[Federal Register Volume 79, Number 11 (Thursday, January 16, 2014)]
[Rules and Regulations]
[Pages 2761-2773]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-00624]



========================================================================
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. 79, No. 11 / Thursday, January 16, 2014 / 
Rules and Regulations

[[Page 2761]]



DEPARTMENT OF AGRICULTURE

Food and Nutrition Service

7 CFR Part 210

[FNS-2011-0025]
RIN 0584-AE15


Certification of Compliance With Meal Requirements for the 
National School Lunch Program Under the Healthy, Hunger-Free Kids Act 
of 2010; Correction

AGENCY: Food and Nutrition Service, USDA.

ACTION: Final rule; correction.

-----------------------------------------------------------------------

SUMMARY: The Department of Agriculture, Food and Nutrition Service 
(FNS), published a final rule in the Federal Register on January 3, 
2014 (79 FR 325), concerning necessary changes made to the National 
School Lunch Program (NSLP) to conform to requirements contained in the 
Healthy, Hunger-Free Kids Act of 2010. This document corrects/replaces 
an appendix that was added at the end of the rule that offered a 
detailed Regulatory Impact Analysis. All other information in this rule 
remains unchanged.

DATES: Effective date: This correction is effective March 2, 2014.

FOR FURTHER INFORMATION CONTACT: Julie Brewer, Chief, Policy and 
Program Development Branch, Child Nutrition Division, FNS, 3101 Park 
Center Drive, Alexandria, Virginia 22302.

SUPPLEMENTARY INFORMATION: Accordingly, the final rule (FR Doc. 2013-
31433) published at 79 FR 325 on January 3, 2014 is corrected as 
follows:
    1. On pages 330 through 340, correct Appendix A to read as follows:

    Note: The following appendix will not appear in the Code of 
Federal Regulations.

Appendix A--Regulatory Impact Analysis

    Agency: Food and Nutrition Service.
    Title: Certification of Compliance with Meal Requirements for the 
National School Lunch Program under the Healthy, Hunger-Free Kids Act 
of 2010.
    Nature of Action: Final Rule.
    Need for Action: Section 201 of the Healthy Hunger-Free Kids Act of 
2010 provides for a 6 cent per lunch performance-based reimbursement to 
SFAs that comply with the National School Lunch program (NSLP) and 
School Breakfast Program (SBP) meal standards that took effect on July 
1, 2012. This rule finalizes the interim rule's regulatory framework 
for establishing initial school food authority (SFA) compliance with 
the new meal standards and for monitoring ongoing compliance. In 
addition, the final rule makes minor changes to the interim rule that 
are intended to facilitate the certification of SFA compliance with the 
meal patterns.
    Affected Parties: The programs affected by this rule are the NSLP 
and the SBP. The parties affected by this regulation are local school 
food authorities, State education agencies and the USDA.

Contents

I. Background
II. Need for Action
III. Key Provisions of the Interim Rule
IV. Key Provisions of the Final Rule
V. Addressing Comments on the Interim Rule and RIA
    A. Concerns about State Administrative Costs
    B. Concerns about Certification Costs
VI. Cost/Benefit Assessment
    A. Final Rule
    1. Benefits
    2. Costs and Transfers
    B. Updated Analysis of Interim Rule Effects
    1. Methodology
    2. Administrative costs
    3. Uncertainties
    4. Benefits
    5. Transfers
VII. Alternatives
VIII. Accounting Statement

I. 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) 2012. Schools that 
participate in NSLP receive Federal reimbursement and USDA Foods 
(donated commodities) for meals that meet program requirements.
    Sections 4 and 11 of the Richard B. Russell National School Lunch 
Act (NSLA) govern the Federal reimbursement of school lunches. 
Reimbursement for school breakfasts is governed by Section 4(b) of the 
Child Nutrition Act. Reimbursement rates for both NSLP and SBP meals 
are adjusted annually for inflation under terms specified in Section 11 
of the NSLA.
    Federal reimbursement for program meals and the value of USDA Foods 
totaled $14.9 billion in FY 2012. Table 1 summarizes FNS projections of 
reimbursable meals served and the value of Federal reimbursements and 
USDA Foods through FY 2017.
    The baseline for this analysis is the cost estimate published with 
the interim final rule.\1\
---------------------------------------------------------------------------

    \1\ Federal Register, Vol. 77, No. 82 pp. 25024-25036.

[[Page 2762]]



                  Table 1--Projected Number of Meals Served and Total Federal Program Costs \2\
                                                  [In billions]
----------------------------------------------------------------------------------------------------------------
                                                                    Fiscal year
                                 -------------------------------------------------------------------------------
                                       2013            2014            2015            2016            2017
----------------------------------------------------------------------------------------------------------------
NSLP:
    Lunches Served..............             5.3             5.4             5.4             5.4             5.5
    Program Cost................           $12.3           $12.6           $12.7           $12.9           $13.0
SBP:
    Breakfasts Served...........             2.3             2.4             2.4             2.5             2.5
    Program Cost................            $3.6            $3.8            $4.0            $4.1            $4.2
----------------------------------------------------------------------------------------------------------------

    Table 2 provides additional detail on the components of the school 
year (SY) 2012-2013 Federal reimbursement rates for lunches and 
breakfasts that meet program requirements. The figures in Table 2 
exclude the 6 cents for meals that comply with the new meal patterns.
---------------------------------------------------------------------------

    \2\ USDA projections of reimbursable lunches and breakfasts 
served, and total NSLP and SBP program costs, prepared for the FY 
2014 President's Budget. NSLP program cost includes entitlement 
commodity assistance, but is not adjusted for the projected 
additional amount necessary to bring total commodity assistance up 
to 12 percent of the combined value of the Section 4 and 11 
reimbursements as required by NSLA section 6(e) (42 U.S.C. 1755(e)). 
Note that the estimate for the cost of NSLP as given in on p. 175 of 
the 2014 President's budget appendix does not include estimated 
entitlement commodity assistance, unlike Table 1. In addition, 
although the USDA projections in the FY 2014 President's Budget 
included the cost of the extra 6 cents per meal (and assumed that 
all meals served would be eligible for the extra 6 cents per meal), 
the projections presented here do not include the value of the 6 
cents--instead, program costs are presented as if no meals receive 
the 6 cents reimbursement, to provide a basis for comparison for the 
rest of the estimates in this RIA. The projected number of meals has 
changed from the estimated projections in the interim rule on 
account of updated projections provided in the 2014 President's 
Budget.

                                  Table 2--Federal Per-Meal Reimbursement and Minimum Value of USDA Foods, SY 2012-2013
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                   Breakfast reimbursement                        Lunch reimbursement                          Minimum
                                                 -------------------------------------------------------------------------------------------   value of
                                                    Section 4(b) of Child        Section 4 NSLA                     Combined reimbursement,    donated
                                                        Nutrition Act      --------------------------                NSLA Sections 4 & 11       foods
                                                 --------------------------                                       --------------------------------------
                                                                             SFAs that    SFAs that                 SFAs that    SFAs that
                                                                            serve fewer    serve at    Section 11  serve fewer    serve at    Additional
                                                   Schools in  Schools not  than 60% of   least 60%       NSLA     than 60% of   least 60%     Federal
                                                    ``Severe   in ``Severe    lunches     of lunches                 lunches     of lunches   assistance
                                                     Need''       Need''     free or at   free or at                free or at   free or at    for each
                                                                              reduced      reduced                   reduced      reduced     NSLP lunch
                                                                               price        price                     price        price        served
--------------------------------------------------------------------------------------------------------------------------------------------------------
Contiguous States:
    Free........................................        $1.85        $1.55        $0.27        $0.29        $2.59        $2.86        $2.88      $0.2275
    Reduced Price...............................         1.55         1.25         0.27         0.29         2.19         2.46         2.48       0.2275
    Paid........................................         0.27         0.27         0.27         0.29         n.a.         0.27         0.29       0.2275
Alaska:
    Free........................................         2.97         2.48         0.44         0.46         4.19         4.63         4.65       0.2275
    Reduced Price...............................         2.67         2.18         0.44         0.46         3.79         4.23         4.25       0.2275
    Paid........................................         0.41         0.41         0.44         0.46         n.a.         0.44         0.46       0.2275
Hawaii:
    Free........................................         2.16         1.81         0.32         0.34         3.03         3.35         3.37       0.2275
    Reduced Price...............................         1.86         1.51         0.32         0.34         2.63         2.95         2.97       0.2275
    Paid........................................         0.31         0.31         0.32         0.34         n.a.         0.32         0.34       0.2275
--------------------------------------------------------------------------------------------------------------------------------------------------------

