate ...........................................................
¥26
¥168
¥191
¥197
¥205
¥787
`
Section G. Greater Substitution of School Meals Participation for a la Carte Sales
USDA Paid Meal Reimbursements .........................................................
$59
$388
$441
$454
$473
$1,816
Increase Over Primary Estimate ..............................................................
14
91
103
106
110
424
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support full consistency with existing
standards, and ease the path to rapid and full
compliance with strengthened nutrition
standards, including (1) increased servings of
fruits and vegetables, (2) replacement of
refined-grain foods with whole-grain rich
foods, and (3) replacement of higher-fat dairy
products with low-fat varieties.28 The
increased funding to support these meals
could not only improve their nutritional
quality, but also their appeal to students,
leading to further NSLP–SBP participation
increases.29 This in turn would further
increase the impact of the proposed
28 The regulatory impact analysis for 0584–AD59
estimates the cost of reaching full compliance with
improved nutrition standards at $6.8 billion over
fiscal years 2012–2016.
29 The IOM report recommending changes to
school meals standards identifies factors in their
recommendations that may increase and decrease
student acceptance, but also points to efforts in a
number of localities in which efforts to improve the
nutritional quality of school meals have resulted in
increased participation. See Institute of Medicine
(2010). School Meals: Building Blocks for Healthy
Children. Washington, DC: The National Academies
Press, chapter 9, especially pp. 272–275.
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standards described above. (It would also
increase the SFA revenue and Federal cost
that could result from this rule.)
As documented in the IOM
recommendations, the proposed changes in
school meals standards correspond to
inconsistencies between the typical diets of
school-aged children in the United States and
the Dietary Guidelines/MyPyramid
recommendations. In particular, the report
cited an analysis of National Health and
Nutrition Examination Survey data for 1999–
2002 that showed:
• Total vegetable intake was only about 40
percent of the MyPyramid levels, with intake
of dark green and orange vegetables less than
20 percent of MyPyramid levels.
• Total fruit intake was about 80 percent
of the MyPyramid levels for children ages
5–8, with far lower levels for older children.
• Intake of whole grains was less than onequarter of MyPyramid levels, although total
grain intake was at or above MyPyramid
levels.
• Intake of dairy products varied by age,
with the intakes of the youngest children
exceeding MyPyramid levels, while those of
older children were below those levels.
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However, most dairy consumed contained 2
percent or more milk fat, while the Dietary
Guidelines recommend fat-free or low-fat
dairy products.30
The kinds of changes in school meals that
this additional revenue will support will
promote diets more consistent with the
Guidelines among program participants.
Such diets, in turn, are useful behavioral
contributors to health and well-being. As the
report of the 2010 Dietary Guidelines
Advisory Committee notes, ‘‘evidence is
accumulating that selecting diets that comply
with the Guidelines reduces the risk of
chronic disease and promotes health.’’ 31 The
report describes and synthesizes the evidence
linking diet and different chronic disease
30 Institute of Medicine (2010). School Meals:
Building Blocks for Healthy Children. Washington,
DC: The National Academies Press, pp. 49–53.
31 Dietary Guidelines Advisory Committee (2010).
Report of the Dietary Guidelines Advisory
Committee on the Dietary Guidelines for
Americans, 2010, to the Secretary of Agriculture
and the Secretary of Health and Human Services.
U.S. Department of Agriculture, Agriculture
Research Service, Washington, DC, p. B1–2.
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risks, including cardiovascular disease and
blood pressure, as well as the effects of
dietary patterns on total mortality.
Children are a subpopulation of particular
focus for the Committee; the report
emphasizes the increasing common evidence
of chronic disease risk factors, such as
glucose intolerance and hypertension, among
children, and explains that ‘‘[e]vidence
documents the importance of optimal
nutrition starting during the fetal period
through childhood and adolescence because
this has a substantial influence on the risk of
chronic disease with age.’’ 32
In response, the report notes improvements
in food at schools as a critical strategy to
prevent obesity, and related health risks,
among children. Indeed, the Committee
recommends ‘‘[i]mprov[ing] foods sold and
served in schools, including school breakfast,
lunch, and after-school meals and
competitive foods so that they meet the
recommendations of the Institute of Medicine
and the key findings of the 2010 Dietary
Guidelines Advisory Committee. This
includes all age groups of children, from
preschool through high school.’’ 33
III. Alternatives
Most aspects of the interim rule are nondiscretionary, and tie to explicit, specific
requirements of Section 205 and 206 of the
Act. Because of the mandatory effective date
of July 1, 2011, USDA has chosen to use the
plain language of the law to the extent
possible and focus exclusively on mandatory
requirements in this interim rule. However,
the Department made several choices to
clarify expectations and requirements for
program operators. These are described
briefly below.
Section 205: Funding From Non-Federal
Sources
The law allows SFAs to add ‘‘funding from
non-Federal sources’’ in lieu of raising paid
meal prices. The law explicitly excludes inkind contributions and revenue from
competitive foods from counting toward a
non-Federal contribution, but does not
otherwise define the parameters of these
contributions. USDA considered the
following alternatives defining the scope of
allowable funding:
• Apart from in-kind contributions and
revenue from competitive foods, allow any
other cash funding from a non-Federal
source to count. Because funds contributed to
the school food service account are provided
for a wide variety of purposes, this broad
interpretation could result in few, if any,
SFAs receiving additional funds that could
support the meal service, potentially
undermining the intent of this provision.
• Count only new sources of contributions
after July 1, 2011, the effective date of the
provision. This ‘‘maintenance of effort’’
approach would maximize new revenue, but
could also penalize SFAs and States that
have historically contributed significant nonFederal revenues by requiring them to
contribute additional revenue.
• Allow those non-Federal contributions
that provide direct support for paid lunches.
This seemed to cleave most closely to the
intent of the law.34 However, the need to
identify and potentially augment such
funding sources could be difficult to
implement by the July 1 effective date.
The Department chose to allow any nonFederal contribution to the school food
service account to count towards the
requirement in school Year 2011–12, but for
subsequent years to limit contributions to
those that are for direct support for paid
lunches, in order to balance achieving the
intent of the law as soon as possible with
enabling implementation in the first year.
Section 205: Calculating the Average Paid
Meal Price
To determine the required level of nonFederal revenue, SFAs must calculate the
average paid meal price across all paid NSLP
lunches served in the district. USDA
considered the following alternatives in
defining the average price:
• Average price per lunch: This method
requires SFAs to multiply the number of paid
lunches served by the price for each across
all schools, add these figures together, and
divide by the total number of lunches served
in the district for the period. This approach
most accurately reflects the total revenue
derived from student payments for paid
lunches. Because it requires the use of meal
counts, it is somewhat more burdensome
than the alternative described below.
• Average price per school): This would
entail SFAs to determine a simple average of
prices by school—adding the prices charged
at each school and dividing by the total
number of schools. This is a simpler
calculation, but does not appropriately factor
in the number of meals served at each school,
or at different price points.
The Department chose the average price
per lunch approach, as it most accurately
reflects the payments made by families in
support of paid lunches, while requiring only
limited additional calculation, and no
information that is not readily available to
schools and SFAs.
IV. Accounting Statement
Table 12 contains the FY 2011 present
values of the figures in Table 2 using a 7
percent discount rate. Table 13 contains
present values under an alternate 3 percent
discount rate. The rightmost columns of
Tables 12 and 13 contain the annualized
effects of the rule.
TABLE 12—PRESENT VALUE OF SFA REVENUE AND FEDERAL COST: 7 PERCENT DISCOUNT RATE
Fiscal year
2011
Transfers (from non-Federal sources to SFA) ................
Transfers (from Federal Government to SFA) ................
Costs ................................................................................
$193
46
5
2012
2013
2014
2015
$1,193
278
9
$1,252
293
9
$1,278
279
8
$1,331
269
8
Total FY
2011–15
Annualized
amount
$5,247
1,164
38
$1,280
284
9
TABLE 13—PRESENT VALUE OF SFA REVENUE AND FEDERAL COST: 3 PERCENT DISCOUNT RATE
Fiscal year
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2011
Transfers (from non-Federal sources to SFA) ................
Transfers (from Federal Government to SFA) ................
Costs ................................................................................
32 Dietary Guidelines Advisory Committee,
pp. B1–2, B1–3.
33 Dietary Guidelines Advisory Committee,
p. B3–6.
34 Senate Report 111–178 on the Healthy Hunger
Free Kids Act (page 37) notes: ‘‘School districts that
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$193
46
5
2012
2013
2014
2015
$1,239
288
9
$1,352
316
9
$1,433
313
9
$1,550
313
9
charge at least the difference between the free lunch
reimbursement rate and the paid lunch
reimbursement rate for paid meals must adjust their
prices on an annual basis by the inflation
adjustment factor used for federal reimbursement
rates. Participating school food authorities may
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Total FY
2011–15
Annualized
amount
$5,767
1,276
41
$1,259
279
9
reduce the average price of a paid lunch required
under this section if the State agency ensures that
sufficient funding from non-Federal sources (other
than in-kind contributions) is added to the
nonprofit school food service account to
compensate for the reduction (emphasis added).’’
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Note: This Analysis will not be codified in
the Code of Federal Regulations.
Appendix B to 7 CFR 210 Initial Regulatory
Flexibility Analysis
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Initial Regulatory Flexibility Analysis Interim
Rule: National School Lunch Program:
School Food Service Account Revenue
Amendments Related to the Health HungerFree Kids Act of 2010
[RIN 0584–AE11]
AGENCY: Food and Nutrition Service,
USDA
BACKGROUND: The Regulatory Flexibility
Act (RFA) requires agencies to consider the
impact of their rules on small entities and to
evaluate alternatives that would accomplish
the objectives of the rules without unduly
burdening small entities when the rules
impose a significant economic impact on a
substantial number of small entities. Inherent
in the RFA is Congress’ desire to remove
barriers to competition and encourage
agencies to consider ways of tailoring
regulations to the size of regulated entities.
The RFA does not require that agencies
necessarily minimize a rule’s impact on
small entities if there are significant legal,
policy, factual, or other reasons for the rule’s
having such an impact. The RFA requires
only that agencies determine, to the extent
feasible, the rule’s economic impact on small
entities, explore regulatory alternatives for
reducing any significant economic impact on
a substantial number of such entities, and
explain the reasons for their regulatory
choices.
Reasons That Action Is Being Considered
Sections 205 and 206 of Public Law 111–
296, the Healthy, Hunger-Free Kids Act of
2010 (December 13, 2010), amended the
Richard B. Russell National School Lunch
Act (NSLA) to address revenue from paid
lunches and nonprogram foods (foods and
beverages sold by schools outside of the
reimbursable meals programs). Beginning
July 1, 2011, school food authorities (SFAs)
that participate in the National School Lunch
Program (NSLP) must assess the prices
charged for lunches served to students not
eligible for free or reduced prices meals (i.e.,
paid lunches) and ensure sufficient funds are
provided to the nonprofit school food service
account in relation to the difference between
the higher reimbursement that the Federal
government provides for free lunches and the
lower reimbursement provided for paid
lunches. These funds may come in the form
of limited increases in paid lunch prices or
by providing additional sources of nonFederal funding to support paid lunches.
Section 206 requires SFAs to assure that the
proportion of total revenue from the sale of
nonprogram foods to the total revenue be
equal to or greater than the proportion of
total food costs associated with obtaining
nonprogram foods to the total costs
associated with obtaining program and
nonprogram foods from the account.
Objectives of, and Legal Basis for, the Interim
Rule
Section 12 of the NSLA was amended by
adding paragraphs (p) and (q) which,
respectively, address the requirements for
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revenue from paid reimbursable school
lunches and from sale of nonprogram foods.
