The 2025-26 Budget: School Nutrition

2025-26 BUDGET The 2025-26 Budget: School Nutrition GABRIEL PETEK | LEGISLATIVE ANALYST | FEBRUARY 2025 SUMMARY This brief provides an overview and analysis of the Governor’s proposals for school nutrition. In 2021-22, the state’s role in funding school nutrition programs fundamentally changed with the enactment of universal meal requirements. Local education agencies (LEAs)—school districts, charter schools, and county offices of education—now are required to provide one free breakfast and one free lunch per school day to any student requesting a meal. Since enactment, the number of meals served and the funds the state has provided for school meals has increased. The state has also provided one-time Kitchen Infrastructure and Training (KIT) funds to LEAs to implement the universal meal requirements. Recommend Providing More School Nutrition Funding in the Budget Year. The administration proposes providing an additional $84 million in 2025-26 aligned with its estimate of universal meals. We estimate the state will serve 967 million meals in 2025-26, or 46 million (5 percent) above the administration’s estimate. Based on our higher estimates, we recommend providing $32 million more than the Governor proposes for school nutrition programs in 2025-26. This would reflect cost growth more consistent with recent trends in the number of school meals served. Recommend Rejecting Third Round of KIT Funds. The Governor’s budget also proposes $150 million one-time Proposition 98 funding for grants to increase capacity for offering freshly prepared meals on-site. We recommend the Legislature reject this proposed funding. The effect of previous KIT funding on the capacity of LEAs to serve more meals is still unclear. The state also has little information on the demand of LEAs to serve freshly prepared on-site meals. The Legislature could evaluate if additional funding is merited in 2026-27, when more information on the uses of the first and second round of KIT funds will be available. Recommend Better Ongoing Data Collection Aligned With Statewide Nutrition Priorities. In addition to KIT funds, the state has funded many other nutrition initiatives over the past several years. These funds have typically lacked outcome expectations. If the Legislature continues to provide funds for specific nutrition initiatives, we recommend the state set goals associated with the funds and collect data statewide to assess progress towards meeting these goals. This additional data would help the Legislature determine whether to continue to dedicate resources to a specific priority, or if sufficient progress has been made such that the state could direct funding toward other priorities. Background Federal Reimbursement Rate Varies by Household Income of Students Served. These Federal Government Provides Funds for federal nutrition programs reimburse LEAs based Meals Served in Schools. The federal government on the number of meals they serve, with the has two programs, the National School Lunch per-meal reimbursement rate varying by student Program and the School Breakfast Program, that household income. Students from households with serve meals to children during the school day. incomes at or below 130 percent of the federal These federal programs have many requirements poverty level (FPL) ($33,566 annually for a family of that LEAs must follow, such as serving meals that three) receive meals reimbursed at the “free” rate. meet certain nutritional standards. Students from households with incomes at or below 185 percent of the FPL ($47,767 annually for a family www.lao.ca.gov 1 2025-26 BUDGET of three) receive meals reimbursed at the “reduced” this initiative the Nutrition Policy Institute conducted rate. All other meals are reimbursed at the “paid” focus groups of California middle and high school rate. In 2024-25, the federal government reimburses students to understand their perception of universal schools up to $4.54 for lunches served at the free meals. Students reported having reduced stigma rate and up to 53 cents for lunches served at the and embarrassment around who eats school paid rate. Federal meal reimbursement rates receive meals, especially for students eligible for free or an annual cost-of-living adjustment (COLA) based reduced priced meals. To our knowledge, there on a federal price index that reflects changes in the are no studies that have evaluated the impact of costs of meals purchased away from home. California’s universal meals program on student State Implemented Universal Meals in attendance or other academic outcomes. The state California. Historically, state funding for school has seen improved attendance since implementing nutrition was limited to supplementing the federal universal meals, but this comes on the heels of reimbursement rate for free and reduced-price decreased attendance due to the pandemic. meals. (The state did not contribute to paid meals.) National studies of different versions of universal The state’s role in funding school nutrition programs meals programs have shown mixed effects on fundamentally changed with the enactment of attendance. Some studies showed universal meals universal meal requirements. Trailer legislation had positive associations with attendance, while related to the 2021-22 budget package required others showed no association. that, beginning in 2022-23, all LEAs provide one State School Nutrition