II. Need for Action

    Section 201 of the Healthy, Hunger-Free Kids Act of 2010 (HHFKA) 
directs the USDA to issue regulations to update the NSLP and SBP meal 
patterns to align them with the Dietary Guidelines for Americans (DGA). 
The Department published a proposed rule in January 2011.\3\ A final 
rule was published on January 26, 2012.\4\ The new standards took 
effect on July 1, 2012, the start of SY 2012-2013.
---------------------------------------------------------------------------

    \3\ Federal Register, Vol. 76, No. 9, pp. 2494-2570.
    \4\ Federal Register, Vol. 77, No. 17, pp. 4088-4167.
---------------------------------------------------------------------------

    HHFKA Section 201 also provides for a 6 cent increase to the USDA 
reimbursement for lunches served on or after October 1, 2012 that meet 
the new meal standards. The interim rule provided the regulatory 
structure necessary to establish initial school food authority (SFA) 
compliance with the new meal standards and to monitor ongoing 
compliance. This final rule responds to concerns raised by comments 
given in response to the interim rule.

III. Key Provisions of the Interim Rule

    The interim rule included provisions that govern initial 
certification of SFA compliance with the breakfast and lunch meal 
patterns that took effect on July 1, 2012, ongoing monitoring of 
compliance by State agencies, consequences for non-compliance, and 
administrative responsibilities of SFAs and State agencies. SFAs began 
receiving an additional 6 cents for each reimbursable lunch served on 
or after October 1, 2012 that was determined to comply with the new 
meal standards. Key provisions of the interim rule included:
     Defining compliance: SFAs must be compliant with breakfast 
and lunch meal pattern requirements to receive the performance-based 6 
cent lunch reimbursement. All meal components must be present in 
appropriate quantities. The meals offered to students must also comply 
with sodium, calorie, saturated fat, and trans fat standards.
     Initial certification of SFA eligibility for performance-
based lunch reimbursement: SFAs may be certified

[[Page 2763]]

eligible for the performance-based lunch reimbursement in one of 
several ways. Procedures for submitting certification documentation 
will be developed by State agencies. Final certification decisions will 
also be made by State agencies. However, standards for certification 
and the materials used in the certification process will be developed 
by FNS and specified in guidance. The interim rule provided for the 
following certification methods:
    i. Nutrient analysis: SFAs may submit to their State agency one 
week of each menu used by the SFA, along with the results of a nutrient 
analysis on each menu, and a menu worksheet.
    ii. Practices and indicators documentation: SFAs may submit to 
their State agency responses to a series of questions on program 
operations, a week of each menu used by the SFA, and a menu worksheet.
    iii. State agency reviews: SFAs may be certified in the process of 
a normal State agency administrative review. An SFA determined by the 
State agency to be compliant with all meal pattern and nutrient 
standards during an administrative review will be certified eligible 
for the performance-based lunch reimbursement.
     Ongoing compliance: SFAs must be held compliant with meal 
pattern and nutrient standards at subsequent State administrative 
reviews to remain eligible for the performance-based lunch 
reimbursement.
     Consequences of non-compliance: SFAs that are determined 
non-compliant with meal pattern or nutrient standards, either through 
State review of the SFAs' initial certification materials, or in an 
initial or future State administrative review, will not be eligible (or 
will lose eligibility) for the performance-based lunch reimbursement. 
State agencies that find SFAs to be non-compliant with meal pattern or 
nutrient standards must provide technical assistance and encourage SFA 
corrective action and re-application for certification.
     State agency validation reviews: State agencies must 
perform on-site validation reviews of a 25 percent random sample of 
certified SFAs during SY 2012-2013. Each validation review can 
substitute for an administrative review that the State agency would 
otherwise have to perform during SY 2012-2013.
     Federal assistance to State agencies: HHFKA Section 201 
provided $50 million in each of the fiscal years 2012 and 2013 to 
assist States with training, technical assistance, certification, and 
oversight. As provided by HHFKA, the preamble to the interim rule 
specified that $3 million would be retained for Federal administration 
and $47 million would be distributed to the States in each of these 2 
years.

IV. Key Provisions of the Final Rule

    This rule finalizes the provisions of the interim rule, including 
the procedures for performance-based certifications, required 
documentation and timeframes, validation reviews, compliance and 
administrative reviews, reporting and recordkeeping, and technical 
assistance, with a few revisions:
     This final rule amends the reporting requirement at 7 CFR 
210.5(d)(2)(ii) to require that State agencies only include in their 
quarterly SFA performance-based certification report the total number 
of SFAs in the State and the names of certified SFAs. This represents a 
simplification of the reporting requirement from the interim rule. The 
change formalizes the simplification previously adopted by USDA and 
communicated to State agencies through Policy Memo SP 31-2012.
     This final rule at 7 CFR 210.7(d)(1) makes permanent a 
flexibility in requirements for weekly maximum grains and meat/meat 
alternates as originally outlined in Policy Memo SP 26-2013 and the 
flexibility for serving frozen fruit with added sugar as originally 
outlined in Policy Memo SP 20-2012. These changes make it easier for 
SFAs to meet the requirements of the school meals rule, which is a 
prerequisite for certification for the performance-based reimbursement.

V. Addressing Comments on the Interim Rule and RIA

    The interim rule generated about 200 comments. As noted in the 
preamble to the final rule, most of the comments pertained to either 
the school meals rule (e.g., commented on the new meal patterns) or to 
statutory requirements as set forth in HHFKA (e.g., commented on 
whether 6 additional cents are sufficient to cover the costs of the new 
meal patterns). As this RIA does not address the school meals rule and 
as FNS has no discretion to change the statutory requirements of the 
rule, this RIA will not address those comments.

A. Concerns About State Administrative Costs

    A few comments raised concerns about the cost of the States' 
quarterly reporting requirement on SFA certification. These comments 
viewed the reporting requirements as overly burdensome.
    In response to these concerns, FNS decreased the amount of 
information required from States in the quarterly report, as noted 
above. This change decreases the estimated time it takes one State to 
prepare and submit a quarterly certification report from one hour under 
the interim rule to 15 minutes under this final rule. These reports 
will no longer be required once all SFAs have been certified to receive 
the performance-based reimbursement.

B. Concerns About Certification Costs

    A few comments raised concerns about State or SFA administrative 
costs to comply with the certification process and with a lack of 
adequate guidance and training of State agency officials by FNS. Other 
comments indicated that small SFAs do not have the staff resources, 
computers, or computer skills necessary to develop compliant menus or 
to complete the certification process. Some comments questioned whether 
the additional administrative costs are worth the additional 6 cent 
reimbursement, and they raised concerns about SFAs' abilities to meet 
certification requirements in a timely manner.
    As noted in the preamble, FNS is encouraged by the number of SFAs 
that have already completed the certification process successfully. In 
October 2013, State agencies reported that, as of the end of June 2013, 
approximately 80 percent of all SFAs participating in the NSLP had 
submitted certification documentation to their respective State agency 
for review and certification, with more expected by the end of the 
school year. In addition, 90 percent of all lunches served in May 2013 
received the extra 6 cent reimbursement.
    With regard to the training provided to State agencies by FNS, we 
note that FNS led in-person training sessions with every State agency 
to assist them with the task of helping SFAs navigate the certification 
process. FNS also developed webinars, spreadsheet tools, documentation, 
and other training resources to assist State agencies and SFAs. All of 
these resources remain available on the FNS Web site.\5\ The 
spreadsheet tools, in particular, are intended to assist SFAs that may 
not have the time or resources to develop or purchase their own 
software.\6\ FNS