These provisions are intended to ensure
sufficient funds are provided to the nonprofit
school food service account for meals served
to students not eligible for free or reduced
price meals and for the cost of obtaining
nonprogram foods.
Historically, there have been three main
sources of funds provided to nonprofit school
food service accounts: Federal
reimbursements, paid meal revenues, and
State and local funding. Research indicates
that average prices charged for paid meals—
meals served to students not certified to
receive free or reduced price meals—are too
low to cover the cost of producing those
meals. Pricing paid meals below the cost of
their production effectively increases federal
subsidies for higher income children at the
expense of low income children and
negatively affects children across all income
levels by limiting the funds available to
provide nutritious meals. This same rationale
applies to the requirement for assuring that
the cost of obtaining nonprogram foods.
These provisions will ensure that schools
have funding available to support serving
nutritious meals to all students.
Number of Small Entities to Which the
Interim Rule Will Apply
This rule directly regulates the 55 State
education agencies and 2 State Departments
of Agriculture (SAs) that operate the NSLP
and SBP pursuant to agreements with
USDA’s Food and Nutrition Service (FNS); in
turn, its provisions apply to entities that
prepare and provide NSLP and SBP meals to
students. While SAs are not small entities
under the RFA as State populations exceed
the 50,000 threshold for a small government
jurisdiction, many of the service-providing
institutions that work with them to
implement the program do meet definitions
of small entities:
There are currently about 19,000 School
Food Authorities (SFAs) participating in
NSLP and SBP. More than 99 percent of these
have fewer than 50,000 students.35 About 26
percent of SFAs with fewer than 50,000
students are private. However, private school
SFAs account for only 3 percent of all
students in SFAs with enrollments under
50,000.36
Nearly 102,000 schools and residential
child care institutions participate in the
NSLP. These include more than 90,000
public schools, 6,000 private schools, and
about 5,000 residential child care institutions
(RCCIs).37 We focus on the impact at the SFA
level in this document, rather than the school
level, because SFAs are responsible for the
administration of the NSLP and the SBP.
Food service management companies
(FSMCs) that prepare school meals or menus
under contract to SFAs are affected indirectly
35 FNS 742 School Food Verification Survey,
School Year 2009–2010. This number is
approximate, not all SFAs are required to submit
the 742 form.
36 Ibid. RCCIs include but are not limited to
juvenile detention centers, orphanages, and medical
institutions. We do not have information on the
number of children enrolled in these institutions.
37 FNS program data for FY 2010.
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35313
by the interim rule. Thirteen percent of
public school SFAs contracted with FSMCs
in school year (SY) 2004–2005.38 Of the
2,460 firms categorized as ‘‘food service
contractors’’ under NAICS code 72231, 96
percent employ fewer than 500 workers.39
Projected Reporting, Recordkeeping and
Other Compliance Requirements
The analysis below covers only those
organizations impacted by the interim rule
that were determined to be small entities.
School Food Authorities (SFA)/Schools
• Under the interim rule, school food
authorities must ensure that schools that
participate in the NSLP generate revenue for
paid reimbursable lunches that is comparable
to Federal free lunch revenue. Schools must
evaluate and gradually adjust the price of
paid reimbursable lunches or use nonFederal funding to ensure that the school
foodservice account receives sufficient
revenue to cover this level.
To the extent that schools increase prices
rather than use other non-Federal revenues to
meet the rule’s requirements, and these
increases reduce demand for paid lunches,
NSLP participation could decrease in these
schools. However, USDA estimates that this
impact will be small—about 0.11 percent for
each additional cent in paid lunch prices.
• Under the interim rule, school food
authorities must also ensure that revenue
from nonprogram foods cover the cost of
obtaining those foods. We estimate that this
requirement will result in substantial
increases in prices charged for nonprogram
foods in some schools, and in turn decrease
demand for these foods, leading some
students to increase consumption of NSLP/
SBP meals, and others to acquire food from
other sources. (This is described in more
detail in Appendix A.
• Finally, the interim rule will require
SFAs to report their paid lunch prices to
USDA on an annual basis. We have estimated
a small increase in reporting burden for
SFAs.
While we recognize that these changes may
in some cases increase burden on schools
and school food authorities, they are explicit
requirements of the Healthy, Hunger Free
Kids Act of 2010, and will serve the
important intent of that law to ensure that
schools have funding available to support
serving nutritious meals to all students.
Federal Rules That May Duplicate, Overlap
or Conflict With the Interim Rule
FNS is unaware of any such Federal rules
or laws.
Significant Alternatives
The law provides for various ways that
SFAs can comply with these requirements.
The law allows SFAs to limit the increase in
the price to a maximum of ten cents
annually, although the SFA may choose to
38 U.S. Department of Agriculture, Food and
Nutrition Service, Office of Research, Nutrition and
Analysis, School Nutrition Dietary Assessment
Study–III, Vol. I, 2007, p. 34 https://www.fns.usda.
gov/ora/MENU/Published/CNP/FILES/SNDAIIIVol1.pdf
39 Ibid.
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raise the price higher. Further, in lieu of a
price increase, the SFA may add non-Federal
funds to the school food service account in
the amount of revenue required to meet the
requirement. This interim rule allows SFAs
to carry-over any increase above the
minimum over subsequent school years. This
allows the SFA the flexibility to choose to
have price increases only periodically, rather
than annually. The law also provides
flexibility in establishing how to account for
adequate revenue for the cost of obtaining
foods sold outside of the school meals
programs. Once SFAs determine the
proportionate revenue needed for
nonprogram foods, it may choose to increase
the price of certain items to provide the
additional revenue, may do an across the
board increase or may choose to add funds
from sources outside of the school food
service account.
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Regulatory Flexibility Act
This rule has been reviewed with
regard to the requirements of the
Regulatory Flexibility Act of 1980 (5
U.S.C. 601–612). It has been certified
that this rule will have a significant
economic impact on a substantial
number of small entities. A Regulatory
Flexibility Analysis (RFA) was
developed for this interim rule and is
included as Appendix B at the end of
this document.
Unfunded Mandates Reform Act
Title II of the Unfunded Mandates
Reform Act of 1995 (UMRA), Public
Law 104–4, establishes requirements for
Federal agencies to assess the effects of
their regulatory actions on State, local,
and Tribal governments and the private
sector. Under section 202 of the UMRA,
the Department generally must prepare
a written statement, including a cost/
benefit analysis, for proposed and final
rules with Federal mandates that may
result in expenditures to State, local, or
Tribal governments, in the aggregate, or
to the private sector, of $100 million or
more in any one year. When such a
statement is needed for a rule, section
205 of the UMRA generally requires the
Department to identify and consider a
reasonable number of regulatory
alternatives and adopt the least costly,
more cost-effective or least burdensome
alternative that achieves the objectives
of the rule. This rule does not contain
Federal mandates (under the regulatory
provisions of Title II of the UMRA) that
impose costs on State, local, or Tribal
governments or to the private sector of
$100 million or more in any one year.
This rule is, therefore, not subject to the
requirements of sections 202 and 205 of
the UMRA.
Executive Order 12372
The NSLP is listed in the Catalog of
Federal Domestic Assistance under No.
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10.555. For the reasons set forth in the
final rule in 7 CFR part 3015, Subpart
V and related notice (48 FR 29115, June
24, 1983), this program is included in
the scope of Executive Order 12372,
which requires intergovernmental
consultation with State and local
officials.
Executive Order 13132
Executive Order 13132 requires
Federal agencies to consider the impact
of their regulatory actions on State and
local governments. Where such actions
have federalism implications, agencies
are directed to provide a statement for
inclusion in the preamble to the
regulations describing the agency’s
considerations in terms of the three
categories called for under section
(6)(b)(2)(B) of Executive Order 13132.
USDA has considered the impact of this
rule on State and local governments and
has determined that this rule does not
have federalism implications. This rule
does not impose substantial or direct
compliance costs on State and local
governments. Therefore, under Section
6(b) of the Executive Order, a federalism
summary impact statement is not
required.
Executive Order 12988
This rule has been reviewed under
Executive Order 12988, Civil Justice
Reform. This rule is intended to have
preemptive effect with respect to any
State or local laws, regulations or
policies which conflict with its
provisions or which would otherwise
impede its full implementation. This
rule is not intended to have retroactive
effect unless specified in the DATES
section of the final rule. Prior to any
judicial challenge to the provisions of
this rule or the application of its
provisions, all applicable administrative
procedures must be exhausted.
Civil Rights Impact Analysis
FNS has reviewed this rule in
accordance with Departmental
Regulations 4300–4, ’’Civil Rights
Impact Analysis’’, and 1512–1,
‘‘Regulatory Decision Making
Requirements.’’ After a careful review of
the rule’s intent and provisions, FNS
has determined that this rule is not
intended to limit or reduce in any way
the ability of protected classes of
individuals to receive benefits on the
basis of their race, color, national origin,
sex, age or disability nor is it intended
to have a differential impact on minority
owned or operated business
establishments, and woman-owned or
operated business establishments that
participate in the Child Nutrition
Programs.
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Paperwork Reduction Act
The Paperwork Reduction Act of 1995
(44 U.S.C. Chap. 35; see 5 CFR part
1320), requires that the Office of
Management and Budget (OMB)
approve all collections of information
by a Federal agency from the public
before they can be implemented.
Respondents are not required to respond
to any collection of information unless
it displays a current, valid OMB control
number. This is a new collection. The
new provisions in this rule, which do
increase burden hours, affect
information collection requirements that
will be merged into the NSLP, OMB
Control Number #0584–0006, expiration
date 5/31/2012. The current collection
burden inventory for the NSLP is
12,257,764. These changes are
contingent upon OMB approval under
the Paperwork Reduction Act of 1995.
When the information collection
requirements have been approved, FNS
will publish a separate action in the
Federal Register announcing OMB’s
approval.
Comments on the information
collection in this interim rule must be
received by August 16, 2011.
Send comments to the Office of
Information and Regulatory Affairs,
OMB, Attention: Desk Officer for FNS,
Washington, DC 20503. Please also send
a copy of your comments to Lynn
Rodgers-Kuperman, Program Analysis
and Monitoring Branch, Child Nutrition
Division, 3101 Park Center Drive,
Alexandria, VA 22302. For further
information or for copies of the
information collection requirements,
please contact Lynn Rodgers-Kuperman
at the address indicated above.
Comments are invited on: (1) Whether
the proposed collection of information
is necessary for the proper performance
of the Agency’s functions, including
whether the information will have
practical utility; (2) the accuracy of the
Agency’s estimate of the proposed
information collection burden,
including the validity of the
methodology and assumptions used; (3)
ways to enhance the quality, utility and
clarity of the information to be
collected; and (4) ways to minimize the
burden of the collection of information
on those who are to respond, including
use of appropriate automated,
electronic, mechanical, or other
technological collection techniques or
other forms of information technology.
All responses to this request for
comments will be summarized and
included in the request for OMB
approval. All comments will also
become a matter of public record.
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Title: National School Lunch Program:
School Food Service Account Revenue
Amendments Related to the Healthy,
Hunger-Free Kids Act of 2010.
OMB Number: 0584–NEW.
Expiration Date: Not Yet Determined.
Type of Request: New Collection.
Abstract: This interim rule
promulgates the provisions from
sections 205 and 206 of Public Law
111–296, the Healthy, Hunger-Free Kids
Act of 2010 (the Act). Section 205
amended section 12 of the Richard B.