Program Supplements free breakfast and one free lunch per school Federal Reimbursement. State law sets a state day to any student requesting a meal. (Under a rate for free meals, which supplements the federal temporary federal pandemic policy, schools had rate for free meals. For paid and reduced-priced the option to provide free meals to all students prior meals, the state provides funds to match the to the enactment of state legislation.) Universal combined state and federal rate for free meals. meals in California relies on LEA participation As Figure 1 shows, free, reduced, and paid meals in both federal and state programs. To receive generate the same total reimbursement for LEAs. state reimbursement for school meals, state law A meal reimbursed by the federal government at requires schools to participate in the National School Lunch Figure 1 Program and the School Breakfast Example of Combined Lunch Rates Program. The state supplements federal funds with additional 2024-25, Dollars Per Meal state funds for each meal served. The 2024-25 budget includes $6 $1.8 billion Proposition 98 General 5 Fund and $2.7 billion federal funding to provide a projected 4 884 million school meals during the school year. 3 Universal Meals Intended to Reduce Stigma, Increase 2 Attendance, and Improve Student Well-Being. Since 1 2021-22, the state provided the Nutrition Policy Institute, a Free Reduced Paid research institute affiliated with the State Funds Federal Funds University of California, $7 million to evaluate universal meals. As part of 2 LEGISLATIVE ANALYST’S OFFICE 2025-26 BUDGET the free rate receives the smallest amount of state State Has Provided One-Time Funding funds, whereas a meal reimbursed at the paid rate for Many State Nutrition Program Initiatives receives the largest amount of state funds. The total Over the Past Few Years. From 2021-22 reimbursement rate is adjusted annually by both the through 2023-24, the state has provided a total of state and federal COLA. State funds are provided $865 million in one-time funding to support various for the entirety of the state COLA. Increases in nutrition initiatives. These augmentations include: federal funding cover the full costs of applying the • KIT Funds ($750 Million). The 2021-22 federal COLA to meals reimbursed at the free rate. budget provided $150 million one-time To maintain the same total reimbursement rate paid Proposition 98 to LEAs for kitchen upgrades meals, increases associated with the federal COLA ($120 million) and food service staff training are covered with a mix of federal and state funds. ($30 million) to help implement the new state Number of Meals Served Has Increased universal meal requirements. In 2022-23 the Since Universal Meals Implemented. In 2018-19, state provided an additional $600 million for the last year of comparable data not impacted KIT. Roughly $350 million of this amount was by the pandemic, the state served 816 million distributed to about 1,000 LEAs that opted meals through the school nutrition program. This into the funds. These funds were distributed amount increased to 831 million meals in 2022-23, proportionally based on the number of meals the first year of universal meals implementation, served. The remaining $250 million was and 876 million meals in 2023-24. While the state distributed to LEAs that committed to having has served an increased number of meals since at least 40 percent of their reimbursable meals universal meals implementation, the growth of freshly prepared on-site by 2023-24. These breakfast meals served has been faster compared funds were distributed to 510 LEAs, or roughly to lunches. In 2023-24, the state served 8.9 percent half of total KIT grantees. more breakfasts than it did in 2022-23. This • School Food Best Practices Fund compares to 3.6 percent more lunches during the ($100 Million). The 2022-23 budget package same period. Over this same period, statewide provided $100 million for LEAs to implement average daily attendance has declined due to lower various initiatives referred to as school food attendance rates and a decrease in the school best practices. Specifically, LEAs could use age population. funds to (1) purchase California-grown or State Funds Provided for School Meals Has produced foods that are sustainably grown, Increased by a Much Larger Percentage. As a whole, or minimally processed; (2) purchase result of the implementation of universal meals, plant-based or restricted diet meals; and/or as well as a discretionary increase in the per-meal (3) freshly prepare meals on-site. reimbursement rate in 2022-23, total state funding • Commercial Dishwashers ($15 Million). has increased significantly. In 2018-19, the state The 2023-24 budget package provided provided $164 million for the state portion of school $15 million for LEAs to purchase or install meals. This amount has grown to $1.8 billion in commercial dishwashers for their nutrition 2023-24 (a 987 percent increase). Program costs programs. The grants were intended to reduce have also consistently been higher than initially single-use plastic, such as to use reusable budgeted. Provisional language included in the instead of disposable trays. budget since 2022-23 allows the Department of Finance to augment funding for school nutrition if Governor’s Proposals expenditures are projected to exceed the amount Additional $31 Million in the Current Year budgeted. In each of the past three