[[Page 2764]]

recognizes, however, that some SFAs may continue to have difficulty 
with the process despite these resources. FNS is committed to assisting 
those SFAs, and the State agency staff who are working with them, by 
answering additional questions on the certification process as we 
receive them. FNS also encourages the States to provide additional 
assistance to SFAs that have not yet submitted requests for 
certification.
---------------------------------------------------------------------------

    \5\ See http://www.fns.usda.gov/outreach/webinars/child_nutrition.htm and http://www.fns.usda.gov/cnd/Governance/Legislation/certificationofcompliance.htm.
    \6\ Some comments indicated that the FNS-developed spreadsheet 
tools were difficult to work with. While FNS will not be changing 
the tool at this time, FNS has conducted several in-person trainings 
and webinars to assist State agencies and SFA having difficulties 
using the tools. Additionally, the FNS Web site lists other 
commercially available tools that SFAs may find more appropriate or 
helpful.
---------------------------------------------------------------------------

    The final rule does not, however, change the requirements in the 
certification process. Consequently, we also make no fundamental change 
in the RIA concerning the costs of certification, although we do 
provide updated estimates of the cost of the interim rule based on the 
most recent data available. Nevertheless, we note that the other major 
change between the interim and final rule (i.e., making permanent the 
flexibility for weekly maximum grains and meat/meat alternates as 
original outlined in Policy Memo SP 26-2013 and the flexibility for 
serving frozen fruit with added sugar as originally outlined in Policy 
Memo SP 20-2012) should make it easier for SFAs to comply with the 
school meals rule (a prerequisite to becoming certified), though this 
does not change the certification process itself. As discussed in the 
preamble and below in Section VI.A.1., we do not find that making 
permanent these flexibilities negatively impacts the nutritional 
profile of NSLP meals.

VI. Cost/Benefit Assessment

A. Final Rule

1. Benefits
    The impact analysis for the interim rule \7\ (and updated below) 
estimated that full compliance with the new meal patterns would 
increase SFA revenues by more than $300 million per year in the 
aggregate, as a result of increased transfers from the Federal 
government because of the performance-based reimbursement. Although 
this transfer from the Federal government to SFAs may be viewed as a 
transfer between members of society and not a direct benefit to 
society, the increased SFA revenues are expected to speed full SFA 
compliance with the new meal patterns, which likely offer a wide range 
of health benefits, as described in the final meal patterns rule.\8\
---------------------------------------------------------------------------

    \7\ Federal Register, Vol. 77, No. 82, pp. 25024-25036.
    \8\ Federal Register, Vol. 77, No. 17, pp. 4088-4167.
---------------------------------------------------------------------------

    The changes contained in the final rule are expected to facilitate 
compliance with the meal patterns, allowing SFAs to take full advantage 
of the additional revenue that the interim final rule made available. 
Granting some flexibility on meat, grains, and frozen fruit is an 
effort by USDA to work with schools that are making serious efforts to 
comply with the rule's standards but are having some difficulty finding 
products that have been resized or reformulated specifically to meet 
the requirements of the rule. To the extent that a little flexibility 
at the margins encourages schools to plan menus that meet the new 
standards, students benefit from receiving meals that comply with the 
new standards rather than receiving meals that do not comply with the 
new standards.
    The benefits to children who consume school meals that follow DGA 
recommendations are detailed in the impact analysis prepared for the 
final meal patterns rule.\9\ As discussed in that document, the 2010 
Dietary Guidelines Advisory Committee emphasizes the importance of a 
diet consistent with DGA recommendations as a contributing factor to 
overall health and a reduced risk of chronic disease.\10\
---------------------------------------------------------------------------

    \9\ Federal Register, Vol. 77, No. 17, pp. 4088-4167.
    \10\ Report of the Dietary Guidelines Advisory Committee on the 
Dietary Guidelines for Americans, 2010, p. B1-2. (http://www.cnpp.usda.gov/DGAs2010-DGACReport.htm).
---------------------------------------------------------------------------

    The link between poor diets and health problems such as childhood 
obesity are a matter of particular policy concern given their 
significant social and economic costs. Obesity has become a major 
public health concern in the U.S., second only to physical activity 
among the top 10 leading health indicators in the United States Healthy 
People 2020 goals. According to data from the National Health and 
Nutrition Examination Survey 2007-2008, 34 percent of the U.S. adult 
population is obese and an additional 34 percent are overweight.\11\
---------------------------------------------------------------------------

    \11\ C.L. Ogden and M.D. Carroll (2010), ``Prevalence of 
Overweight, Obesity, and Extreme Obesity among Adults: United 
States, Trends 1960-1962 through 2007-2008,'' National Center for 
Health Statistics, June 2010, available online at http://www.cdc.gov/nchs/data/hestat/obesity_adult_07_08/obesity_adult_07_08.pdf.
---------------------------------------------------------------------------

    The trend towards obesity is also evident among children; 33 
percent of U.S. children and adolescents are now considered overweight 
or obese,\12\ with current childhood obesity rates four times higher in 
children ages 6 to 11 than they were in the early 1960s (19 vs. 4 
percent), and three times higher (17 vs. 5 percent) for adolescents 
ages 12 to 19.\13\ These increases are shared across all socio-economic 
classes, regions of the country, and have affected all major racial and 
ethnic groups.\14\
---------------------------------------------------------------------------

    \12\ M.A. Beydoun and Y. Wang (2011), ``Socio-demographic 
disparities in distribution shifts over time in various adiposity 
measures among American children and adolescents: What changes in 
prevalence rates could not reveal,'' International Journal of 
Pediatric Obesity, 6:21-35, available online at http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3005993/.
    \13\ Institute of Medicine (2007), Progress in Preventing 
Childhood Obesity: How do we Measure Up? Committee on Progress in 
Preventing Childhood Obesity, edited by J.P. Koplan, C.T. Liverman, 
V.I. Kraak, and S.L. Wisham, Washington, DC: The National Academies 
Press, p. 24.
    \14\ S.J. Olshansky, D.J. Passaro, R.C. Hershow, J. Layden, B.A. 
Carnes, J. Brody, L. Hayflick, R.N. Butler, D.B. Allison, and D.S. 
Ludwig (2005). ``A Potential Decline in Life Expectancy in the 
United States in the 21st Century,'' The New England Journal of 
Medicine, 352:1138-1145.
---------------------------------------------------------------------------

    Excess body weight has long been demonstrated to have health, 
social, psychological, and economic consequences for affected 
adults.\15\ Recent research has also demonstrated that excess body 
weight has negative impacts for obese and overweight children. Research 
focused specifically on the effects of obesity in children indicates 
that obese children feel they are less capable, both socially and 
athletically, less attractive, and less worthwhile than their non-obese 
counterparts.\16\
---------------------------------------------------------------------------

    \15\ J. Guthrie, C. Newman, and K. Ralston (2009), ``USDA School 
Meal Programs Face New Challenges,'' Choices: The Magazine of Food, 
Farm, and Resource Issues, 24 (available online at http://www.choicesmagazine.org/magazine/print.php?article=83); and Y. Wang, 
M.A. Beydoun, L. Liang, B. Cabellero and S.K. Kumanyika (2008), 
``Will all Americans Become Overweight or Obese? Estimating the 
Progression and Cost of the US Obesity Epidemic,'' Obesity, 16:2323-
2330.
    \16\ A. Riazi, S. Shakoor, I. Dundas, C. Eiser, and S.A. 
McKenzie (2010), ``Health-related quality of life in a clinical 
sample of obese children and adolescents,'' Health and Quality of 
Life Outcomes, 8:134-139.
---------------------------------------------------------------------------

    Further, there are direct economic costs due to childhood obesity; 
$237.6 million (in 2005 dollars) in inpatient costs,\17\ and annual 
prescription drug, emergency room, and outpatient costs of $14.1 
billion.\18\
---------------------------------------------------------------------------

    \17\ L. Trasande, Y. Liu, G. Fryer, and M. Weitzman (2009), 
``Trends: Effects of Childhood Obesity on Hospital Care and Costs, 
1999-2005,'' Health Affairs, 28:w751-w760.
    \18\ J. Cawley (2010), ``The Economics of Childhood Obesity,'' 
Health Affairs, 29:364-371, available online at http://content.healthaffairs.org/content/29/3/364.full.pdf.
---------------------------------------------------------------------------