Russell National School Lunch Act
(NSLA) (42 U.S.C. 1760) by adding a
new subsection (p), ‘‘Price for a Paid
Lunch’’ which addresses, for the first
time, requirements for SFAs on
establishing prices for paid
reimbursable lunches (hereinafter called
paid lunches). Section 205 provided
SFAs with some flexibility in phasingin any increases in paid lunches and in
using non-Federal funds to supplement
paid lunch revenue in order to keep the
price of a paid lunch lower. These
provisions do not apply to the revenue
from or prices charged for either
afterschool snacks or for school
breakfasts offered in 7 CFR part 220.
There is also a requirement in section
205 requiring USDA to establish
procedures to annually collect and
publish the paid lunch prices charged
by SFAs.
Section 206 of Public Law 111–296
amended section 12 of the NSLA by
adding a paragraph (q), ‘‘Nonprogram
Food Sales.’’ This provision addresses
food in schools outside of the
reimbursable meal and meal
supplements, which are purchased with
funds from the nonprofit school food
service account. Included are foods sold
in competition with these reimbursable
meal programs as provided in section 10
of the Child Nutrition Act (42 U.S.C.
1779). The law now requires that the
revenue from the sale of nonprogram
foods be proportionate to the total
revenue generated by such food.
These changes are effective July 1,
2011.
Those respondents participating in
the SBP also participate in the NSLP,
thus the burden associated with the SBP
will be carried in the NSLP. The average
reporting and recordkeeping burden per
response and the annual burden hours
are explained below and summarized in
the charts which follow.
Respondents for this Interim Rule:
State Agencies (57) and School Food
Authorities (20,858).
Estimated Number of Respondents for
this Interim Rule: 20,915.
Estimated Number of Responses per
Respondent for this Interim Rule:
3.991824.
Estimated Total Annual Responses:
83,489.
Estimated Total Annual Burden on
Respondents for this Interim Rule:
322,827.
ESTIMATED ANNUAL BURDEN FOR 0584–NEW, NATIONAL SCHOOL LUNCH PROGRAM 7 CFR PART 210
Estimated
number of
respondents
Section
Frequency of
response
Average
annual
responses
Average
burden per
response
Annual burden
hours
Reporting
State agency (SA) consolidates paid
reimbursable lunch prices reported
by SFAs and submits to FNS.
SFA reports paid lunch prices for
each NSLP school to the SA.
7 CFR
210.14(e)(7).
57
1
57
10
570
7 CFR
210.14(e)(7).
20,858
1
20,858
0.25
5,215
Total Reporting for Interim Rule
..............................
20,915
1
20,915
0.2766
5,785
Total Existing Reporting Burden
for 0584–0006, Part 210.
Total Reporting Burden Increase
with Interim Rule.
..............................
........................
........................
........................
........................
2,981,464
..............................
........................
........................
........................
........................
5,785
Total Reporting Burden for
0584–0006, Part 210 with
Interim Rule.
..............................
........................
........................
........................
........................
2,987,249
Recordkeeping
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SA maintains records of paid reimbursable lunch prices obtained
from SFAs.
SFA maintains records of its calculation of the average price of paid reimbursable lunches and adjustments.
SFAs maintains records documenting
the revenue generated from the
sale of nonprogram foods.
7 CFR
210.14(e)(7).
57
366
20,858
0.2
4,172
7 CFR
210.14(e)(1)–
(e)(5).
20,858
1
20,858
5
104,290
7 CFR 210.14(f) ..
20,858
1
20,858
10
208,580
Total Recordkeeping for Interim
Rule.
..............................
20,915
2.99
62,574
15.1586
317,042
Total Existing Recordkeeping
Burden for 0584–0006, Part
210.
..............................
........................
........................
........................
........................
9,276,300
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Federal Register / Vol. 76, No. 117 / Friday, June 17, 2011 / Rules and Regulations
ESTIMATED ANNUAL BURDEN FOR 0584–NEW, NATIONAL SCHOOL LUNCH PROGRAM 7 CFR PART 210—Continued
Section
Total Recordkeeping Burden for
0584–0006, Part 210 with Interim Rule.
Estimated
number of
respondents
Frequency of
response
Average
annual
responses
Average
burden per
response
..............................
........................
........................
........................
........................
preempt Tribal law. Reports from these
consultations will be made part of the
USDA annual reporting on Tribal
20,915 Consultation and Collaboration. USDA
will respond in a timely and meaningful
3.991824 manner to all Tribal government
83,489 requests for consultation concerning
this rule and will provide additional
3.8667 venues, such as webinars and
teleconferences, to periodically host
12,580,591
collaborative conversations with Tribal
12,257,764 officials or their designees concerning
ways to improve this rule in Indian
country.
SUMMARY OF BURDEN (OMB #0584–
NEW)
Total No. Respondents .........
Average No. Responses per
Respondent .......................
Total Annual Responses ......
Average Hours per Response ...............................
Total Burden Hours for Part
210 With Interim Rule .......
Current OMB Inventory for
Part 210 ............................
Difference (New Burden
Requested With Interim Rule) .................
322,827
7 CFR 210.15 and 210.20 require that,
in order to participate in the NSLP,
SFAs and State agencies must maintain
records to demonstrate compliance with
Program requirements. 7 CFR 210.23
further requires that State agencies and
SFAs maintain records for a period of
three years.
PART 210—NATIONAL SCHOOL
LUNCH PROGRAM
E-Government Act Compliance
The Food and Nutrition Service is
committed to complying with the EGovernment Act of 2002, to promote the
use of the Internet and other
information technologies to provide
increased opportunities for citizen
access to Government information and
services, and for other purposes.
mstockstill on DSK4VPTVN1PROD with RULES
Executive Order 13175—Consultation
and Coordination With Indian Tribal
Governments
Executive Order 13175 requires
Federal agencies to consult and
coordinate with Tribes on a
government-to-government basis on
policies that have Tribal implications,
including regulations, legislative
comments or proposed legislation, and
other policy statements or actions that
have substantial direct effects on one or
more Indian Tribes, on the relationship
between the Federal Government and
Indian Tribes, or on the distribution of
power and responsibilities between the
Federal Government and Indian Tribes.
In spring 2011, USDA engaged in a
series of consultative sessions to obtain
input by Tribal officials or their
designees concerning the impact of this
rule on the Tribe or Indian Tribal
governments, or whether this rule may
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List of Subjects in 7 CFR Part 210
Grant programs—education; Grant
programs—health; Infants and children;
Nutrition; Penalties; Reporting and
recordkeeping requirements; School
breakfast and lunch programs; Surplus
agricultural commodities.
Accordingly, 7 CFR part 210 is
amended as follows:
Authority: 42 U.S.C. 1751–1760, 1779.
2. In § 210.2:
a. The definition of ‘‘Nonprofit school
food service account’’ is amended by
adding a sentence at the end;
■ b. The definition of ‘‘Subsidized
lunch (paid lunch)’’ is removed; and
■ c. The definition of ‘‘Paid lunch’’
added.
The additions read as follows:
■
■
Subpart A—General
§ 210.2
Definitions.
*
*
*
*
*
Nonprofit school food service account
* * * This account shall include, as
appropriate, non-Federal funds used to
support paid lunches as provided in
§ 210.14(e), and proceeds from
nonprogram foods as provided in
§ 210.14(f).
*
*
*
*
*
Paid lunch means a lunch served to
children who are either not certified for
or elect not to receive the free or
reduced price benefits offered under
part 245 of this chapter. The Department
subsidizes each paid lunch with both
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9,593,342
general cash assistance and donated
foods. The prices for paid lunches in a
school food authority shall be
determined in accordance with
§ 210.14(e).
*
*
*
*
*
Subpart C—Requirements for School
Food Authority Participation
3. In § 210.9, paragraph (b)(1) is
revised to read as follows:
■
§ 210.9
Agreement with State agency.
*
*
*
*
*
(b) * * *
(1) Maintain a nonprofit school food
service and observe the requirements for
and limitations on the use of nonprofit
school food service revenues set forth in
§ 210.14 and the limitations on any
competitive school food service as set
forth in § 210.11;
*
*
*
*
*
■ 4. In § 210.14, new paragraphs (e) and
(f) are added to read as follows:
§ 210.14
1. The authority citation for 7 CFR
part 210 continues to read as follows:
■
Annual burden
hours
Resource management.
*
*
*
*
*
(e) Pricing paid lunches. For each
school year beginning July 1, 2011,
school food authorities shall establish
prices for paid lunches in accordance
with this paragraph.
(1) Calculation procedures. Each
school food authority shall:
(i) Determine the average price of paid
lunches. The average shall be
determined based on the total number of
paid lunches claimed for the month of
October in the previous school year, at
each different price charged by the
school food authority.
(ii) Calculate the difference between
the per meal Federal reimbursement for
paid and free lunches received by the
school food authority in the previous
school year (i.e., the reimbursement
difference);
(iii) Compare the average price of a
paid lunch under paragraph (e)(1)(i) of
this section to the difference between
reimbursement rates under paragraph
(e)(1)(ii) of this section.
(2) Average paid lunch price is equal
to/greater than the reimbursement
difference.
When the average paid lunch price
from the prior school year is equal to or
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greater than the difference in
reimbursement rates as determined in
paragraph (e)(1)(iii) of this section, the
school food authority shall establish an
average paid lunch price for the current
school year that is not less than the
difference identified in (e)(1)(iii) of this
section; except that, the school food
authority may use the procedure in
paragraph (e)(4)(ii) of this section when
establishing prices of paid lunches.
(3) Average lunch price is lower than
the reimbursement difference. When the
average price from the prior school year
is lower than the difference in
reimbursement rates as determined in
paragraph (e)(1)(iii) of this section, the
school food authority shall establish an
average price for the current school year
that is not less than the average price
charged in the previous school year as
adjusted by a percentage equal to the
sum obtained by adding:
(i) 2 percent; and
(ii) The percentage change in the
Consumers Price Index for All Urban
Consumers used to increase the Federal
reimbursement rate under section 11 of
the Act for the most recent school year
for which data are available. The
percentage to be used is found in the
annual notice published in the Federal
Register announcing the national
average payment rates, from the prior
year.
(4) Price Adjustments. (i) Maximum
required price increase. The maximum
annual average price increase required
under this paragraph shall not exceed
ten cents.
(ii) Rounding of paid lunch prices.
Any school food authority may round
the adjusted price of the paid lunches
down to the nearest five cents.
(iii) Optional price increases. A
school food authority may increase the
average price by more than ten cents.
(5) Reduction in average price for
paid lunches. (i) Any school food
authority may reduce the average price
of paid lunches as established under
this paragraph if the State agency
ensures that funds are added to the
nonprofit school food service account in
accordance with this paragraph.
The minimum that must be added is
the product of:
(A) The number of paid lunches
claimed by the school food authority in
the previous school year multiplied by
(B) The amount required under
paragraph (e)(3) of this section, as
adjusted under paragraph (e)(4) of this
section, minus the average price
charged.
(ii) Prohibitions. The following shall
not be used to reduce the average price
charged for paid lunches:
(A) Federal sources of revenue;
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(B) Revenue from foods sold in
competition with lunches or with
breakfasts offered under the School
Breakfast Program authorized in 7 CFR
part 220. Requirements concerning
foods sold in competition with lunches
or breakfasts are found in § 210.11 and
§ 220.12 of this chapter, respectively;
(C) In-kind contributions;
(D) Any in-kind contributions
converted to direct cash expenditures
after July 1, 2011; and
(E) Per-meal reimbursements (nonFederal) specifically provided for
support of programs other than the
school lunch program.
