Published Online: August 23, 2011
Published in Print: August 24, 2011, as Rules Aim to Keep Cafeterias From Becoming Cash Cows

USDA: Cafeterias Shouldn't Be Cash Cows for Schools

USDA clarifies the costs that districts can charge to their school cafeterias

In the small Seymour Community School District in Indiana last school year, lunch and breakfast prices went up about 25 cents each because, for the first time, the district charged its own cafeteria $100,000 for cleaning, trash service, and electricity and water.

The 4,000-student school district’s budget had been cut by the state, so the district exercised its right to charge its own department of food and nutrition services for some operating costs—effectively shifting those costs to the federal government.

School districts can do that because their operating budgets are separate from their food and nutrition budgets. School cafeterias generally operate using federal dollars that come in based on the type and quantity of meals sold and money generated from the sale of meals.

The timing in Seymour, however was unfortunate: The state had cut the district’s budget, which led the district to assess new charges to the food-services department, and the food-services department, in turn, raised lunch prices. So, in the middle of an economic downturn, students’ families had to pick up the tab.

Response to Concerns

To clarify the kinds of costs that districts can—and cannot—bill to cafeterias, the U.S. Department of Agriculture in July issued rulesRequires Adobe Acrobat Reader for how districts bill school food programs for utilities, trash collection, and janitors, among other services, that are intended to eliminate variation from one district to the next and keep costs in check. The USDA got the authority to create the rules from last year’s Healthy, Hunger-Free Kids Act, the answer to years of requests from food-service directors for regulation of these so-called indirect costs.

Former School Nutrition Association President Dora Rivas, who has run the food-service program in the Dallas Independent School District for six years, has advocated for more regulation of indirect costs before Congress.

“Nationally, it has become an issue just because of the fact that school budgets are so tight. Districts want to maintain a high level of education for their students—that being an education institution priority—so they would try to maximize whatever funds they can get that’s allowable,” she said. A 2006 surveyRequires Adobe Acrobat Reader of about 1,000 school districts by the SNA found that 52 percent of districts were charging their food-service programs for indirect costs, up from about 11 percent in 1994.

The Oxon Hill, Md.-based SNA, which represents thousands of school food-service directors, lobbied for the rules, noting that when districts charge too much for these services, there is less money to pay for food programs’ main purpose: school meals.

Also, providing school meals is likely to become more expensive if new nutrition standards proposed by the USDA are adopted. The standards, also authorized by the new school nutrition law, would require serving more fresh fruits, vegetables, and whole grains. Another provision calling for water to be available at meal time is proving to be a financial challenge for districts that don’t have water fountains in their cafeterias.

Goals at Odds

In some districts, the charges for indirect costs have triggered actions that are in direct conflict with the law’s goals of providing more nutritious school meals. For example, last year Guilford County Schools, based in Greensboro, N.C., sold more ice cream, popular with students and not included as a part of traditional school meals, to make up for some of the indirect cost charges from the district.

“Is it a wise decision, when we charge so much indirect costs, that we start to compromise the program that we’re running?” Cynthia Sevier, the county’s director of child-nutrition services, told the Charlotte Observer.

Democratic Congresswoman Judy Wu of California worked to get the language about indirect costs into the Healthy, Hunger-Free Kids law.

“This is a good first step to ensure school districts can properly charge the federal government for their school meal programs,” she said in a statement. “School lunch and breakfast programs should not be seen as revenue sources. I hope that more progress can be made in the weeks and months to come to ensure that federal funds are spent providing nutritious meals to America’s schoolchildren.”

The new rules, issued July 7, provide examples of how charges could be calculated, what the difference is between indirect and direct costs, and what might be considered egregious charges.

“For example, the salary of an employee whose duties consist solely of preparing and serving school meals is 100 percent allocable to the ... school food service, and is therefore treated as a direct cost,” the new rules say. “By contrast, the superintendent’s salary benefits all programs, functions, and activities of the school district; the portion that benefits the school food service can be determined only through a mathematical allocation process, which is the reason it is an indirect cost.”

In another example, the rules note that a district requiring internal maintenance service to change all of the light bulbs in a kitchen at a rate of $600 an hour “appears to be grossly disproportionate to the benefit the food service receives for the services provided.”

Eventually, the new school nutrition law says, USDA must conduct a study to see how districts are charging for indirect costs. The results of that study could change what is in the rules the agency issued last month.

Districts’ Defense

The current lack of data on districts’ calculations of indirect food-service costs makes the new rules premature, said Lucy Gettman, director of federal programs for the Alexandria, Va. -based National School Boards Association.

Yet organizations like hers didn’t get a chance to comment on these detailed rules as they did and will with other parts of the law.

Also, she said, rerouting district dollars to the cafeteria has its own issues, especially at the same time other changes are being made in the way school cafeterias work.

“It takes a few resources here, a few there,” she said. “Put them all together and it’s a real challenge to school districts.”

For instance, as a part of the Healthy, Hunger-Free Kids Act, districts must now revamp their wellness policies.

“There will be administrative costs associated with implementing those policies,” Ms. Gettman said.

In addition, said Noelle Ellerson, the assistant director for policy analysis and advocacy for the American Association of School Administrators in Arlington, Va., districts already could rely on guidance from the U.S. Office of Management and Budget about charging indirect costs to federal programs. She said the widespread overcharging of food-service programs implied by the new rules is not happening.

“The idea that they’re robbing the program to fund the football program” is unlikely, she said. “The overwhelming majority of superintendents have good relationships with their [food service] directors.”

Other measures to ensure that National School Lunch Program and School Breakfast Program dollars are directed primarily at preparing quality meals include pricing a la carte menu items and meals for students who pay full price accurately—not so low they are subsidized by federal reimbursements for free and reduced-price meals, said Matthew Sharp, a senior advocate with California Food Policy Advocates in Oakland.

“That’s the benefit of all these changes together,” he said. “They support the low-income participants in the school breakfast and lunch program, not other aspects of the school district budget.”

Vol. 31, Issue 01, Page 13

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