United States Government Accountability Office Report to Congressional Requesters July 2014 SCHOOL MEAL PROGRAMS Implications of Adjusting Income Eligibility Thresholds and Reimbursement Rates by Geographic Differences GAO-14-557 July 2014 SCHOOL MEAL PROGRAMS Implications of Adjusting Income Eligibility Thresholds and Reimbursement Rates by Geographic Differences Highlights of GAO-14-557, a report to congressional requesters Why GAO Did This Study What GAO Found In fiscal year 2013, 30.7 million There are a number of measures by which income thresholds for the U.S. children participated in the National Department of Agriculture (USDA) school meal programs could be adjusted to School Lunch Program and 13.2 account for geographic differences in the cost of living; doing so would likely lead million children participated in the to shifts in eligibility and program costs. For example, the Supplemental Poverty School Breakfast Program, partly Measure or Regional Price Parities could be used to adjust for geographic price funded by $14.6 billion from the USDA. differences; each could result in fewer children qualifying for assistance in the The majority of these children came South and Midwest and more children qualifying in the Northeast (see figure from low-income families and received below). In general, the effects of any such cost-of-living adjustment are difficult to school meals free or at a reduced- predict and would vary depending on their implementation, such as whether they price. Income eligibility and school were applied state-wide or at the sub-state level, or whether children were kept reimbursement rates for school meals are federally set and do not consider from losing eligibility. Overall program costs could increase if more children geographic differences in the cost of participated. living (except for Alaska and Hawaii). GAO was asked to explore the Example of Potential Effect of a Geographic Cost Adjustment on School Meal potential to account for such Eligibility Thresholds Using 2006-2010 Data differences through a variety of measures and cost data. This report, therefore, looks at a variety of methods by which to identify geographic differences in living costs and the potential for using them to adjust (1) income eligibility thresholds, and (2) reimbursement rates for schools. It also examines the extent to which states and localities can make adjustments for geographic differences in costs by using existing program rules. GAO reviewed relevant laws, regulations, and literature; analyzed available data sources and methods; and interviewed knowledgeable experts. What GAO Recommends Although the cost of delivering school meals varies by geographic region, the GAO is not making any usefulness of available cost data is unclear for making such adjustments. Neither recommendations. the Regional Price Parities for food services and goods or the U.S. Bureau of Labor Statistics’ wage data account for some drivers of variation in costs, such as economies of scale. In addition, they may not reflect the characteristics of the food and labor components of individual school districts. The national school lunch and breakfast program rules allow states to expand eligibility for free meals and increase reimbursements to schools using federal or state funds. Some schools have expanded eligibility by providing free meals to all students under federal program rules. At the same time, some states use state View GAO-14-557. For more information, contact Kay Brown at (202) 512-7215 or funds to provide additional per meal reimbursements to schools for meals [email protected]. served. However, no state has used these flexibilities to adjust for within state geographic differences. United States Government Accountability Office Contents Letter 1 Background 4 Existing Data and Methods for Adjusting for Geographic Variations Could Lead to Shifts in Eligibility and Might Increase Program Costs 10 The Cost of Delivering School Meals Varies by Geographic Region, but the Usefulness of Existing Data to Adjust Reimbursements for These Differences Is Unclear 24 Existing Federal and State Policies Offer Eligibility and Reimbursement Flexibility 32 Concluding Observations 36 Agency Comments 37 Appendix I Scope and Methodology 41 Appendix II GAO Contact and Staff Acknowledgments 49 Tables Table 1: USDA Per-Meal Reimbursement Rates for the National School Lunch Program and School Breakfast Program in the Contiguous States, School Year 2013-2014 6 Table 2: Data Sources That Measure Geographic Variation in the Cost of Living 8 Table 3: Data Sources That Measure Geographic Variation in Costs of Labor 9 Table 4: Factors That Could Affect the Outcome of Geographic Adjustments 22 Table 5: Critical Considerations for Evaluation of Cost of Living Data Sources and Methods 42 Table 6: Cost of Living Methods Summarized Along Five of Six Critical Considerations 42 Table 7: Summary of Methodology Evaluation for Selected Methods 