(iii) Allowable non-Federal revenue
sources. Any contribution that is for the
direct support of paid lunches that is
not prohibited under paragraph (e)(5)(ii)
of this section may be used as revenue
for this purpose. Such contributions
include, but are not limited to:
(A) Per-lunch reimbursements for
paid lunches provided by State or local
governments;
(B) Funds provided by organizations,
such as school-related or community
groups, to support paid lunches;
(C) Any portion of State revenue
matching funds that exceeds the
minimum requirement, as provided in
§ 210.17, and is provided for paid
lunches; and
(D) A proportion attributable to paid
lunches from direct payments made
from school district funds to support the
lunch service.
(6) Additional considerations. (i) In
any given year, if a school food
authority with an average price lower
than the reimbursement difference is
not required by paragraph (e)(4)(ii) of
this section to increase its average price
for paid lunches, the school food
authority shall use the unrounded
average price as the basis for
calculations to meet paragraph (e)(3) of
this section for the next school year.
(ii) If a school food authority has an
average price lower than the
reimbursement difference and chooses
to increase its average price for paid
lunches in any school year more than is
required by this section, the amount
attributable to the additional voluntary
increase may be carried forward to the
next school year(s) to meet the
requirements of this section.
(iii) For the school year beginning July
1, 2011 only, the limitations for nonFederal contributions in paragraph
(e)(5)(iii) of this section do not apply.
(7) Reporting lunch prices. In
accordance with guidelines provided by
FNS:
(i) School food authorities shall report
prices charged for paid lunches to the
State agency; and
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35317
(ii) State agencies shall report these
prices to FNS.
(f) Revenue from nonprogram foods.
Beginning July 1, 2011, school food
authorities shall ensure that the revenue
generated from the sale of nonprogram
foods complies with the requirements in
this paragraph.
(1) Definition of nonprogram foods.
For the purposes of this paragraph,
nonprogram foods are those foods and
beverages:
(i) Sold in a participating school other
than reimbursable meals and meal
supplements; and
(ii) Purchased using funds from the
nonprofit school food service account.
(2) Revenue from nonprogram foods.
The proportion of total revenue from the
sale of nonprogram foods to total
revenue of the school food service
account shall be equal to or greater than:
(i) The proportion of total food costs
associated with obtaining nonprogram
foods to
(ii) The total costs associated with
obtaining program and nonprogram
foods from the account.
(3) All revenue from the sale of
nonprogram foods shall accrue to the
nonprofit school food service account of
a participating school food authority.
■ 5. In § 210.15:
■ a. Amend paragraph (a)(6) by
removing the word ‘‘and’’ at the end of
paragraph;
■ b. Amend paragraph (a)(7) by
removing ‘‘.’’ at the end of the paragraph
and adding ‘‘; and’’ in its place;
■ c. Add a new paragraph (a)(8);
■ d. Amend paragraph (b)(5) by
removing ‘‘.’’ at the end of the paragraph
and adding ‘‘;’’ in its place;
■ e. Add new paragraphs (b)(6) and
(b)(7).
The additions read as follows:
§ 210.15
Reporting and recordkeeping.
(a) * * *
(8) The prices of paid lunches charged
by the school food authority.
(b) * * *
(6) Records to document compliance
with the requirements in § 210.14(e);
and
(7) Records to document compliance
with the requirements in § 210.14(f).
■ 6. In § 210.19, paragraph (a)(2) is
amended by adding a sentence at the
end to read as follows:
Subpart D—Requirements for State
Agency Participation
§ 210.19
Additional responsibilities.
(a) * * *
(2) * * * Each State agency shall
ensure that school food authorities
comply with the requirements for
E:\FR\FM\17JNR1.SGM
17JNR1
35318
Federal Register / Vol. 76, No. 117 / Friday, June 17, 2011 / Rules and Regulations
pricing paid lunches and nonprogram
foods as required in § 210.14(e) and
§ 210.14(f).
*
*
*
*
*
■ 7. In § 210. 20:
■ a. Amend paragraph (a)(7) by
removing the word ‘‘and’’ at the end of
paragraph;
■ b. Amend paragraph (a)(8) by
removing ‘‘.’’ at the end of paragraph
and adding ‘‘; and’’ in its place;
■ c. Add new paragraph (a)(9);
■ d. Amend paragraph (b)(11) by
removing the word ‘‘and’’ at the end of
paragraph;
■ e. Amend paragraph (b)(12) by
removing ‘‘.’’ at the end of paragraph
and adding ‘‘;’’ in its place;
■ f. Add new paragraphs (b)(13) and
(b)(14).
The additions read as follows:
Competitive and Noncompetitive Nonformula Federal Assistance Programs—
General Award Administrative
Provisions for this program. The BRDI is
authorized under section 9008 of the
Farm Security and Rural Investment Act
of 2002 (FSRIA), as amended by section
9001 of the Food, Conservation, and
Energy Act of 2008 (FCEA).
DATES: This final rule is effective on
June 17, 2011.
FOR FURTHER INFORMATION CONTACT:
Carmela Bailey, National Program
Leader, Division of Bioenergy, National
Institute of Food and Agriculture, U.S.
Department of Agriculture, STOP 3356,
1400 Independence Avenue, SW.,
Washington, DC 20250–2299; Voice:
202–401–6443; Fax: 202–401–4888;
E-mail: cbailey@NIFA.usda.gov.
SUPPLEMENTARY INFORMATION:
§ 210.20
I. Background and Summary
Reporting and recordkeeping.
(a) * * *
(9) The prices of paid lunches charged
by each school food authority.
(b) * * *
(13) Records showing compliance
with the requirements in § 210.14(e)(5)
and records supplied annually by
school food authorities showing paid
meal prices charged as required by
§ 210.14(e)(6); and
(14) Records to document compliance
with the requirements in § 210.14(f).
Dated: June 3, 2011.
Kevin Concannon,
Under Secretary, Food, Nutrition and
Consumer Services.
[FR Doc. 2011–14926 Filed 6–16–11; 8:45 am]
BILLING CODE 3410–30–P
DEPARTMENT OF AGRICULTURE
National Institute of Food and
Agriculture
7 CFR Part 3430
[0524–AA61]
Competitive and Noncompetitive
Nonformula Federal Assistance
Programs—Administrative Provisions
for Biomass Research and
Development Initiative
National Institute of Food and
Agriculture, USDA.
ACTION: Affirmation of interim rule.
mstockstill on DSK4VPTVN1PROD with RULES
AGENCY:
The National Institute of Food
and Agriculture (NIFA) is affirming,
without change, an interim rule
containing a set of specific
administrative requirements for the
Biomass Research and Development
Initiative (BRDI) to supplement the
SUMMARY:
VerDate Mar<15>2010
18:58 Jun 16, 2011
Jkt 223001
Authority
On June 14, 2010 (Volume 75,
Number 113), NIFA published an
interim rule with a 120-day comment
period to provide administrative
provisions that are specific to the
Federal assistance awards made under
section 9008 of the Farm Security and
Rural Investment Act of 2002 (FSRIA),
Public Law 107–171 (7 U.S.C. 8108), as
amended by section 9001 of the Food,
Conservation, and Energy Act of 2008
(FCEA), Public Law 110–246, providing
authority to the Secretary of Agriculture
and the Secretary of Energy, to establish
and carry out a joint Biomass Research
and Development Initiative (BRDI)
under which competitively awarded
grants, contracts, and financial
assistance are provided to, or entered
into with, eligible entities to carry out
research on and development and
demonstration of biofuels and biobased
products; and the methods, practices,
and technologies for the production of
biofuels and biobased products. No
program specific comments were
received. NIFA will proceed with the
final rule with only minimal changes.
Should the Secretaries of USDA and
DOE decide to make competitive
Federal assistance awards under this
authority, the rules contained within
subpart K apply. Activities authorized
under BRDI are carried out in
consultation with the Biomass Research
and Development Board, established in
section 9008(c) of FSRIA and the
Biomass Research and Development
Technical Advisory committee
established in section 9008(d) of FSRIA.
The USDA authority to carry out this
program has been delegated to NIFA
through the Under Secretary for
Research, Education, and Economics.
PO 00000
Frm 00018
Fmt 4700
Sfmt 4700
Purpose
The objectives of BRDI are to develop
(a) technologies and processes necessary
for abundant commercial production of
biofuels at prices competitive with fossil
fuels; (b) high-value biobased products
(1) To enhance the economic viability of
biofuels and power, (2) to serve as
substitutes for petroleum-based
feedstocks and products, and (3) to
enhance the value of coproducts
produced using the technologies and
processes; and (c) a diversity of
economically and environmentally
sustainable domestic sources of
renewable biomass for conversion to
biofuels, bioenergy, and biobased
products.
Organization of 7 CFR Part 3430
A primary function of NIFA is the
fair, effective, and efficient
administration of Federal assistance
programs implementing agricultural
research, education, and extension
programs. As noted above, NIFA has
been delegated the authority to
administer this program and will be
issuing Federal assistance awards for
funding made available for this
program; and thus, awards made under
this authority will be subject to the
Agency’s assistance regulations at 7 CFR
part 3430, Competitive and
Noncompetitive Non-formula Federal
Assistance Programs—General Award
Administrative Provisions. The
Agency’s development and publication
of these regulations for its non-formula
Federal assistance programs serve to
enhance its accountability and to
standardize procedures across the
Federal assistance programs it
administers while providing
transparency to the public. NIFA
published 7 CFR part 3430 with
subparts A through F as an interim rule
on August 1, 2008 [73 FR 44897–44909]
and as a final rule on [September 4,
2009] [74 FR 45736–45752]. These
regulations apply to all Federal
assistance programs administered by
NIFA except for the formula grant
programs identified in 7 CFR 3430.1(f),
the Small Business Innovation Research
programs, with implementing
regulations at 7 CFR part 3403, and the
Veterinary Medicine Loan Repayment
Program (VMLRP) authorized under
section 1415A of the National
Agricultural Research, Extension, and
Teaching Policy Act of 1977
(NARETPA).
NIFA organized the regulation as
follows: Subparts A through E provide
administrative provisions for all
competitive and noncompetitive nonformula Federal assistance awards.
E:\FR\FM\17JNR1.SGM
17JNR1
]]>Agencies
[Federal Register Volume 76, Number 117 (Friday, June 17, 2011)]
[Rules and Regulations]
[Pages 35301-35318]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-14926]
========================================================================
Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
Prices of new books are listed in the first FEDERAL REGISTER issue of each
week.
========================================================================
Federal Register / Vol. 76, No. 117 / Friday, June 17, 2011 / Rules
and Regulations
[[Page 35301]]
DEPARTMENT OF AGRICULTURE
Food and Nutrition Service
7 CFR Part 210
RIN 0584-AE11
National School Lunch Program: School Food Service Account
Revenue Amendments Related to the Healthy, Hunger-Free Kids Act of 2010
AGENCY: Food and Nutrition Service, USDA.
ACTION: Interim rule.
-----------------------------------------------------------------------
SUMMARY: This rule amends National School Lunch Program (NSLP)
regulations to conform to requirements contained in the Healthy,
Hunger-Free Kids Act of 2010 (Pub. L. 111-296) regarding equity in
school lunch pricing and revenue from nonprogram foods sold in schools.
This rule requires school food authorities (SFAs) participating in the
NSLP to provide the same level of financial support for lunches served
to students who are not eligible for free or reduced price lunches as
is provided for lunches served to students eligible for free lunches.
This rule also requires that all food sold in a school and purchased
with funds from the nonprofit school food service account, other than
meals and supplements reimbursed by the Department of Agriculture, must
generate revenue at least equal to the cost of such foods.
DATES: Effective date: This rule is effective on July 1, 2011.