    Childhood obesity has also been linked to cardiovascular disease in 
children as well as in adults. Freeman, Dietz, Srinivasan, and Berenson 
found that ``compared with other children, overweight children were 9.7 
times as likely to have 2 [cardiovascular] risk factors and 43.5 times 
as likely to have 3 risk factors'' (p. 1179) and concluded that 
``[b]ecause overweight is associated

[[Page 2765]]

with various risk factors even among young children, it is possible 
that the successful prevention and treatment of obesity in childhood 
could reduce the adult incidence of cardiovascular disease'' (p. 
1175).\19\ It is known that overweight children have a 70 percent 
chance of being obese or overweight as adults. However, the actual 
causes of obesity have proven elusive.\20\ While the relationship 
between obesity and poor dietary choices cannot be explained by any one 
cause, there is general agreement that reducing total calorie intake is 
helpful in preventing or delaying the onset of excess weight gain.
---------------------------------------------------------------------------

    \19\ D.S. Freeman, W.H. Dietz, S.R. Srinivasan, and G.S. 
Berenson (1999), ``The Relation of Overweight to Cardiovascular Risk 
Factors Among Children and Adolescents: The Bogalusa Heart Study,'' 
Pediatrics, 103:1175-1182.
    \20\ ASPE, Health & Human Services (No Date), ``Childhood 
Obesity,'' Assistant Secretary for Planning and valuation, U.S. 
Department of Health & Human Services, available online at http://aspe.hhs.gov/health/reports/child_obesity.
---------------------------------------------------------------------------

    There is some recent evidence that food standards are associated 
with an improvement in children's dietary quality:
     Taber, Chriqui, and Chaloupka compared calorie and 
nutrient intakes for California high school students--with food 
standards in place--to calorie and nutrient intakes for high school 
students in 14 States with no food standards.\21\ They concluded that 
California high school students consumed fewer calories, less fat, and 
less sugar at school than students in other States. Their analysis 
``suggested that California students did not compensate for consuming 
less within school by consuming more elsewhere'' (p. 455). The 
consumption of fewer calories in school `suggests that competitive 
standards ``. . . may be a method of reducing adolescent weight gain'' 
(p. 456).
---------------------------------------------------------------------------

    \21\ D.R. Taber, J.F. Chriqui, and F.J. Chaloupka (2012), 
``Differences in Nutrient Intake Associated With State Laws 
Regarding Fat, Sugar, and Caloric Content of Competitive Foods,'' 
Archives of Pediatric & Adolescent Medicine, 166:452-458.
---------------------------------------------------------------------------

     A study of competitive food policies in Connecticut 
concluded that ``removing low nutrition items from schools decreased 
students' consumption with no compensatory increase at home.'' \22\
---------------------------------------------------------------------------

    \22\ M.B. Schwartz, S.A. Novak, and S.S. Fiore (2009), ``The 
Impact of Removing Snacks of Low Nutritional Value from Middle 
Schools,'' Health Education & Behavior, 36:999-1011, p. 999.
---------------------------------------------------------------------------

     Similarly, researchers for Healthy Eating Research and 
Bridging the Gap found that ``[t]he best evidence available indicates 
that policies on snack foods and beverages sold in school impact 
children's diets and their risk for obesity. Strong policies that 
prohibit or restrict the sale of unhealthy competitive foods and drinks 
in schools are associated with lower proportions of overweight or obese 
students, or lower rates of increase in student BMI.'' \23\
---------------------------------------------------------------------------

    \23\ Healthy Eating Research and Bridging the Gap (2012), 
``Influence of Competitive Food and Beverage Policies on Children's 
Diets and Childhood Obesity,'' p. 3, available online at http://www.healthyeatingresearch.org/images/stories/her_research_briefs/Competitive_Foods_Issue_Brief_HER_BTG_7-2012.pdf.
---------------------------------------------------------------------------

    Pew Health Group and Robert Wood Johnson Foundation researchers 
noted that the prevalence of children who are overweight or obese has 
more than tripled in the past three decades,\24\ which is of particular 
concern because of the health problems associated with obesity. In 
particular, researchers found an increasing number of children are 
being diagnosed with type 2 diabetes, high cholesterol, and high blood 
pressure. These researchers further observed that children with low 
socioeconomic status and black and Hispanic children are at a higher 
risk of experiencing one or more of these illnesses (pp. 39-40, 56). 
Their analysis also noted that: [T]here is a strong data link between 
diet and the risk for these chronic diseases. Given the relationship 
between childhood obesity, calorie consumption, and the development of 
chronic disease risk factors at a young age, this report proposes that 
a national policy could alter childhood and future chronic disease risk 
factors by reducing access to certain energy-dense foods in schools. To 
the extent that the national policy results in increases in students' 
total dietary intake of healthy foods and reductions in the intake of 
low-nutrient, energy-dense foods, it is likely to have a beneficial 
effect on the risk of these diseases. However, the magnitude of this 
effect would be proportional to the degree of change in students' total 
dietary intake, and this factor is uncertain (p. 68).
---------------------------------------------------------------------------

    \24\ Pew Health Group and Robert Wood Johnson Foundation (2012), 
Heath Impact Assessment: National Nutrition Standards for Snack and 
a la Carte Foods and Beverages Sold in Schools, available online at 
http://www.pewhealth.org/uploadedFiles/PHG/Content_Level_Pages/Reports/KS%20HIA_FULL%20Report%20062212_WEB%20FINAL-v2.pdf.
---------------------------------------------------------------------------

    In summary, the most current, comprehensive, and systematic review 
of existing scientific research concluded that foods standards can have 
a positive impact on reducing the risk for obesity-related chronic 
diseases. Because the factors that contribute both to overall food 
consumption and to obesity are so complex, FNS has not been able to 
define a level of disease or cost reduction that is attributable to the 
changes in foods resulting from implementation of this rule. USDA is 
unaware of any comprehensive data allowing accurate predictions of the 
effect of increasing the flexibility in meeting certain dietary 
requirements by SFA's to certify compliance for the National program 
and subsequent changes in consumer choice and, especially among 
children.
    Some researchers have suggested possible negative consequences of 
regulating nutrition content in school foods. They argue that not 
allowing access to low nutrient, high calorie snack foods in schools 
may result in overconsumption of those same foods outside the school 
setting (although as noted earlier, Taber, Chriqui, and Chaloupka 
concluded overcompensation was not evident among the California high 
school students in their sample).
    The new meal patterns are intended not only to improve the quality 
of meals consumed at school, but to encourage healthy eating habits 
generally. Those goals of the meal patterns rule are furthered to the 
extent that this rule contributes to full compliance with the meal 
patterns by all SFAs.
    The changes adopted in the final rule (summarized in Section IV) 
are intended to facilitate SFA compliance with the meal pattern 
requirements and reduce State agency reporting and recordkeeping 
burden. By making permanent the flexibility on weekly maximum servings 
of grains and meat/meat alternates, and by allowing frozen fruit with 
added sugar to credit toward the meal pattern requirement for fruit, 
the final rule will make it easier for some SFAs to plan menus that 
comply with the meal pattern requirements.\25\
---------------------------------------------------------------------------

    \25\ As explained in this section and in the preamble to the 
rule, making permanent this flexibility does not compromise the 
nutritional profile of school meals. IOM's recommendations were to 
serve food in minimum amounts subject to maximum calorie limits; the 
additional flexibility allowed by these provisions is still subject 
to the maximum calorie limits for school meals.
---------------------------------------------------------------------------

    The added flexibility on weekly maximum servings of grains and 
meat/meat alternates will benefit SFAs who may continue to rely on 
prepared foods or recipes that ensure compliance with daily and weekly 
minimum required quantities of servings of grains and meat/meat 
alternates but may exceed weekly maximum limits on servings of grains 
and meat/meat alternates in some weeks. However, because the meal 
patterns' weekly calorie requirements remain in place, the added 
flexibility on grains and meat/meat alternates is unlikely to have a 
significant effect on the overall quantity of food served, the

