Thanks to House Bill 57, federally-mandated school lunch programs will be in a better position to stay solvent and continue providing healthy foods for students across the state. HB57 passed unanimously in both the House and Senate and was signed into law by Governor Pat McCrory on July 3, 2013.
A 2011 report by the General Assembly’s Program Evaluation Division (PED) reports that some local school districts are putting their federally-mandated National School Lunch and School Breakfast Programs at risk by charging their programs for indirect administrative costs when their program budgets are insolvent.
“The viability of Child Nutrition Programs operated by North Carolina school districts depends on a delicate balance of cost, nutritional value, and student participation.”
—From the Program Evaluation Division’s Report
The measure of each program’s financial stability is the number of months of operating balance on hand; that is, the number of months the operation could be funded with the existing cash balance. State administrators consider programs with a low threshold of less than one month of operating balance to be insolvent.
Child nutrition programs are operated by each of North Carolina’s 115 school districts, as required by state law. Local management and oversight of program funding of Child Nutrition Programs is the responsibility of the local school district. However, the law gives school districts some discretion when assessing indirect costs or overhead. They can assign all of it, some of it, or none of it to their Child Nutrition Programs.
Maintaining a healthy operating balance is important to a program’s cash-flow because federal reimbursements for meals served could take up to six weeks. On average, North Carolina’s Child Nutrition Programs lose money on each reimbursable meal served, amounting to about $70 per student. Fifty-two of the 115 programs operated at a loss during from the 2007-08 to 2009-10 school years.
To close the revenue gap and maintain financial stability, some programs must consider reducing staff and equipment expenses. Districts are also supplementing their programs through outside revenue sources. Most programs — 87 percent — are subsidized by selling food and beverages à la carte or in vending machines, through fundraisers and at snack bars.
On average, 37% of the funds to operate the Child Nutrition Programs are generated from the sale of meals. As one Program Director put it, “We survive on à la carte. 25% of our budget comes from ‘à la carte’ sales.”
These non-program offerings compete with the nutrition programs for student participation and put further financial stress on programs already struggling to maintain solvency. Adding to that pressure is rising employee salaries and benefits, rising food prices and a greater number of districts charging back for indirect costs.
The Division’s report found that from 2007-08 to 2009-10, 67 programs did not maintain at least a one month operating balance that the state Department of Public Instruction (DPI) required. Thirty of the 67 insolvent programs were charging indirect administrative costs by the school district, in violation of the department’s policy.
House Bill 57 codifies DPI’s policy into law by requiring program solvency before assessing any indirect program costs. The law prohibits local school districts from making these chargebacks unless the program has a minimum of one month’s operating balance.
The measure also calls for the funding of administrative support for the North Carolina Procurement Alliance. The Alliance is a voluntary purchasing consortium of 84 LEA’s that consolidate purchasing over 900 food and supply products for child nutrition programs. Alliance members negotiate better product and supply pricing due to higher volume product purchases and standardized bid specifications, thus reducing expenses for Child Nutrition Programs. The Alliance has generated an annual savings of 6 percent since 2007-08. The funding assistance for routine support activities, such as grant-writing and administration, will help free the group to expand their operations and focus on the mission of obtaining optimal pricing for participating Child Nutrition Programs.