Comment dates: Comments on rule provisions: Mailed comments on the
provisions in this rule must be postmarked on or before September 15,
2011; e-mailed or faxed comments must be submitted by 11:59 p.m. on
September 15, 2011; and hand-delivered comments must be received by 5
p.m. September 15, 2011 to be assured of consideration.
Comments on Paperwork Reduction Act requirements: Comments on the
information collection requirements associated with this rule must be
received by August 16, 2011.
ADDRESSES: The Food and Nutrition Service (FNS) invites interested
persons to submit comments on this interim rule. Comments may be
submitted by any of the following methods:
Federal eRulemaking Portal: Go to https://www.regulations.gov. Follow the online instructions for submitting
comments.
Fax: (703) 305-2879, attention Julie Brewer.
Mail: Julie Brewer, Chief, Policy and Program Development
Branch, Child Nutrition Division, Food and Nutrition Service,
Department of Agriculture, 3101 Park Center Drive, Room 640,
Alexandria, Virginia 22302-1594.
Hand Delivery or Courier: Deliver comments to 3101 Park
Center Drive, Room 640, Alexandria, Virginia 22302-1594, during normal
business hours of 8:30 a.m.-5 p.m.
All submissions received in response to this interim rule will be
included in the record and will be available to the public. Please be
advised that the substance of the comments and the identity of the
individuals or entities submitting comments will be subject to public
disclosure. FNS may also make the comments publicly available by
posting a copy of all comments on https://www.regulations.gov.
FOR FURTHER INFORMATION CONTACT: Julie Brewer, Chief, Policy and
Program Development Branch, Child Nutrition Division, Food and
Nutrition Service, 3101 Park Center Drive, Alexandria, Virginia 22302,
or by telephone at (703) 305-2590.
SUPPLEMENTARY INFORMATION:
I. Discussion of Interim Rule
This interim rule promulgates the provisions from sections 205 and
206 of Public Law 111-296, the Healthy, Hunger-Free Kids Act of 2010
(the Act). Section 205 amended section 12 of the Richard B. Russell
National School Lunch Act (NSLA) (42 U.S.C. 1760) by adding a new
subsection (p), ``Price for a Paid Lunch'' which addresses, for the
first time, requirements for SFAs in establishing prices for paid
reimbursable lunches (hereinafter called paid lunches). The amendments
made by Section 205 provide SFAs with some flexibility in phasing-in
any increases in paid lunch prices and in using non-Federal funds to
supplement paid lunch revenue to enable them to maintain lower prices
for paid lunches. There is also a requirement in section 205 requiring
the Department of Agriculture (USDA) to establish procedures to
annually collect and publish the paid lunch prices charged by SFAs.
These provisions do not apply to the revenue from or prices charged for
either afterschool snacks or for school breakfasts offered in 7 CFR
part 220.
Section 206 of Public Law 111-296 amended section 12 of the NSLA by
adding a paragraph (q), ``Nonprogram Food Sales.'' This provision
addresses food sold in schools outside of reimbursable meals and meal
supplements, which is purchased with funds from the nonprofit school
food service account. Included are foods sold in competition with the
reimbursable meal programs as provided in section 10 of the Child
Nutrition Act (42 U.S.C. 1779). The law now requires that the
proportion of total school food service revenue provided by the sale of
nonprogram foods to the total revenue of the school food service
account be equal to or greater than the proportion of total food costs
associated with obtaining nonprogram foods to the total costs
associated with obtaining program and nonprogram foods from the
account.
FNS currently has no regulatory requirements regarding pricing of
paid lunches, the amount of revenue generated by paid lunches or on the
revenue generated by selling nonprogram foods. Following is a
discussion of the Act's provisions and the conforming regulatory
amendments being made in response. In addition to this interim rule,
USDA will issue guidance and provide technical assistance as needed to
assist SFAs and State agencies in complying with these new provisions.
Reimbursement Levels
There are three levels of Federal cash reimbursement for lunches,
breakfasts, and meal supplements served to children in schools that
participate in the NSLP and the School Breakfast Program (SBP). Schools
receive the highest amount of reimbursement for meals served to
students certified
[[Page 35302]]
eligible for free meals, a lesser amount of reimbursement for students
certified eligible for reduced price meals, and the lowest
reimbursement for meals served to students who are not certified
eligible for free or reduced price meals (i.e., paid meals).
Children in families with income at or below 130 percent of the
income poverty guidelines prescribed by the U.S. Department of Health
and Human Services are eligible for free meals. In addition, children
who are categorically eligible because they receive other assistance
(for example, receipt of Supplemental Nutrition Assistance Program
benefits or enrollment in Head Start) are eligible for free meals.
Children in families with income between 130 and 185 percent of the
income poverty guidelines are eligible for reduced price meals. The
maximum charge for a reduced price lunch is established in section
9(b)(9) of the NSLA and cannot exceed 40 cents. A maximum reduced price
charge is also established for afterschool snacks and school
breakfasts. Any child not certified for a free or reduced price meal
must pay the meal price set by the school food authority.
Revenue From Paid Lunches
The Act defines the term paid lunch as a reimbursable lunch served
to students who are not certified to receive free or reduced price
meals. NSLP regulations at 7 CFR 210.2 are amended to incorporate this
definition.
The Act requires SFAs to evaluate the prices they charge for paid
lunches in relation to the Federal paid and free reimbursement rates.
For each school year, beginning July 1, 2011, SFAs must annually
establish paid meal prices in accordance with the procedures in the
Act. Those procedures are contained in a new paragraph (e) added to
Sec. 210.14. In addition, Sec. 210.19(a)(2) is amended to require
each State agency administering the NSLP to ensure that SFAs comply
with the procedures. FNS developed a fact sheet to help schools
understand the procedures. The Equity in School Lunch Pricing Fact
Sheet can be found at https://www.fns.usda.gov/cnd/Governance/Legislation/Pricing_Equity_Facts.pdf. A summary of the procedures
follows.
The Act requires SFAs to determine the average price charged for
paid lunches in the previous school year (for the school year beginning
July 1, 2011, the previous school year is the school year beginning
July 1, 2010). The school food authority must determine the average
price charged based on the total number of paid lunches claimed at each
price in the school food authority for the month of October of the
prior school year. October data is used because it conforms to current
data collection practices in the NSLP and is representative of the
number of days of operation and number of meals served. Choosing a
later month in the school year could unnecessarily delay pricing
decisions by SFAs.
Calculating the average lunch price based on the number of meals
claimed at each price across the school food authority most accurately
indicates the revenue generated from paid lunches, which is the intent
of Section 205. Requirements for determining the average paid lunch
price are in Sec. 210.14(e).
Once this average is determined, the school food authority must
calculate the difference between the free lunch per meal reimbursement
rate and the paid lunch per meal reimbursement rate in effect for the
previous school year (the ``reimbursement difference''). The lunch
reimbursement rates used in this calculation must be those received by
the school food authority (e.g., taking into account locality
(contiguous United States, Alaska or Hawaii) and additional Federal per
meal reimbursement when 60 percent of lunches served in the second
preceding year were served free or reduced price).
If a school food authority's average price of a paid lunch is equal
to or greater than the reimbursement difference, the school food
authority is not required to make any adjustments in lunch prices or to
add revenue as long as it continues to charge an average price that is
not less than the amount of the reimbursement difference. Further, the
school food authority has the option to round the average price down to
the nearest five cents. A school food authority may reduce its average
price of a paid lunch if an equivalent amount of financial support is
added from non-Federal sources of funds (other than in-kind
contributions). These provisions are added by this rule at Sec.
210.14(e)(2), (e)(4) and (e)(5).
If a school food authority's average price of a paid lunch is less
than the reimbursement difference, the school food authority must
increase prices for paid lunches, as described in Sec. 210.14(e)(3),
or add financial support from non-Federal sources to the school food
service account. To determine the price increase, the school food
authority must establish an average price for a paid lunch that is not
less than the price charged in the previous school year as adjusted by
a percentage equal to the sum obtained by adding two percent and the
percentage change in the Consumer Price Index for All Urban Consumers
(food away from home index) used to increase the Federal reimbursement
rate, as set forth in the annual notice announcing adjustments to the
national average payments issued by USDA in the Federal Register on or
about July 1 of each year. SFAs should refer to the Federal Register
notice from the prior July to obtain the Consumer Price Index. For
determining increases required for the school year beginning July 1,
2011, SFAs should use the notice published on July 19, 2010 (75 FR
41796, ``National School Lunch, Special Milk, and School Breakfast
Programs, National Average Payments/Maximum Reimbursement Rates'').
Section 205 of the Act amended the NSLA to permit SFAs to round the
adjusted average price for a paid lunch down to the nearest five cents
following that calculation. Additionally, SFAs are not required to
raise prices more than 10 cents annually. SFAs may, at their
discretion, increase prices for paid lunches by more than 10 cents. In
lieu of increasing prices, a school food authority may reduce the
average price of a paid lunch if an equivalent amount of financial
support is added from non-Federal sources of funds (other than in-kind
contributions). These provisions are found at Sec. 210.14(e)(4) and
(e)(5).
If a school food authority chooses to contribute financial support
from non-Federal sources in lieu of raising prices for paid lunches,
Section 12(p) of the NSLA specifically excludes in-kind contributions
and revenue from foods sold in competition with reimbursable meals from
qualifying as support from non-Federal sources for this purpose. This
rule codifies those prohibitions in Sec. 210.14(e)(5)(ii). In
addition, Sec. 210.14(e)(5)(iii) requires that financial support from
non-Federal sources must be cash for direct support for paid lunches,
including but not limited to per-lunch reimbursements for paid meals
provided by States, counties, school districts and others; funds
provided by organizations, such as school-related or community groups
to support 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; and a proportion attributable to paid
lunches from direct payments made from school district funds to support
the lunch service. Some examples of unallowable non-Federal support
would include any payments, including additional per-meal
reimbursements, provided to the school food authority for support of
the SBP or other Child Nutrition Program; any payments, including
additional per-meal reimbursements, provided
[[Page 35303]]
specifically to support free and reduced price meals; and any in-kind
contributions converted to direct cash expenditures after July 1, 2011.
In recognition of the short timeframes for implementation, this
interim rule allows SFAs to count any non-Federal cash contribution,
except for in-kind contributions and revenues from foods sold in
competition with reimbursable meals, for School Year 2011-2012 only.
This limited allowance is established by this rule in Sec.
210.14(e)(6)(iii). In addition, State agencies should focus their
efforts in the initial year of implementation to providing SFAs with
technical assistance to ensure compliance.
We also recognize that this rule was published after many SFAs have
made pricing decisions for School Year 2011-2012. Therefore, those SFAs
that can demonstrate that they raised their prices and met the non-
Federal cash contribution allowance described above for School Year
2011-2012, may count any non-Federal cash contribution, except for in-
kind contributions and revenues from foods sold in competition with
reimbursable meals, toward the revenue requirements for School Year
2012-2013. FNS will issue guidance on how adjustments to the School
Year 2012-2013 requirement will be determined in these situations.
If an SFA with an average price lower than the reimbursement
difference is not required in any school year to increase its average
price, due to low-inflation and rounding rules, the school food
authority must use the unrounded average price as the basis for
calculations for the next school year. This approach helps ensure that
over time the appropriate additional revenues are provided to support
paid lunches. Also, if a school food authority has an average price
lower than the reimbursement difference and chooses in any school year
to increase paid lunch prices more than is required, the amount
attributable to the SFAs discretionary additional increase may be
carried forward to the next school year(s) to meet the paid lunch
pricing requirements. SFAs must keep sufficient records to document and
carry forward the average price calculations. These requirements are
established by this interim rule in Sec. 210.14(e)(6)(i) and
(e)(6)(ii).