45 Table 8: Regional Price Parities (RPP) and Supplemental Poverty Measure (SPM) Data for Illinois 47 Page i GAO-14-557 School Meal Programs Figures Figure 1: Example of Percent Change in Eligibility Threshold for Free and Reduced-Price Meals Resulting from State- Level Supplemental Poverty Measure Adjustment, 2006- 2010 17 Figure 2: Example of Percent Change in Eligibility Threshold for Free and Reduced-Price Meals Resulting from State- Level Regional Price Parities Adjustment, 2006-2010 18 Figure 3: Example of Changes to the 2013-2014 School Free Lunch $2.93 Reimbursement Rate by State Using Two Methods (Sorted by the Regional Price Parities Food Service Index) 30 Abbreviations ACS American Community Survey BEA Bureau of Economic Analysis BLS Bureau of Labor Statistics CE Consumer Expenditure Survey CEP Community Eligibility Provision CPI Consumer Price Index ERS Economic Research Service FMR Fair Market Rents FNS Food and Nutrition Service HHS Department of Health and Human Services MSA metropolitan statistical area RPP Regional Price Parities SNAP Supplemental Nutrition Assistance Program SPM Supplemental Poverty Measure TANF Temporary Assistance for Needy Families USDA U.S. Department of Agriculture This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately. Page ii GAO-14-557 School Meal Programs 441 G St. N.W. Washington, DC 20548 July 8, 2014 Congressional Requesters During fiscal year 2013, about 30.7 million children participated in the National School Lunch Program and more than 13.2 million participated in the School Breakfast Program across every state, the District of Columbia, Guam, Puerto Rico, and the Virgin Islands, as well as children of the U.S. Department of Defense armed forces personnel attending schools overseas. Both of these programs are administered by the U.S. Department of Agriculture’s (USDA) Food and Nutrition Service (FNS) through state agencies that oversee local entities that provide school meals. The federal government provides cash reimbursements for each meal that meets nutritional requirements that is served at schools that participate in the lunch and breakfast programs. In fiscal year 2013, USDA spent about $14.6 billion on these programs. Students who participate in these programs may qualify for either paid, free, or reduced- price meals depending on their household income and household size. In the 2013-2014 school year, for example, a child who was part of a three- person household qualified for free meals if the child’s annual household income did not exceed $25,389. It does not generally matter whether this household resided in a high-cost metropolitan area or a lower-cost rural area because the income eligibility thresholds for free and reduced-price meals are uniform throughout the country—with the exception of Alaska and Hawaii, where they are higher. Similarly, except in Alaska and Hawaii, USDA’s reimbursement rates for meals served are the same for all schools, regardless of where the schools are located. The standard USDA reimbursement rate for the 2013-2014 school year was $2.93 for a school lunch served free to a qualifying child. Because the cost of housing, transportation, food, and other necessities can vary by region or locality, concerns have been raised that some children who are in need of free or reduced-price school meals may not qualify for them because the current income eligibility measure does not recognize that households in high-cost areas may need higher incomes to meet their basic needs. Questions have also been raised regarding whether some school districts can afford the same quality of food as other school districts because USDA reimbursement rates do not adjust for geographic differences in food and labor costs. To better understand the issues related to making geographic adjustments for the school meal programs, you asked us to examine both eligibility determination and meal reimbursements. Page 1 GAO-14-557 School Meal Programs This report addresses the following questions: 1. What existing data and methods could be used to adjust USDA income eligibility thresholds for school meals so that they account for variations in the cost of living, and what are the implications of making such adjustments? 2. What existing data and methods could be used to adjust USDA reimbursement rates so that they account for variations in food, labor, and other costs, and what are the implications for making such adjustments? 3. To what extent can states and localities make adjustments to eligibility and reimbursement rates for school meals? To answer these questions, we reviewed relevant federal laws and regulations, analyzed available data sources and methods, reviewed relevant literature, and interviewed knowledgeable agency officials and experts. Specifically, we interviewed USDA officials from FNS and the Economic Research Service (ERS) to learn more about the school meal programs, types of data available, and relevant studies.