years, the state Based on Updated Projections. The Governor’s has made current-year augmentations to account budget includes an additional $31 million one-time for shortfalls in budgeted funding. Proposition 98 General Fund in 2024-25 to cover an anticipated school nutrition shortfall. www.lao.ca.gov 3 2025-26 BUDGET This anticipated shortfall is largely due to higher meals.) The training funds would be distributed via meal projections. The administration projects the formula to LEAs based on the number of lunches state will serve 921 million meals, an increase of served in October 2024. Funds could be used for 37 million meals (4 percent) compared to the meals professional development for food service staff to assumed in the 2024-25 Budget Act. increase capacity for freshly prepared meals, or for Additional $84 Million Ongoing Beginning additional compensation for additional work related in the Budget Year, Largely Related to Federal to serving universal meals. COLA. For 2025-26, the Governor’s budget Assessment increases school nutrition funding by $84 million ongoing Proposition 98 General Fund compared Administration Likely Underestimates to the 2024-25 budgeted level. Of this amount, Number of Meals Served in Budget Year. We find the Governor’s revised estimates for the number $31 million is associated with the anticipated of meals served in 2024-25 to be reasonable. shortfall in 2024-25 that is expected to carry However, in our view, it is unlikely that the number forward into 2025-26. The remainder of the growth of meals served will remain flat in 2025-26 as the is primarily attributed to state costs associated with administration assumes. Based on our analysis of covering the anticipated federal COLA for meals at recent meal growth trends, we estimate the state the paid rate. The Governor’s budget assumes the will serve 967 million meals, or 46 million (5 percent) number of meals served in 2025-26 will remain at above the administration’s estimate in the budget the same levels as the revised 2024-25 estimate. year. This would cost an additional $32 million Additional $22 Million Ongoing for State compared to the amount the Governor proposes. COLA. The Governor’s budget also provides (This estimate uses average daily attendance $22 million ongoing Proposition 98 General Fund assumptions included in the Governor’s budget.) to provide a 2.43 percent COLA for school nutrition In the coming months, the state will have more rates. This increases the state contribution for a free information regarding 2024-25 meal counts, which meal from 97.9 cents to $1.00. will inform meal projection estimates for 2025-26. Funds Third Round of KIT Funds. The School Nutrition Programs are Still Spending Governor’s budget also provides $150 million KIT Funds. The first two rounds of KIT funding one-time Proposition 98 funding for grants to provided LEAs with flexibility to determine how increase capacity for offering freshly prepared they would use funds to increase their capacity meals on-site. The intent is for these meals to use to implement universal meals. Based on our minimally processed, locally grown, and sustainable conversations with CDE and LEAs, these funds food. Of these funds, $100 million is for kitchen supported a variety of project types, including infrastructure upgrades and $50 million is for large kitchen remodels, purchases of cooking training or compensation for food service staff. equipment, and expansion of the number of meal Infrastructure funds could be used for a variety service stations. Since the encumbrance deadline of purposes such as cooking equipment; facility for the second round of KIT funds is June 30, 2025, upgrades; and equipment related to meal service, LEAs have some time to determine how they will refrigeration, storage, or transportation. Funds use these funds. Based on an informal survey would be distributed competitively using criteria conducted by CDE in January 2025, 70 percent to be developed by the California Department of respondents had encumbered more than half of Education (CDE). CDE is to prioritize LEAs of their KIT funds. Most LEAs (57 percent) were that obligated at least half of the second round certain they would fully encumber funds by the of kitchen infrastructure and training funds June 30 deadline. Meanwhile, 33 percent were included in the 2022-23 budget package. CDE is unsure if they were going to able to fully encumber also to prioritize LEAs that participate in certain funds and 10 percent determined they would not be provisions of federal nutrition programs. (These able to fully encumber funds by the deadline. are generally LEAs with relatively high shares of students eligible for free and reduced-price 4 LEGISLATIVE ANALYST’S OFFICE 2025-26 BUDGET Reporting on KIT Spending Not Yet Available. use waste. Across the various initiatives funded LEAs are required to report on how they used KIT in recent years, it is unclear if funding for freshly funds to (1) improve the quality of school meals, prepared meals should be a priority over other (2) increase participation in the school meal purposes within school nutrition, such as covering program, and (3) increase the capacity for freshly infrastructure upgrades necessary to implement prepared on-site meals. However, these reports universal meals. However, questions of this nature are not due to CDE until June 30, 2025. Reports are difficult to answer as the funds provided for for