As amended by Section 205 of the Act, Section 12(p) of the NSLA
also requires that USDA establish procedures to annually collect and
publish the paid meal prices charged by SFAs. While the statute refers
to the collection of paid meal prices, this interim rule requires that
SFAs report only paid lunch prices. This approach minimizes reporting
burden on SFAs and State agencies, and is consistent with the other
requirements of Section 205, which all pertain to paid lunches. USDA
invites commenters to provide input on whether this approach is
appropriate, or whether reporting should be expanded to include prices
charged for paid breakfasts. The new reporting requirements for SFAs
and State agencies, respectively, are contained in amendments to Sec.
210.15(a) and Sec. 210.20(a) made by this rule. This annual report
would coincide with other reporting for the month of October.
Revenue From Nonprogram Foods
NSLP regulations are amended by this interim rule to include the
new statutory definition of nonprogram food in a new paragraph at Sec.
210.14(f). Section 12(p) of the NSLA as amended by the Act defines
nonprogram food as ``food sold in a participating school other than a
reimbursable meal provided'' under the NSLA or the Child Nutrition Act
of 1966 (42 U.S.C. 1771 et seq.) and which is ``purchased using funds
from the nonprofit school food service account of the school food
authority * * *.'' The definition also specifically identifies as
nonprogram food ``food that is sold in competition with a program
established under'' the NSLA or the Child Nutrition Act of 1966.
Nonprogram beverages are also considered nonprogram food.
Effective July 1, 2011, Section 12(q) of the NSLA, as amended by
Section 206 of the Act, requires that the proportion of total school
food service revenue provided by the sale of nonprogram foods to the
total revenue of the school food service account shall be equal to or
greater than the proportion of total food costs associated with
obtaining nonprogram foods to the total costs associated with obtaining
program and nonprogram foods from the account. The Act also amended the
NSLA to require that all revenue from the sale of nonprogram foods
accrue to the nonprofit school food service account of a participating
SFA. These revenue and accrual requirements are incorporated into NSLP
regulations in this interim rule by adding a new paragraph (f) to Sec.
210.14.
Technical Amendments
The definition of ``Nonprofit school food service account'' in
Sec. 210.2 is revised by adding references to the new procedures in
Sec. 210.14(e) and (f) regarding revenue. In addition, the
requirements in Sec. 210.9(b) for the agreement between the State
agency and SFAs are amended by adding a reference to these new
provisions. Other amendments are made to Sec. 210.15(b) and Sec.
210.20(b) (for SFAs and State agencies, respectively) to provide for
the records that must be retained to document compliance with the newly
established provisions in Sec. 210.14(e) and (f).
II. Procedural Matters
Issuance of an Interim Rule and Date of Effectiveness
USDA, under the provisions of the Administrative Procedure Act at 5
U.S.C. 553(b)(B), finds for good cause that use of prior notice and
comment procedures for issuing this interim rule is impracticable.
Sections 205 and 206 of the Healthy, Hunger-Free Kids Act of 2010,
Public Law 111-296, enacted on December 13, 2010, requires
implementation of those provisions on July 1, 2011. USDA concludes that
there is insufficient time to issue a proposed rule prior to the
statutory implementation deadline. As a result, this interim rule is
necessary to comply with the requirements of Sections 205 and 206 of
Public Law 111-296 and ensure that those provisions are implemented and
effected by State agencies and SFAs on July 1, 2011.
For the same reason of impracticability due to the statutory
implementation deadline, under the provisions of the Congressional
Review Act at 5 U.S.C. 808(2), USDA for good cause is issuing this rule
with an effective date of July 1, 2011, which is less than the latest
of the 60-day delay in effective date prior to, either the submission
of a report to Congress, or after publication of the rule in the
Federal Register, as required under section 801(a)(3)(A) of the
Congressional Review Act.
USDA invites public comment on this interim rule. USDA will
consider amendments to the rule based on comments submitted during the
90-day comment period. The agency will address comments and affirm or
amend the interim rule in a final rule.
Executive Order 12866 and Executive Order 13563
Executive Orders 12866 and 13563 direct agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). Executive
Order 13563 emphasizes the importance of
[[Page 35304]]
quantifying both costs and benefits, of reducing costs, of harmonizing
rules, and of promoting flexibility.
This interim rule has been designated an ``economically significant
regulatory action'' under section 3(f) of Executive Order 12866.
Accordingly, the rule has been reviewed by the Office of Management and
Budget.
Regulatory Impact Analysis
As required for all rules that have been designated as significant
by the Office of Management and Budget, the following Regulatory Impact
Analysis (RIA) was developed for this interim rule: It is included as
Appendix A at the end of this document.
Initial Regulatory Impact Analysis
Title: National School Lunch Program: School Food Service Account
Revenue Amendments Related to the Healthy, Hunger-Free Kids Act of
2010
Nature of Action: Interim Rule
Need for Action: Codifies provisions of Section 205 and 206 of
the Healthy, Hunger-Free Kids Act of 2010 in regulation for the
National School Lunch Program (NSLP) and the School Breakfast
Program (SBP). These provisions set requirements for student
payments or other non-Federal revenues to ensure that the paid meals
and [agrave] la carte foods generate a level of total revenue for
local schools that is comparable to the revenue generated by USDA
payments for free meals. In the aggregate, these requirements
provide additional revenue to support nutritious and healthful meals
for all students.
Affected Parties: Those involved in the operation and
administration of the NSLP and SBP, including State education
agencies, local school food authorities, schools, students, and the
food production, distribution and service industry.
Background
The National School Lunch Program (NSLP) is available to over 50
million children each school day; an average of 31.6 million
children per day ate a reimbursable lunch in fiscal year (FY) 2010.
The School Breakfast Program (SBP) served an average of 11.6 million
children daily. Schools that participate in the NSLP and SBP receive
Federal reimbursement and USDA Foods (donated commodities) for
lunches and breakfasts that meet program requirements.
The level of Federal support provided varies by the household
income of the participating child, with the highest payments for
meals provided free to the children with incomes below 130 percent
of poverty, a lower amount for meals provided at reduced price to
those with incomes between 130 percent and 185 percent of poverty,
and a small amount for meals provided to higher-income students
(paid meals). Recent data on the number of participating students in
each category is presented in Table 1.
Table 1--NSLP/SBP Average Daily Participation, FY 2010
----------------------------------------------------------------------------------------------------------------
Children (millions) receiving
-------------------------------------------------------------------
Program Reduced-price
Free meals meals Paid meals Total
----------------------------------------------------------------------------------------------------------------
NSLP........................................ 17.4 3.0 11.1 31.6
SBP......................................... 8.7 1.0 1.9 11.6
----------------------------------------------------------------------------------------------------------------
While USDA subsidizes paid meals to cover part of the cost of
production, local communities and State governments cover the
remainder of production costs, and have the flexibility to do so
from any non-Federal source--student payments, State subsidies, or
local funds. Most schools depend on student payments for paid school
meals for a part of their revenue. Based on data collected by USDA
from a national sample of schools the full price of lunch for school
year 2004-05 was $1.60 on average, and the most common (modal) price
was $1.50. The full price ranged from $0.65 to $3.00; on average, it
was higher in secondary schools than in elementary schools, and
higher in large schools than in smaller ones. The full price was
also higher in suburban and lower-poverty schools than in schools
not in those categories.\1\
---------------------------------------------------------------------------
\1\ U.S. Department of Agriculture, Food and Nutrition Service
(2007). School Nutrition Dietary Assessment Study-III (multiple
volumes), Table II.11. (SNDA-III) Report prepared by Mathematica
Policy Research. Available at www.fns.usda.gov/ora/.
---------------------------------------------------------------------------
However, the revenue received by schools for paid meals is often
too low to cover the cost of those meals. An examination of school
meal production costs shows that it cost about $2.28 to produce a
school lunch in school year 2005-06.\2\ While USDA's reimbursement
for a free meal ($2.50), including cash and commodity foods, was
about 9 percent higher than reported production costs, total
revenues from a paid meal--including the price charged to families
($1.60), USDA's cash reimbursement ($0.21), and the commodity
entitlement ($0.175)--was 13 percent less. Total revenue from a paid
meal represented only 80 percent of the value of Federal support for
a free meal. Funding paid meals below the cost of their production
effectively shifts Federal subsidies designed for the lowest-income
children to others. It can negatively affect all children by
limiting the funds available to provide nutritious meals.
---------------------------------------------------------------------------
\2\ U.S. Department of Agriculture, Food and Nutrition Service
(2008). School Lunch and Breakfast Cost Study-II p. ii. (SLBCS-II)
Report prepared by Abt Associates, Inc. Available at
www.fns.usda.gov/ora/.
---------------------------------------------------------------------------
Schools are also authorized to prepare and sell non-program
foods and meals during the meal period, as long as the revenue is
provided to the food service program account. Revenues from non-
reimbursable foods fell short of the cost of producing them by an
average of about 29 percent in SY 2005-06.\3\ Combining reimbursable
meals and other foods, reported costs were essentially equal to
revenues (101 percent). The average SFA used revenues from
reimbursable meals to offset the cost of producing [agrave] la carte
and other non-reimbursable food items.
---------------------------------------------------------------------------
\3\ School Lunch and Breakfast Cost Study-II. The conclusion
that schools price [agrave] la carte foods below their cost may seem
counter intuitive. Some school meal providers may see [agrave] la
carte food sales as a source of additional revenue for relatively
little added cost. Many schools attribute overhead and labor costs
primarily to reimbursable meal production and do not recognize that
such costs support all meal services, and should be allocated in
accordance with generally accepted accounting principles. The
research cited here allocates the shared cost of overhead and labor
that supports both reimbursable and [agrave] la carte meal
production proportionately across these services.
---------------------------------------------------------------------------
The provisions in Section 205 and 206 of the Healthy, Hunger-
Free Kids Act of 2010 set requirements for student payments or other
non-Federal revenues to ensure that the paid meals and [agrave] la
carte foods generate a level of total revenue for local schools that
is comparable to the revenue generated by USDA payments for free
meals. In the aggregate, these requirements provide additional
revenue to support nutritious and healthful meals for all students.
I. Summary of Requirements
This interim rule would codify non-discretionary aspects of the
following provisions of the Healthy, Hunger-Free Kids Act (Pub. L.
111-296; the Act) under 7 CFR Part 210:
Section 205 of the Act requires school food authorities
(SFAs) participating in the NSLP to establish a price for paid
lunches that is on average equal to the difference between free
lunch reimbursement and paid lunch reimbursement--the Section 11
reimbursement.\4\ An SFA charging less than
[[Page 35305]]
the required amount is required to gradually increase the paid lunch
price. The maximum annual average required price increase is limited
to not more than 10 cents for any SFA. In lieu of increasing the
paid lunch price, an SFA may choose to cover the difference in
revenue with non-Federal funds. The Act requires the Secretary to
develop regulations to carry out this section, including collecting
and publishing the prices that SFAs charge for paid meals annually.
---------------------------------------------------------------------------
\4\ Federal reimbursement for NSLP lunches is the sum of the
values specified in Section 4 and Section 11 of the Richard B.
Russell National School Lunch Act (NSLA). A Section 4 reimbursement
is distributed to schools for all program lunches. Lunches served to
students eligible for free or reduced-price school meals receive
both a Section 4 and a Section 11 reimbursement. SFAs must charge
students a price equal to the Federal Section 11 rate (or contribute
an equivalent sum from State or local sources) for total per meal
revenue from paid meals to match total per meal revenue from free
meals. In school year 2010-11, schools earned $2.72 for each free
meal, $2.32 for each reduced price meal, and $0.26 for each paid
meal.