[[Page 2766]]

cost of acquiring that food, or the nutritional profiles of the meals 
served.
    Allowing frozen fruit with added sugar to credit toward the meal 
patterns' fruit requirement also provides SFAs greater flexibility in 
purchasing foods for use in the school meal programs. Permitting 
schools to make use of a wider range of currently available frozen 
fruit products may reduce the administrative costs of finding and 
acquiring compliant foods for use in the meal programs. But, like the 
grains and meat/meat alternate provision, because the calorie limits 
are still in place, allowing added sugar in frozen fruit products will 
not undermine the updated nutrition standards.\26\
---------------------------------------------------------------------------

    \26\ We note that, in SY 2009-2010, frozen fruit accounted for 
only 17% of the fruit used by U.S. schools. See p. 83 of USDA/FNS, 
School Food Purchase Study III (2012), available online at http://www.fns.usda.gov/Ora/menu/Published/CNP/FILES/SFSPIII_Final.pdf.
---------------------------------------------------------------------------

    It is important to emphasize that menus developed by SFAs that are 
certified eligible for the additional 6 cent reimbursement must meet 
all of the minimum food group requirements contained in the final 
school meals rule, whether or not those SFAs take advantage of the 
added flexibilities of this rule. In addition, all SFAs are held to the 
same maximum calorie standards contained in the final school meals 
rule. Those standards are not meal-based. Instead, SFA compliance with 
the food group standards is assessed by comparing the weighted average 
amounts served across all meals served per day or in an entire week. 
Children in SFAs that are certified compliant under the modified 
standards of this rule will be served meals that satisfy the same 
minimum requirements as meals served in SFAs that were certified 
compliant under the original terms of the final school meals rule. Even 
in the absence of the flexibility added by this rule, the amount of 
meat and grains served in individual meals will vary significantly from 
the weighted average minimum and maximum amounts required over the 
course of a day or week. The changes in this rule recognize that 
additional flexibility on the upper end of the required range for meat 
and grains allows SFAs to use products that were formulated prior to 
the final school meal rule standards and to satisfy student demand. 
This rule does not offer SFAs a way to reduce the minimum amounts 
served from any of the food groups emphasized by the final school meal 
rule. And because this rule does not modify the final school meal 
rule's maximum calorie requirements, the new flexibility is limited and 
does not weaken the school meal standards' focus on childhood 
obesity.\27\
---------------------------------------------------------------------------

    \27\ The final rule's flexibility on sugar contained in frozen 
fruit is also constrained by the retention of the interim rule's 
calorie restrictions. Because the interim rule already allowed for 
added sugar in canned fruit, the final rule's modification of the 
frozen fruit standard is primarily a means to widen the selection of 
processed fruit available to SFAs under nutrient standards that are 
comparable to the standards already allowed under the interim rule 
for other processed fruit. In the absence of the final rule 
provision on frozen fruit with added sugar, SFAs remained free to 
serve canned fruit in light syrup rather fresh or processed fruit 
without added sugar.
---------------------------------------------------------------------------

    The final school meal rule establishes a primarily food-based set 
of requirements; these are designed to comply with the recommendations 
of the DGAs regarding the consumption of a variety of foods from key 
food groups. The school meal rule sets just a handful of macronutrient 
standards (for calories, saturated fat, sodium, and trans fat). The 
changes contained in this rule require SFAs to serve meals that satisfy 
the same minimum requirements from each of the food groups identified 
in the final school meal rule without relaxing any of that rule's 
macronutrient standards. In short, this rule's additional flexibility, 
designed to make it marginally easier to meet compliance with the new 
meal standards.
    Schools that adopt healthier food standards for their school lunch 
programs will improve the dietary intake for children at school and 
make it more likely that those students will have improved health 
outcomes. However, by allowing greater flexibility in meeting the 
school lunch dietary standards, it may be that some compliant SFAs 
relax their implementation of those guidelines somewhat.
    USDA has not quantified what changes may result to the overall 
nutritional content of SFAs availing themselves of those flexibility 
provisions. There are relatively few SFAs (relative to the total number 
of SFAs complying with school lunch dietary guidelines) that would 
significantly change the dietary composition of their school lunch 
program one way or the other. Those two effects (described above) are 
offsetting and so the net effects of these changes on the benefits to 
school children are likely to be marginal relative to the overall 
benefits afforded by the dietary standards.
    Because of the macronutrient requirement is not adjusted, any 
resulting changes to the nutritional quality of the NSLP and SBP meals 
served by SFAs are expected to marginal, and so there would likely be 
few changes to the benefits to children relative to the final school 
meal rule or to the interim rule on certification for the 6 cent 
reimbursement.
2. Costs and Transfers
    The baseline for our estimate of the cost of the final rule is the 
estimate for the interim final rule, which we update below using the 
latest President's Budget projections and preliminary data on 
certifications for the performance-based reimbursement.
    The provisions in the final rule will likely result in a small 
increase in cost to the Federal Government (as a result of a transfer 
of Federal funds in the form of additional performance-based 
reimbursements to a small number of schools receiving the performance-
based reimbursement that might have otherwise not received it), though 
we expect this potential increase to fall within the cost range 
estimated for the interim final rule, as updated below.
    The effect of the provisions in the final rule (i.e. increased 
flexibility on grains, meats, and frozen fruits with added sugar) is to 
reduce the costs of compliance for the small minority of SFAs that 
would otherwise not have been certified compliant with the new meal 
standards by the end of SY 2013-2014. The policy memos issued by FNS in 
September 2012 and February 2013 had already extended these provisions 
through the end of SY 2013-2014.
    These provisions are essentially administrative efficiency measures 
that will reduce meal pattern compliance costs at the margin for some 
SFAs; the provisions are not expected to have a significant effect on 
food costs. Since these provisions are options (not requirements) \28\ 
and because we have no data on how many schools might avail themselves 
of either of these options, we do not estimate those cost savings in 
this analysis.
---------------------------------------------------------------------------

    \28\ In general, we assume that optional provisions do not 
increase costs. We make this assumption because SFAs, State 
agencies, or other affected parties that now have additional options 
will choose to take advantage of the option if it is advantageous 
(i.e. cost-saving, more efficient, less burdensome, etc.) for them 
to do so; if it is not advantageous for them to do so, they do not 
have to implement the option, and therefore, their costs would not 
change from our baseline. For these reasons, providing additional 
options will almost certainly lower costs and/or increase benefits 
for at least some subset of affected parties and will not increase 
costs for any party without providing at least offsetting benefits--
though we do not attempt to quantify these savings, efficiencies, 
and benefits, due to the speculative nature of such an estimate.
---------------------------------------------------------------------------

    Given the assumptions (explained in more detail elsewhere in this 
analysis) about a phased certification process for some SFAs, the 
estimated cost of Federal performance-based

[[Page 2767]]

reimbursements (and the value of additional SFA revenue) is $1.54 
billion through FY 2017 (1 percent less than the $1.55 billion 
estimated with full implementation).
    To the extent that additional flexibilities are afforded to SFAs, 
this rule could result in marginally lower costs to SFAs relative to 
the interim final rule baseline. USDA has not quantified those changes 
as there are relatively few SFAs (relative to the total number of SFAs 
complying with school lunch dietary guidelines) that would 
significantly change the dietary composition of their school lunch 
program one way or the other.
    The added flexibility on weekly maximum servings of grains and 
meat/meat alternates could benefit SFAs who may continue to rely on 
prepared foods or recipes that ensure compliance with daily and weekly 
minimum quantities but may exceed weekly maximums in some weeks. That 
provision may reduce the administrative costs of meal planning for some 
SFAs, and may reduce the costs associated with modifying recipes or 
finding new prepared foods in the market with slightly different 
formulations than products currently purchased.
    Because the flexibility on grains, meat/meat alternates, and frozen 
fruit had previously been extended by FNS through SY 2013-2014, the 
effect of these provisions on the initial certification of SFAs for the 
performance-based reimbursement is expected to be very small. 
Administrative data on certifications approved or pending through May 
2013 indicate that only a small minority of SFAs are likely to remain 
uncertified by the end of SY 2013-2014. For those SFAs, these 
provisions may help reduce the costs of certification after that 
time.\29\ For all other SFAs, these provisions will make it marginally 
easier to maintain compliance with daily and weekly meal pattern 
requirements, a necessary condition for continued receipt of the 
performance-based reimbursement. We expect these provisions to generate 
a small but uncertain cost savings for SFAs through a small reduction 
in SFA compliance costs.
---------------------------------------------------------------------------