the first round of KIT funds were previously due nutrition initiatives have typically lacked outcome June 30, 2023, but the deadline was extended to expectations. For example, LEAs had to attest that 2025 because projects were taking longer than 40 percent of meals would be freshly prepared anticipated to complete. As such, the state cannot on-site, but there is no monitoring to determine yet measure the effect of previous KIT funding on if the statewide share of freshly prepared meals the capacity of LEAs to serve more meals. This has grown. Without specific expectations and makes it difficult for the Legislature to determine associated outcome measures, the state does not the extent to which additional funding for kitchen have a clear picture on the extent to which previous infrastructure is needed. initiatives have been successful in addressing key Capacity and Demand for Serving Freshly legislative priorities. Moreover, the lack of outcome Prepared On-Site Meals Unclear. The state measures makes it difficult to assess whether these has little information on the existing capacity or school nutrition initiatives should take priority over interest level of LEAs to serve freshly prepared other education purposes. on-site meals. Roughly half of LEAs that received Recommendations the second round of KIT funds opted into receiving funds specifically for implementing freshly Recommend Providing More School Nutrition prepared on-site meals, but we do not yet have any Funding in the Budget Year. While we find the administration’s current-year estimates reasonable, information regarding improvements in capacity we recommend increasing the amount allocated that came from these funds or the remaining for the school nutrition program to $1.98 billion demand for additional funding. Depending on the in 2025-26, $32 million above the amount the LEA and how its nutrition program operates, there Governor proposes. In our view, this higher amount could be several barriers to serving freshly prepared better reflects the likely costs in the budget year, as on-site meals. For example, LEAs that primarily it is based on cost growth that is more consistent have a vendor prepare and deliver meals would with recent trends in school meals served. need to significantly restructure their operations As we note in our brief, The 2025-26 Budget: to serve more freshly prepared on-site meals. This Proposition 98 Guarantee and K-12 Spending would likely involve purchasing fresh ingredients, Plan, the Governor’s budget includes $7.8 billion hiring more staff to prepare meals, expanding in Proposition 98 spending proposals for schools. kitchen space, and developing menus. Limited The state could accommodate the increased school infrastructure and equipment could also be key nutrition costs by modifying one or more of these barriers for LEAs. For example, an LEA may need proposals. more storage space for ingredients and additional cooking equipment to serve more freshly prepared Recommend Rejecting Third Round of KIT on-site meals. Funds. Given the lack of information available on how the first two rounds of KIT funds were used, we State Has Funded Many Nutrition Initiatives, recommend the Legislature reject the third round but Has Not Set Clear Priorities or Outcome of proposed KIT funding. The Legislature could Expectations. The state has funded many nutrition evaluate if additional funding is merited in 2026-27, initiatives over the past several years. These include when more information on the uses of the first and initiatives to serve more freshly prepared on-site second round of KIT funds will be available. If the meals, procure more California-grown food, and Legislature decides to provide a third round of KIT install commercial dishwashers to reduce single www.lao.ca.gov 5 2025-26 BUDGET funds, it could consider removing the criteria that collect statewide data to assess progress towards funds are used to increase capacity for freshly meeting these goals. For example, if serving prepared on-site meals. This would allow funds freshly prepared meals on-site is a priority, the to be used more generally to address the most Legislature could set a statewide goal and measure pressing local school nutrition needs, such as progress by requiring LEAs to annually report the increasing breakfast participation or reducing the share of meals served that were freshly prepared. length of time students wait in line to receive a meal. This additional data would help the Legislature Recommend Better Ongoing Data Collection determine whether to continue to dedicate Aligned With Statewide Nutrition Priorities. resources to a specific priority, or if sufficient If the Legislature continues to provide funds for progress has been made such that the state could specific nutrition initiatives, we recommend the direct funding toward other priorities. state set goals associated with the funds and 6 LEGISLATIVE ANALYST’S OFFICE 2025-26 BUDGET www.lao.ca.gov 7 2025-26 BUDGET LAO PUBLICATIONS This report was prepared by Sara Cortez, and reviewed by Edgar Cabral and Ross Brown. The Legislative Analyst’s Office (LAO) is a nonpartisan office that provides fiscal and policy information and advice to the Legislature. To request publications call (916) 445-4656. This report and others, as well as an e-mail subscription service, are available on the LAO’s website at www.lao.ca.gov. 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