---------------------------------------------------------------------------
Section 206 of the Act requires that all food sold in a
school and purchased with funds from the nonprofit school food
service, other than a reimbursable meal provided under the National
School Lunch and School Breakfast Programs, must generate revenue at
least equal to the cost of such foods.
The Act makes these provisions effective on July 1,
2011.
II. Cost/Benefit Assessment
A. Summary of Anticipated Impacts
While the rule will have little or no direct impact on Federal
expenditures, it will require the contribution of additional funds
to the non-profit school meals program account of participating
SFAs:
For the Section 205 provisions, these funds could be
derived from a combination of sources, including program
participants who receive paid lunches and State and local
governments. State agencies administering the NSLP and SFAs have
flexibility to determine which of these sources will contribute
revenues to meet the requirements, and in what proportion.
For the Section 206 provisions, funds will derive from
increased prices for [agrave] la carte foods and beverages, and thus
will all be contributed by the families of school children who
choose to purchase these products.
School food authorities will be required to incur
additional administrative costs to implement the rule, reflecting
the need to review food costs and revenue records, adjust [agrave]
la carte prices, and report the prices charged for paid meals.
In addition, we expect that the rule will have Federal budgetary
effects as a result of indirect impacts on participation in the
school meals programs. To the extent that the Section 205 provisions
result in increased prices for paid meals, NSLP participation may be
lower than otherwise projected as students choose not to eat, to
bring lunch from home, or to acquire it from other sources,
resulting in Federal savings in paid reimbursements. To the extent
that price increases for [agrave] la carte foods result from Section
206 provisions, school children and their families could choose to
substitute reimbursable school meals for purchases of [agrave] la
carte foods, resulting in increased participation and higher Federal
meal reimbursements.
Estimates of the overall impacts of the rule, including both
changes in SFA revenues and Federal costs, are presented in Table 2.
For purposes of this analysis, the rule is assumed to take effect on
July 1, 2011, the start of school year (SY) 2011-2012.
---------------------------------------------------------------------------
\5\ SFA revenues derive from increases in student payments for
paid lunches and [agrave] la carte foods, additional contributions
to SFA accounts from State or local governments, and higher USDA
reimbursements for an expected increase in participation in the
reimbursable meals programs.
Table 2--Projected Impact of Rule
[All figures in millions]
----------------------------------------------------------------------------------------------------------------
Fiscal year
-----------------------------------------------------------------------
2011 2012 2013 2014 2015 Total
----------------------------------------------------------------------------------------------------------------
SFA Revenues: \5\
Section 205......................... * $9 $66 $104 $144 $323
Section 206 (non-reimbursable food 175 1,148 1,237 1,320 1,443 5,324
sales).............................
Section 206 (reimbursable meal 64 416 466 484 510 1,939
sales).............................
Administrative Costs................ -5 -9 -10 -10 -10 -44
-----------------------------------------------------------------------
Net SFA Revenues................ $234 $1,564 $1,760 $1,898 $2,086 $7,542
Federal Costs:
Section 205 (NSLP).................. * * -$3 -$7 -$10 -$20
Section 206 (NSLP).................. 46 297 338 348 362 1,392
-----------------------------------------------------------------------
Total Federal Cost.............. $46 $297 $335 $342 $352 $1,372
Participation Effects:
Net change in number of lunches 25 155 151 146 143 620
served.............................
Net change in number of reimbursable ** ** ** ** ** **
breakfasts served..................
Baseline Federal Cost of NSLP....... $11,521 $12,049 $12,300 $12,415 $12,534 $60,819
Number of lunches............... 5,387 5,465 5,531 5,586 5,631 27,600
Baseline Federal Cost of SBP........ $3,115 $3,338 $3,470 $3,557 $3,629 $17,108
Number of breakfasts............ 2,091 2,187 2,253 2,298 2,332 11,160
----------------------------------------------------------------------------------------------------------------
* Equals less than $500,000.
* Small increase.
Note: Entries in tables throughout this analysis may not sum to
totals due to rounding.
B. SFA Impacts
1. Revenue from Paid Lunches (Section 205)
Section 205 directs SFAs to take steps to equalize the per meal
revenue generated by reimbursable paid lunches and free lunches,
thus targeting SFAs whose non-Federal per meal revenue is less than
the Section 11 reimbursement for lunches (or $2.46 for school year
2011-12). It permits State and local governments to share, or assume
fully, the direct economic impact. Although we cannot anticipate how
States, local governments, and SFAs will share the responsibility
for raising per-meal receipts for paid lunches, we have estimated
the total amount of non-Federal revenue needed to meet the
requirements compared to the latest observed levels.
We identified schools whose paid meal prices fell short of the
Section 11 reimbursement in school year 2004-2005 using data
collected in the third School Nutrition Dietary Assessment Study
(SNDA-III).\6\ This study collected data from a nationally
representative sample of 129 SFAs, 398 schools in those SFAs, and
2,314 children attending those schools (and their parents) in School
Year 2004-05. SFA directors provided information on district-wide
policies (such as menu-planning
[[Page 35306]]
systems) and operations (such as food purchasing). As part of the
study, school foodservice managers provided information regarding
their school's foodservice operations, including paid meal prices,
and policies on competitive foods available in or near the
foodservice area.
---------------------------------------------------------------------------
\6\ Because paid lunch price is a school-level variable on the
SNDA-III dataset rather than an SFA-level variable, we perform our
analysis at the school level. We developed our estimate as though
the responsibility for raising paid lunch prices or finding
alternate non-federal revenue rests with individual schools. In
practice, Section 205 provides SFAs the flexibility to set prices at
individual schools however they see fit, as long as the weighted
average price across the SFA meets the Section 205 target. For
purposes of an aggregate cost estimate, a school-level analysis and
a weighted average SFA-level analysis should give comparable
results.
---------------------------------------------------------------------------
To estimate the number of schools that charge less than the
Section 11 reimbursement in FY 2011, we assumed that the schools'
paid meal prices kept pace with inflation adjustments in the lunch
reimbursement since SY 2004-2005. For this analysis, the schools
whose prices fall short of the Section 11 rate today are the schools
that would have fallen short of a comparable regulatory target in SY
2004-2005.\7\
---------------------------------------------------------------------------
\7\ It is worth noting that the observed relationship between
paid lunch and free lunch revenue is relatively stable across the
three SNDA studies, which collected data from school years 1991-92,
1998-99, and 2004-05:
In SY 1991-92, revenue for a paid meal was 79.9 percent
of Federal revenue for a free meal.
In SY 1998-99, revenue for a paid meal was 80.3 percent
of Federal revenue for a free meal.
In SY 2004-05, revenue for a paid meal was 82.2 percent
of Federal revenue for a free meal.
---------------------------------------------------------------------------
Throughout the forecast period we assume annual
increases in the Section 11 rate equal to the projected growth in
the Food Away From Home series of the Consumer Price Index.\8\ We
also assume that baseline paid meal prices would have matched the
annual growth in the Section 11 rate. These baseline prices
represent what schools would have charged for reimbursable paid
meals in the absence of the interim rule.
---------------------------------------------------------------------------
\8\ The NSLA provides for annual increases in the Section 11
rate equal to growth in the CPI-U's Food Away From Home series. We
use projections in the series prepared by OMB for use in the 2012
President's Budget.
---------------------------------------------------------------------------
The interim rule requires annual price increases (or
equivalent non-Federal revenues) of 2 percent above the inflation
rate until prices meet the Section 11 target. The rule also allows
for annual rounding of adjusted prices to the next lower 5 cents and
limits required price increases to no more than 10 cents. SFAs and
schools need not round prices down, nor are they prohibited from
imposing annual increases above the 10 cent cap. For this estimate,
however, we assume that schools take advantage of both provisions:
we assume uniform rounding and no optional price increases above 10
cents in any year.
The interim rule allows SFAs to contribute financial
support from non-Federal sources in lieu of part or all of required
paid lunch price increases. It requires that financial support from
non-Federal sources must be cash for direct support for paid
lunches, and may not be in-kind contributions or revenue from foods
sold in competition with reimbursable meals. For the first school
year of implementation (school year 2011-12), the interim rule
allows SFAs to count any non-Federal cash contribution, except for
cash revenues from foods sold in outside of reimbursable meals, as
an offset for paid lunch price increases. While the most recent
analysis of school meals costs and revenues suggests that State and
local authorities contribute substantial non-Federal cash revenues
to food service accounts, data is not available to determine the
extent to which these revenues represent direct support for paid
lunches. For the purpose of this analysis, we assume that SFAs will
be able to use existing contributions to meet all of the required
paid meal revenue increase to meet the rule's requirements for
school year 2011-12, and to meet 25 percent of the requirements for
subsequent years.
We assume that increases in paid meal prices above the
2 percent annual inflation rate reduce student consumption of paid
meals.\9\ We model this reduction with evidence collected in SNDA-
III, which showed that over a range of paid meal prices typical of
those charged in SY 2004-2005, student participation rate was lower
by 0.11 percent for each additional cent in paid lunch prices.\10\
In addition to impacts on SFA revenues, this participation effect
also implies Federal savings; this is discussed further under
Federal Budgetary Impacts, below.
---------------------------------------------------------------------------
\9\ We expect that students that no longer consume paid lunches
because of price increases will either bring food from home, choose
not to eat during school hours, or acquire food from other sources.
We do not have data that allows us to estimate the relative
frequency of these different responses.
\10\ Over the price range examined in SNDA-III, this is an
elasticity of -0.30. SNDA-I estimated an elasticity of -0.25 over a
range of prices from $1.20 to $1.60 in SY 1991-1992. (Table VII.3,
p. 137) U.S. Department of Agriculture, Food and Nutrition Service
(1993). The School Nutrition Dietary Assessment Study. Report
prepared by Mathematica Policy Research. Available at
www.fns.usda.gov/ora/
---------------------------------------------------------------------------
The results of this analysis are presented in Table 3:
Table 3--Non-Federal Revenue Required To Meet Paid Meal Revenue Equity Provision
----------------------------------------------------------------------------------------------------------------
Fiscal year (millions)
------------------------------------------------------
2011 2012 2013 2014 2015 Total
----------------------------------------------------------------------------------------------------------------
Required non-Federal revenue increase based on current $8 $56 $87 $138 $192 $481
estimated paid meal student payments....................
Existing non-Federal, non-student payment contributions -8 -47 -21 -35 -48 -158
that offset required increase...........................
------------------------------------------------------
Net required non-Federal revenue increase................ * 9 66 104 144 323
----------------------------------------------------------------------------------------------------------------
Not all school districts will benefit from this revenue
increase. We estimate, based on the distribution of paid lunch
prices in SY 2004-05 found in SNDA-III, that about 6,000 of 102,000
schools will not have to increase paid meal prices at all in SY
2011-12 to comply with Section 205 because they already charge
prices above the $2.46 target for SY 2011-12. An additional 19,000
schools have prices so low (no greater than $1.59) that the 3.14
percent increase required for SY 2011-12 results in an increase of
less than 5 cents, and thus in almost all cases rounds down to
zero.\11\ Almost all of the remaining schools would have only a 5
cent required increase in SY 2011-12.
---------------------------------------------------------------------------
\11\ These schools would face no required price increase in SY
2011-12 if their SY 2010-11 baseline prices were rounded to an even
5 cent increment. As we note above, this analysis relies on the
school-level SNDA-III dataset. Because SNDA-III data indicate that
nearly all schools charged prices in 5 cent increments in SY 2004-
05, our analysis assumes that all prices in SY 2010-11 are likewise
rounded to the nearest 5 cents.