    \29\ As we note above, approximately 80 percent of SFAs had 
submitted documentation to their respective State agencies for 
review and certification as of June 2013. Administrative data also 
show that many SFAs are being certified retroactively as the 
processing of applications and approval of certification requests 
catch up with SFAs' documented compliance with the new meal 
patterns. With or without the changes contained in the final rule, 
State agency technical assistance will likely concentrate on this 
subset of uncertified SFAs during SY 2013-2014. Those efforts are 
likely to substantially reduce the number of non-certified SFAs by 
the end of SY 2013-2014. It is that remaining subset of SFAs that 
may benefit most from the permanent extension of the grains, meat/
meat alternate, and frozen fruit policy changes contained in the 
final rule.
---------------------------------------------------------------------------

    The rule also finalizes the change in State agency quarterly 
reporting requirement on SFA certification. That change, previously 
adopted through Policy Memo SP-31-2012, reduces quarterly State agency 
reporting burden to an estimated 15 minutes per quarter per State 
agency.\30\ The last change, contained in the preamble to the final 
rule, will eliminate the requirement that State agencies submit 
quarterly reports on SFA certification for the performance-based rate 
increase once all SFAs have been certified. The administrative savings 
from this provision is minimal.\31\
---------------------------------------------------------------------------

    \30\ Estimate developed for Paperwork Reduction Act reporting 
and contained in the preamble to the rule. Because this change was 
already adopted by USDA through a policy memo, the reduction in 
burden for State agencies is part of our baseline, and the 
formalization of that policy by the final rule does not further 
reduce State agency reporting costs.
    \31\ Although the relative burden decrease of 75% seems 
substantial, the absolute burden decrease (as measured in the dollar 
value of State agency staff time) is only about $4,000 per year 
across the entire United States.
---------------------------------------------------------------------------

B. Updated Analysis of Interim Rule Effects

    The analysis provided below updates a similar analysis prepared for 
the interim rule impact analysis.\32\ We update the figures here using 
data on actual SFA certifications that were not available when the 
interim rule was published in April 2012, as well as new financial and 
participation projections provided in the 2014 President's Budget. The 
data collected since April 2012 allows for a more precise estimate of 
SFA certifications and receipt of performance-based reimbursements in 
FY 2013 and projections for fiscal years 2014 through 2017. This 
analysis is presented for the information of those interested in the 
effects of the rule on SFAs, State agencies and USDA. It provides 
estimates of the economic impact of the rule overall, not just the 
incremental effects of the final rule.
---------------------------------------------------------------------------

    \32\ Federal Register, Vol. 77, No. 82, pp. 25024-25036.
---------------------------------------------------------------------------

    In Table 3, two estimates are provided in recognition of the 
uncertainty of how quickly SFAs will be determined compliant with the 
new meal standards and, therefore, how soon they will be eligible for 
the performance-based rate increase. Data available as of October 2013 
shows that 73% of meals served in FY2013 have been certified for the 
performance-based reimbursement as of July 2013, with 90% of meals 
served in May 2013 certified as of July 2013. Given the rate of 
retroactive certification of SFAs and meals, our upper bound (and also 
primary) estimate assumes that all SFAs will be certified by the end of 
FY 2013 and that 80% of the lunches served in FY 2013 will eventually 
be certified to receive the additional 6 cent reimbursement.
    As of October 2013, administrative data that indicate that 80 
percent of SFAs had been certified or had submitted certification 
documentation to their respective State agency for review and 
certification by the end of June 2013. It assumes that the remaining 20 
percent of SFAs will be certified (or certified retroactively) in the 
remaining months of the fiscal year. Administrative data also indicate 
that 90 percent of meals served in May 2013 qualified for the extra 6 
cent reimbursement, and that many SFAs are being certified 
retroactively as the processing of applications and approval of 
certification requests catch up with SFAs' documented compliance with 
the new meal patterns.\33\
---------------------------------------------------------------------------

    \33\ I.e., the number of meals certified for the performance-
based reimbursement in the early months of the school year increases 
with each additional month of administrative data reported by the 
States.
---------------------------------------------------------------------------

    Our alternate scenario relies on administrative data on 
certifications through the first several months of SY 2012-2013 to 
estimate the revenues and costs of a phased implementation that assumes 
full compliance during FY 2014. For both estimates, we assume that 80% 
of the meals served in FY 2013 will qualify for the additional 6 cent 
reimbursement; in the alternate estimate, we assume 95% of meals will 
qualify in FY 2014, and 100% will qualify in FY 2015 and beyond. In 
addition, in this second scenario we assume that roughly 90 percent of 
SFAs will be found compliant by the end of FY 2013, or certified 
compliant retroactively to the start of FY 2014. We further assume that 
the remaining 10% of SFAs will be certified sometime during FY 2014, 
and that 95% of FY 2014 lunch reimbursements will include the 
performance-based 6 cents. We assume that 100 percent of SFAs (and, 
consequently, 100 percent of meals) will be certified to receive the 
performance-based reimbursement in FY 2015 and beyond.
BILLING CODE 3410-30-P

[[Page 2768]]

[GRAPHIC] [TIFF OMITTED] TR16JA14.000

     
---------------------------------------------------------------------------

    \34\ We note that the estimates in this table are largely 
consistent with the estimates published with the interim rule; the 
main differences are caused by (1) the exclusion of FY 2012 and the 
inclusion of FY 2017 in the above table, and (2) a small downward 
revision in the estimated number of lunches served in future Fiscal 
Years, resulting in an decrease in estimated Federal transfers to 
SFAs for reimbursable lunches. We also note that the 2014 
President's Budget likely overstates the final number of lunches 
that will be served in FY 2013, but we use the 2014 President's 
Budget as our basis of analysis for consistency's sake, both for 
internal consistency and consistency with past estimates.
---------------------------------------------------------------------------

1. Methodology
    The estimated increase in the Federal cost of NSLP reimbursements 
is a straightforward calculation of the number of meals that are 
certified in compliance with the new meal standards times 6 cents 
(adjusted for inflation). This approach applies the additional 6 cents 
to USDA's baseline projection of lunches. The 6 cents is subject to the 
same inflation adjustment applied to the Section 4 and Section 11 
components of the lunch reimbursement, rounded down to the nearest 
cent.\35\ The interim rule inflates the 6 cents separately from the 
Section 4 or Section 11 rates. Given our projected increase in the CPI 
Food Away from Home, we estimate that the 6 cents will remain unchanged 
through FY 2017.\36\
---------------------------------------------------------------------------

    \35\ The fractional cents are not lost; they are added back to 
the base rate before applying the next year's inflation adjustment.
    \36\ The CPI Food Away From Home Index is the factor specified 
by NSLA Section 11 to adjust the reimbursement rates for school 
lunch and breakfast. Our projected values for this index are those 
prepared by OMB for use in the 2014 President's Budget.
---------------------------------------------------------------------------

Full Implementation by October 1, 2013
    If all SFAs are certified for the performance-based 6 cent lunch 
rate increase as of October 1, 2013 (as assumed in the primary 
estimate), then the Federal cost and SFA revenue increase from FY 2013 
through FY 2017

[[Page 2769]]

would total about $1.55 billion. This upper bound estimate (our primary 
estimate) assumes full compliance with the new breakfast and lunch meal 
patterns' food group and nutrient requirements by the start of (or 
retroactive to the start of) SY 2013-2014.
    The added revenue will be distributed across SFAs in proportion to 
the number of reimbursable lunches served. Because students eligible 
for free or reduced-price meals participate in the school meals 
programs at higher rates than other students, revenue per enrolled 
student will tend to be higher in SFAs with the greatest percentage of 
free and reduced-price certified students. However, eligibility for 
free or reduced price meals is not the only factor that impacts student 
participation in the NSLP. Other factors that vary by SFA include the 
distribution of students by grade level, prices charged for paid 
lunches, availability of offer vs. serve (in elementary and middle 
schools), the variety of entrees offered, and school geography.\37\
---------------------------------------------------------------------------

    \37\ School Nutrition Dietary Assessment Stdy-III, Vol. 2, Table 
IV.2, Mathematica Policy Research, Inc. for U.S. Department of 
Agriculture, Food and Nutrition Service, 2007, available online at 
http://www.fns.usda.gov/ora/MENU/Published/CNP/cnp.htm.
---------------------------------------------------------------------------

    The data available do not allow us to account for each of those 
variables here. Instead we estimate in Table 4 the distribution of 
revenue across SFAs under the assumption that revenue is proportional 
to enrollment.\38\
---------------------------------------------------------------------------

    \38\ Table 4 is based on SY 2009-2010 data for public local 
educational agencies (LEAs) from the Common Core of Data, U.S. 
Department of Education, National Center for Education Statistics, 
http://nces.ed.gov/ccd/.

---------------------------------------------------------------------------

[[Page 2770]]

[GRAPHIC] [TIFF OMITTED] TR16JA14.001

Phased Implementation Within 2 Years
    As we note above, State agencies reported in October 2013 that more 
than 80 percent of all SFAs participating in the NSLP had submitted 
certification documentation to their respective State agency for review 
and certification by the end of June 2013, and that 90 percent of meals 
qualified for the higher reimbursement in May. Administrative data also 
show that many SFAs are being certified retroactively as the processing 
of applications and approval of certification requests catch up with 
SFAs' documented compliance with the new meal patterns. Consequently, 
we feel comfortable assuming for this alternate analysis that roughly 
90 percent of SFAs will be found compliant by the end of FY 2013, or 
certified compliant retroactively to the start of FY 2014.
---------------------------------------------------------------------------

    \39\ The distribution of States by Census region was taken from 
http://www.census.gov/geo/www/us_regdiv.pdf. The territories 
included here are Puerto Rico, the U.S. Virgin Islands, and the 
Commonwealth of the Northern Mariana Islands.
    The urbanicity categories are U.S. Department of Education, 
National Center for Education Statistics ``urban-centric local 
codes.'' ``City'' is any territory, regardless of size, that is 
inside an urbanized area and inside a principal city. ``Suburb'' is 
any territory, regardless of size, inside an urbanized area but 
outside a principal city. ``Town'' is a territory of any size inside 
an urban cluster but outside an urbanized area. ``Rural'' is a 
Census-defined rural territory outside both an urbanized area and an 
urban cluster. These definitions are contained in documentation for 
the SY 2009-2010 Common Core of Data, http://nces.ed.gov/ccd/.
    Percent of enrollment certified for free or reduced-price meals 
is also an NCES Common Core of Data variable.
---------------------------------------------------------------------------

    We further assume that the remaining 10% of SFAs will be certified 
sometime during FY 2014, and that 95% of FY 2014 lunch reimbursements 
will include the performance-based 6 cents. We assume that 100 percent 
of SFAs

[[Page 2771]]

(and, consequently, 100 percent of meals) will be certified to receive 
the performance-based reimbursement in FY 2015 and beyond.
    Given these assumptions about a phased certification process for 
some SFAs, the estimated cost of Federal performance-based 
reimbursements (and the value of additional SFA revenue) is $1.54 
billion through FY 2017 (1 percent less than the $1.55 billion 
estimated with full, immediate implementation).
2. Administrative Costs
    Our updated estimate of administrative costs differs only slightly 
from the estimate published with the interim final rule.\40\ The only 
change is a slight shifting in when certification expenses were 
incurred (or are estimated to be incurred), based on administrative 
data on certifications received after publication of the interim rule, 
as well as accounting for additional wage inflation.
---------------------------------------------------------------------------

    \40\ Federal Register, Vol. 77, No. 82, pp. 25024-25036.
---------------------------------------------------------------------------

    As most SFAs submitted documentary materials in FY 2012 or FY 2013, 
most of the cost of this administrative burden was realized in those 
years, and we note that FY 2012 has been excluded from this formal cost 
analysis. States reported 23.4 percent of SFAs were certified to 
receive the performance-based reimbursement for October 2012 and 
therefore incurred certification costs in FY 2012. For purposes of our 
primary analysis, we assume that the remaining 76.6 percent did so by 
the end of FY 2013 (as described above, we currently only have data 
through June 2013).
    Based on this updated information on when certifications occurred, 
we estimate in our primary estimate that State agency and SFA 
administrative costs associated with the rule totaled $3.7 million 
across FY 2012 and FY 2013 if all SFAs were determined compliant with 
the new meal standards based on an initial submission of SFA 
documentation. $2.9 million of these costs were realized in FY 2013 and 
are therefore included in the tables above. The ongoing burden created 
by reporting and recordkeeping requirements are not expected to be 
appreciably higher than they were before the implementation of the 
interim rule.
    Under our alternate scenario, we assume that an additional 66.6 
percent of SFAs submitted documentation by the end of FY 2013 and that 
the remaining 10 percent of SFAs did not submit applications to their 
State agencies in FY 2013.\41\ For this estimate, we assume that these 
SFAs will take the steps necessary to reach compliance in FY 2014, and 
will submit documentation to their State agencies in that fiscal year, 
so those certification costs for both the States and remaining SFAs are 
realized in FY 2014.
---------------------------------------------------------------------------

    \41\ Our alternate estimate of Federal reimbursements in Section 
V.B. assumes that 90 percent of SFAs will be certified compliant by 
the start of FY 2014, or retroactively back to the start of FY 2014. 
That allows for the possibility that fewer than 90 percent of SFAs 
will submit applications for certification before the end of FY 
2013. For the sake of simplicity, we assume in the alternative 
administrative cost section of this analysis that 90 percent of 
applications for certification are submitted before the end of FY 
2013.
---------------------------------------------------------------------------

    Administrative costs will be similar, but will be spread over two 
years under our alternate scenario of less than 100 percent SFA 
compliance with the new standards by the start of SY 2013-2014. The 
cost of preparing and processing initial certification claims in FY 
2012 and FY 2013 by 90 percent of SFAs will equal $3.4 million, of 
which $2.5 million was realized in FY 2013. The cost of submitting and 
processing the remaining claims will equal $0.4 million in FY 2014.
    Due to inflation, SFAs and State agencies that submit or process 
documentation in FY 2014 will face slightly higher labor costs than 
those that submitted documentation in prior fiscal years, though this 
cost increase is too small to appear in our tables at the level of 
detail presented.
3. Uncertainties
    The most significant unknown in this analysis is the length of time 
it will take all SFAs to reach full compliance. Our primary revenue and 
cost estimate developed in the previous section assumes full compliance 
by October 2013.\42\ Our alternate estimate assumes that 10 percent of 
SFAs are certified compliant with the rule sometime in FY 2014.
---------------------------------------------------------------------------

    \42\ Note that, even though this RIA was most recently revised 
in October 2013, data were only available through June 2013.
---------------------------------------------------------------------------

    Because the economic effects are essentially proportionate to the 
level of SFA compliance, the effects of more or less optimistic 
scenarios can be estimated by scaling the effects of our alternate 
scenario upward or downward by the assumed rates of initial and future 
year compliance.
    Another important unknown is the student response to the 
introduction of new meal patterns. Although the introduction of 
healthier meals may attract new participants to the school meals 
program, the replacement or reformulation of some favorite foods on 
current school menus may depress participation, at least initially. As 
we did in the impact analysis for the school meal patterns rule, we 
provide alternate estimates given a 2 percent increase and a 2 percent 
decrease in student participation. The estimates shown here are simply 
2 percent higher (or lower) than our estimates in Table 3. That is, we 
estimate the effect of changes in student participation on the value of 
the performance-based rate increase alone.
    Changes in participation would also affect the current Section 4 
and Section 11 reimbursements and student payments for paid and reduced 
price lunches. Because those effects are not a consequence of the 6 
cent rate increase, but rather a consequence to the change in the 
content of the meals served, we exclude them from Table 5.
    Table 5 does not show the effects on administrative costs 
(reporting and recordkeeping by State agencies and SFAs, and the 
technical assistance funds transferred by the Federal government to the 
States). Those are unchanged from Table 3.