---------------------------------------------------------------------------
Because the provision limits the increase to no more than 10
cents per lunch per year, we anticipate that increases in SFAs with
the largest difference between paid lunch prices and the Section 11
rate will continue gradually over many years, with about half of all
schools reaching the requirements of the rule in 13 years, and many
continuing to work towards paid meal revenue parity for 20 years or
more.\12\
---------------------------------------------------------------------------
\12\ We estimate that the ``revenue gap'' between free
reimbursement and paid meal revenue levels would be reduced 28
percent by FY 2015, the end of the accounting period for this
analysis. The gap would continue to shrink in future years.
---------------------------------------------------------------------------
SFAs have the option of meeting the revenue requirements by
adding funds to the school food service account. However, to the
extent that SFAs choose instead to raise paid meal prices, the
change will affect students (and their families) whose income
exceeds the statutory thresholds for free or reduced price meals.
While this spares families with the lowest incomes from the revenue
raising objective of the provision, there may be some concern that
higher paid meal prices will fall disproportionately on children
with incomes relatively close to the upper threshold for reduced
price benefits. Table 4 presents a distribution of school-aged
children by level of family income: \13\
---------------------------------------------------------------------------
\13\ The data in Table 4 reflect special tabulations of Current
Population Survey data prepared by Mathematica Policy Research for
FNS.
[[Page 35307]]
Table 4--Children by Age and Family Income, 2008
----------------------------------------------------------------------------------------------------------------
Percent of total
Children age 5-18 ineligible for
Family income as a percent of poverty Years (000s) Percent of total free/ reduced
meals
----------------------------------------------------------------------------------------------------------------
<= 100%............................................. 10,428 18.1 ..................
100% to 130%........................................ 3,865 6.7 ..................
130% to 185%........................................ 6,686 11.6 ..................
185% to 200%........................................ 1,559 2.7 4.3%
200% to 225%........................................ 2,638 4.6 7.2
225% to 250%........................................ 2,762 4.8 7.6
250% to 300%........................................ 4,988 8.7 13.7
> 300%.............................................. 24,571 42.7 67.3
-----------------------------------------------------------
Total........................................... 57,496 100.0 100.0
----------------------------------------------------------------------------------------------------------------
The number of school age children with family incomes just over
the limit for school meal benefits is substantial in absolute terms;
nearly 1.6 million school age children had family incomes between
185 percent and 200 percent of the Federal poverty threshold in
2008. But this group represents roughly 4 percent of all children
whose incomes place them among potential paid meal participants.
2. Revenue From Non-Program Foods (Section 206)
a. Direct Impacts on [agrave] la Carte Sales
The interim rule requires that, to the extent that SFA revenues
from [agrave] la carte foods fall short of the rule's cost-based
target, SFAs must take positive action to either raise [agrave] la
carte prices or invest additional sums in program meals.
Required SFA Revenue Increase
We estimate the SFA-level effects of this provision with data
collected as part of an examination of school meal production costs
(School Lunch and Breakfast Cost Study-II (SLBCS-II)). The SLBCS-II
examined school year 2005-2006 revenue and expense data for a
nationally representative sample of 120 school food authorities, and
a representative sample of 356 schools within those SFAs. Financial
statements, meal production records, recipes, invoices, and other
documents were reviewed. Data collected from those SFAs include the
revenue generated from program meals, the revenue generated from
non-program foods that accrued to the school foodservice account,
and the cost of producing those meals and food items, allocated
between program and non-program foods using generally-accepted
accounting practices. Data from interviews with SFA and school
district officials were used to calculate unreported costs and
allocate labor costs among SFA activities. Samples of meals taken by
students were observed to obtain data on menu items sold in
reimbursable and nonreimbursable meals.\14\
---------------------------------------------------------------------------
\14\ One limitation of the SLBCS-II for this analysis is that
SFAs were not asked to provide separate program and non-program
costs. Developing an estimate of the split between program and non-
program costs was one of the objectives of the study. Trained
observers recorded the foods selected by a sample of students and
identified those meals as reimbursable or non-reimbursable. The
study then estimated the cost of individual food items based on SFA
records of food prices, the value of USDA Foods, school recipe
records, and school menus. With this information, the study
estimated the share of total food costs attributable to non-program
meals. That percentage was applied to non food costs to estimate the
overall split between program and non-program costs.
---------------------------------------------------------------------------
We use these data to compute the following two key statistics,
specified by the rule, for each of the study's sampled SFAs:
[GRAPHIC] [TIFF OMITTED] TR17JN11.014
Program foods are the Federally reimbursable lunches,
breakfasts, and snacks served in the NSLP and SBP. For purposes of
the interim rule, non-program foods are [agrave] la carte and other
items offered to students other than NSLP or SBP meals.\15\ As
presented in the estimate, the costs for these foods reflect the
allocation of food costs across program meals and non-program foods
as required under generally accepted accounting principles,
including those ingredients and food components that might be
purchased and used to support both reimbursable meal service and
[agrave] la carte service.
---------------------------------------------------------------------------
\15\ An additional limitation of the SLBCS-II data for this
analysis is that financial data for [agrave] la carte foods are
combined with the data for adult meals, some vending, and catering.
Because we cannot isolate [agrave] la carte's contribution to these
broader measures of cost and revenue we overstate the cost and
revenue ratios for some SFAs.
---------------------------------------------------------------------------
The sum of program revenue and non-program revenue in the second
ratio is all revenue in the SFA account. SFA revenue includes
Federal subsidies for reimbursable meals, USDA food assistance,
student payment for program meals, revenue from [agrave] la carte
and other non-reimbursable food sales, State and local contributions
to the SFA account, and a small amount from other sources such as
interest on deposits and the sale of equipment.
The interim rule requires SFAs to generate at least as great a
share of total revenue from non-program foods as non-program foods
contribute to total food costs. That is, SFAs must ensure that their
revenue ratio is at least as great as their food cost ratio. With
SLBCS-II data, adjusted for growth in student participation and
school food prices, we estimate that [agrave] la carte revenues fall
short of the amount necessary to balance SFA food cost and revenue
ratios as required by the interim rule by almost $2.4 billion for
the full 2011 fiscal year.\16\
---------------------------------------------------------------------------
\16\ For this analysis we assume that baseline demand for
[agrave] la carte foods grows at a rate comparable to the growth in
student consumption of reimbursable paid lunches. We recognize the
limitations of paid meal participation as a proxy for [agrave] la
carte consumption. Our assumption of comparable growth is intended
to reflect changes in the size of the student population that
chooses to consume school foods but is ineligible for free or
reduced price meals.
---------------------------------------------------------------------------
[[Page 35308]]
Impacts of Price Changes on Student Purchase of [agrave] la Carte
Foods
The revenue increase required to balance SFAs' food and revenue
ratios for FY 2011 is about 70 percent above projected baseline
[agrave] la carte receipts.\17\ For years beyond 2011, adjustments
are needed not only for price inflation, but for changes in demand
for [agrave] la carte foods as a result of price increases, absent
other action by school or SFA administrators.
---------------------------------------------------------------------------
\17\ This is the targeted revenue increase prior to a price-
induced drop in demand for [agrave] la carte foods.
---------------------------------------------------------------------------
In the absence of a direct measure of student
sensitivity to price increases in [agrave] la carte foods, we use
the same price elasticity estimate that we applied to our Section
205 analysis of paid lunches.\18\ For each one cent increase in paid
meal prices, SNDA-III estimated a -0.11 percent decrease in
participation, a price elasticity of about -0.30.\19\
---------------------------------------------------------------------------
\18\ We find the estimated price elasticity for paid lunches
from SNDA-III to be a reasonable substitute for this analysis of
[agrave] la carte consumption given that it measures student
response to price increases in a school setting where available
substitutes are comparably limited.
\19\ For FY 2011, we estimate that SFAs will need to raise
prices to generate $357 million in increased revenue for the period
July 1--September 30. This would require, on average, a 71 percent
increase in [agrave] la carte prices. We then apply a 3.0 percent
reduction in student purchases of [agrave] la carte foods for each
10 percent increase in price, estimating that total revenue from
[agrave] la carte sales will fall by about 21 percent ($182
million). Net SFA revenues thus will increase $175 million, rather
than the $357 million that would be raised under an assumption of
constant sales.
---------------------------------------------------------------------------
Following the initial price adjustment to comply with
the rule in 2011, we assume that growth in prices charged for and
demand for [agrave] la carte foods matches growth in the aggregate
Federal reimbursement for paid lunches, using the same assumptions
for growth in paid lunch participation and reimbursement rates
reflected in the FY 2012 President's Budget.\20\
---------------------------------------------------------------------------
\20\ This means that we assume SFA prices charged for [agrave]
la carte foods keep pace with increases in the broader market prices
of food and labor reflected in the CPI's ``food away from home''
index.
---------------------------------------------------------------------------
It is plausible to image that, over time, the effect of
increased prices in reducing demand will decay, as consumers grow
accustomed to the higher prices. We have not factored this into our
analysis, but to the extent that it occurs, we would expect to see
demand increase and overall SFA revenue grow.
Through FY 2015, we estimate that SFA revenues for [agrave] la
carte foods will increase as a result of the interim rule by the
amounts in Table 5.
Table 5--Increased SFA Revenue From [agrave] la Carte Foods \21\
----------------------------------------------------------------------------------------------------------------
Fiscal year (millions)
-----------------------------------------------------------------
2011 2012 2013 2014 2015 Total
----------------------------------------------------------------------------------------------------------------
Baseline [agrave] la carte revenue............ $500 $3,279 $3,533 $3,769 $4,119 $15,200
Revenue increase due to price increase........ 357 2,342 2,524 2,693 2,942 10,858
Revenue decrease due to reduced demand........ -182 -1,194 -1,286 -1,372 -1,499 -5,534
-----------------------------------------------------------------
Total adjusted [agrave] la carte revenue...... 675 4,427 4,770 5,090 5,561 20,524
=================================================================
Net projected increase in [agrave] la carte 175 1,148 1,237 1,320 1,443 5,324
revenue......................................
----------------------------------------------------------------------------------------------------------------
It should be noted that this estimate assumes that the mix of
[agrave] la carte foods remains equally popular among students
relative to price as the foods sold in SY 2004-05 (when the most
recent data on [agrave] la carte foods was collected), and that
schools make no effort to adjust their [agrave] la carte offerings
to increase their popularity. To the extent that schools make such
adjustments, the net revenue increase of the rule would grow.
---------------------------------------------------------------------------
\21\ Reflects a drop in demand following the initial [agrave] la
carte price increase.
---------------------------------------------------------------------------
In addition, the Healthy, Hunger-Free Kids Act of 2010 requires
USDA to promulgate nutrition standards for all foods sold in school.
Because these standards have not yet been proposed, we did not
factor them into this analysis. To the extent that these standards
ultimately require schools to eliminate popular items, they could
cause a net reduction in demand for [agrave] la carte foods, and
reduce the revenues generated by this rule.
b. NSLP Participation Impact
We would expect that some portion of the reduced demand for
[agrave] la carte foods due to price increases would be redirected
as additional demand for and participation in the school meals
programs.
We assume that roughly 46 percent of lost demand for
[agrave] la carte foods due to price increases would be redirected
as additional demand for and participation in the school meals
programs.\22\ For simplicity, and because the consumption of
[agrave] la carte foods at breakfast is relatively low compared to
the consumption of [agrave] la carte foods at lunch, we model the
shift from [agrave] la carte to program foods as one that takes
place at lunchtime only.\23\ We expect that students that do not
choose to participate in school meals or purchase higher-priced
[agrave] la carte foods will either bring food from home, choose not
to eat during school hours, or acquire food from other sources. We
do not have data that allows us to estimate the relative frequency
of these different responses.
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