[[Page 2772]]

[GRAPHIC] [TIFF OMITTED] TR16JA14.002

4. Benefits
    The benefits to children who consume school meals that follow DGA 
recommendations is detailed in the impact analysis prepared for the 
final meal patterns rule.\43\ As discussed in that document, the 2010 
Dietary Guidelines Advisory Committee emphasizes the importance of a 
diet consistent with DGA recommendations as a contributing factor to 
overall health and a reduced risk of chronic disease.\44\ The new meal 
patterns are intended not only to improve the quality of meals consumed 
at school, but to encourage healthy eating habits generally. Those 
goals of the meal patterns rule are furthered by the funding made 
available by this final rule.
---------------------------------------------------------------------------

    \43\ Federal Register, Vol. 77, No. 17 pp. 4088-4167.
    \44\ Report of the Dietary Guidelines Advisory Committee on the 
Dietary Guidelines for Americans, 2010, p. B1-2. (http://www.cnpp.usda.gov/DGAs2010-DGACReport.htm).
---------------------------------------------------------------------------

5. Transfers
    The interim rule will result in a transfer from the Federal 
government to SFAs of as much as $1.55 billion through FY 2017 to 
implement the new breakfast and lunch meal patterns that took effect on 
July 1, 2012. The Federal cost is fully offset by an identical benefit 
to SFAs and State agencies.
    The interim rule generates significant additional revenue for SFAs 
that partially offset the additional food and labor costs to implement 
the improved meal standards more fully aligned with the Dietary 
Guidelines for Americans. For example, USDA previously estimated that 
the improved meal standards would cost an additional $1,220.2 million 
in FY 2015 (the first year in which the new standards are fully 
implemented).\45\ The rule will generate $323.3 million in additional 
SFA revenue in the same fiscal year, helping school districts cover 
about 26% of this additional cost. USDA has also estimated that the 
paid lunch pricing and non-program food revenue provisions of HHFKA 
sections 205 and 206 will generate $7.5 billion in revenue for SFAs 
through FY 2015.\46\ In the aggregate, therefore, these provisions 
provide a net gain in SFA revenue that exceeds the estimated cost of 
serving school meals that follow the Dietary Guidelines.
---------------------------------------------------------------------------

    \45\ Federal Register, Vol. 77, No. 17 pp. 4088-4167.
    \46\ USDA estimate contained in the regulatory impact analysis 
for the interim rule, ``National School Lunch Program: School Food 
account Revenue Amendments Related to the Healthy, Hunger-Free Kids 
Act of 2010.'' Federal Register Vol. 76, No. 117, pp. 35301-35318.
---------------------------------------------------------------------------

VII. Alternatives

    The substantive differences between the interim and final rules 
are:
    1. Decreasing the amount of information required in the States' 
quarterly certification reports and clarifying that the reports need 
not be submitted once all SFAs are certified for the performance-based 
reimbursement; and
    2. Making permanent the increased flexibility for SFAs regarding 
weekly maximum grains and meat/meat alternates and the serving of 
frozen fruit with added sugar.
    These changes all decrease the administrative and/or compliance 
burden on States and SFAs and/or increase the flexibility for SFAs in 
serving lunches and breakfasts that comply with the school meal 
patterns, thereby decreasing costs to States and SFAs. The primary 
alternative considered in the course of developing the final rule was 
not to make these changes.
    We do not provide a separate cost estimate for this ``doing 
nothing'' alternative because the decrease in burden associated with 
the shorter quarterly reports for States is small \47\ (less than 
$50,000 per year) and because

[[Page 2773]]

the additional transfers possibly attributable to the increase in 
flexibility to SFAs are likely within the cost estimate range published 
with the interim rule \48\ and updated above.
---------------------------------------------------------------------------

    \47\ Furthermore, we do not estimate any Federal administrative 
savings as a result of the shorter quarterly reports.
    \48\ Federal Register, Vol. 77, No. 82 pp. 25024-25036.
---------------------------------------------------------------------------

VIII. Accounting Statement

    As required by OMB Circular A-4 (available at http://www.whitehouse.gov/sites/default/files/omb/assets/regulatory_matters_pdf/a-4.pdf), we have prepared an accounting statement showing the 
annualized estimates of benefits, costs and transfers associated with 
the provisions of this final rule.
    The figures in the accounting statement are the estimated 
discounted, annualized costs and transfers of the rule. The figures are 
computed from the nominal 5-year estimates developed above and 
summarized in Table 3. The accounting statement contains figures 
computed with 7 percent and 3 percent discount rates for both our upper 
bound (primary) estimate and our alternate estimate.
    Note that we only provide an accounting statement for the final 
rule, not for the interim rule (as the interim rule was the baseline 
for our cost analysis for the final rule). As noted in the above 
analysis, any possible changes in costs or transfers attributed to the 
final rule are small and are likely within the cost estimate range 
published with the interim rule and updated above.
Illustration of Computation
    The annualized value of this discounted cost stream over FY 2013-
2017 is computed with the following formula, where PV is the discounted 
present value of the cost stream, i is the discount rate (e.g., 7 
percent), and n is the number of years (5): \49\
---------------------------------------------------------------------------

    \49\ The Excel formula for this is PMT (rate,  periods, 
PV, 0, 1)
[GRAPHIC] [TIFF OMITTED] TR16JA14.003


----------------------------------------------------------------------------------------------------------------
                                                             Year      Discount
                                               Estimate     dollar      rate %            Period covered
----------------------------------------------------------------------------------------------------------------
                                                    Benefits
----------------------------------------------------------------------------------------------------------------
Qualitative: Compared with the interim rule, the final rule makes permanent the increased flexibility for SFAs
 regarding weekly maximum grains and meat/meat alternates and the serving of frozen fruit with added sugar. If
 the greater flexibility leads to more SFA participation in the reimbursable school meals program, then
 students' health may improve.
----------------------------------------------------------------------------------------------------------------
                                                      Costs
----------------------------------------------------------------------------------------------------------------
Annualized Monetized ($millions/year)......         n.a.       2013            7  FY 2013-2017.
                                                    n.a.       2013            3
As discussed in Section V.A., the reduction in administrative costs to State agencies as a result of the reduced
 quarterly reporting requirement on SFA compliance is already in the range estimated for our baseline. The
 reduction in burden for State agencies who will no longer have to submit quarterly reports on SFA compliance
 once all SFAs have been certified is minimal. The final rule may also slightly reduce the costs of complying
 with the meal patterns for some SFAs, and reduce the costs of maintaining compliance by others. This reduction
 in SFA cost is not estimated, and likely lies within our range of alternate estimates for the interim rule.
----------------------------------------------------------------------------------------------------------------
                                                    Transfers
----------------------------------------------------------------------------------------------------------------
Annualized Monetized ($millions/year)......         n.a.       2013            7  FY 2013-2017.
                                                    n.a.       2013            3
----------------------------------------------------------------------------------------------------------------
The changes in the final rule that are designed to facilitate compliance with the new meal patterns are expected
 to increase slightly the number of SFAs that are certified by their State agencies to receive the additional 6
 cents per reimbursable lunch. This increased transfer from the Federal government to SFAs will be realized
 after the end of SY 2013-2014 (primarily in FY 2014 and beyond) when the grains, meat/meat alternate, and
 frozen fruit provisions contained in FNS policy memos would have expired in the absence of the rule. This
 possible, small increase in Federal transfers to SFAs also likely lies within our range of alternate estimates
 for the interim rule.
----------------------------------------------------------------------------------------------------------------


    Dated: January 9, 2014.
Audrey Rowe,
Administrator, Food and Nutrition Service.
[FR Doc. 2014-00624 Filed 1-15-14; 8:45 am]
BILLING CODE 3410-30-P