The Summer Food Service Program is a federal entitlement program that provides funds for program sponsors to serve free nutritious meals to children in low-income areas when school is not in session. It is administered by USDA’s Food and Nutrition Service, which provides money to state agencies to operate the program and to reimburse local eligible sponsors for meals served to children at designated locations. Eligible sponsoring organizations include (1) public or private nonprofit schools; (2) units of local, municipal, county, or state governments, such as county or city recreation programs; (3) private nonprofit groups, such as Boys and Girls Clubs or churches; (4) residential camps; and (5) National Youth Sports Programs. In fiscal year 1997, sponsors served over 128 million meals at a total federal cost of about $258 million. Local program sponsors can qualify to be reimbursed for the free meals served to all children 18 or younger by operating a site in an eligible area. Eligible areas are those in which at least 50 percent of the local children are from households with an income at or below the eligibility level for free and reduced-price school meals—185 percent of the federal poverty guidelines ($29,693 for a family of four in the summer of 1997). Sponsors can also qualify for reimbursements for free meals served to all children at sites not located in eligible areas if at least 50 percent of the children enrolled at such sites are eligible for free or reduced-price school meals. Finally, camps may be reimbursed only for meals that are served to children who have been individually determined to be eligible because of their household income. The meals that sponsors provide must meet the program’s nutritional requirements. Most sponsors can receive federal subsidies for only two meals per child per day. However, camps and programs primarily serving migrant children can receive subsidies for up to three meals each day for each child. This three-meal allowance is a change in the program made by the Welfare Reform Act. Previously, these sponsors could receive reimbursements for up to four meals per day. Sponsors are reimbursed in two different categories for their costs of preparing and serving free meals. One category covers the administrative costs incurred in the management of the Summer Food Service Program, such as office expenses, the support staff’s salaries, insurance, and some financial management costs. The second category covers the operating costs for purchasing, preparing, transporting, and serving the food; supporting program activities, paying salaries for the staff supervising the children; and providing transportation in rural areas. Sponsors must maintain records to document all costs and the number of meals they claim for reimbursements. Sponsors’ reimbursements are based on the lesser of (1) the number of approved meals served multiplied by the established rate for each type of meal or (2) the actual costs reported. The reimbursement rates for both administrative and operating costs are set by law and adjusted each year to reflect changes in the Consumer Price Index. Sponsors with costs that exceed the federal reimbursements must find other sources of funding to pay their additional costs. Some sponsors anticipate that program costs will exceed the federal reimbursements, and these sponsors offset their excess costs with other sources of funds. Other sponsors inadvertently exceed the federal reimbursements by small amounts because it is difficult to budget the program exactly. Because sponsors can claim reimbursements only for meals that are served to eligible children, their costs would exceed reimbursements if they have low attendance or prepare too many meals that cannot be claimed for reimbursements. The Welfare Reform Act reduced the operating subsidies for meals and snacks served under the Summer Food Service Program, effective for the 1997 summer. It did not reduce subsidies for administrative costs. Table 1 highlights the changes in the reimbursement rates for meals since 1996. While the 1997 and 1998 rates reflect increases to account for inflation, they are still lower than the rates established for 1996. Since the reduced reimbursements went into effect in 1997, the number of sponsors participating in the program has increased by 8 percent overall. Although there were some changes in sponsors from one year to the next, the characteristics of these sponsors—by the type of organization, number of sites operated, and number of meals and children served—remained about the same. Of those sponsors leaving the program, fewer than 10 percent left in each of the 2 years, and of these sponsors, few left because of the rate reduction, according to state officials. USDA and some states took actions following the rate reduction aimed at enrolling new sponsors and/or encouraging current sponsors to expand their programs. Since the reduced reimbursements have gone into effect, the total number of sponsors has increased by about 8 percent. According to the data provided by state officials, the total number of sponsors participating in the program rose from 3,753 in fiscal year 1996 to 3,875 in 1997, and to 4,046 in 1998. While some sponsors left the program, the number of sponsors joining it exceeded the number leaving. This overall increase in the number of sponsors occurred after virtually no increase from 1995 through 1996, according to USDA’s data. However, this overall increase is lower than the increases that occurred from 1991 through 1994, when the number of sponsors grew each year by about 8 to 10 percent. According to USDA officials, no growth occurred from 1995 to 1996 because of uncertainty stemming from the public policy debates over the future of the Summer Food Service Program and other child nutrition programs. Figure 1 shows the rate of change in the number of sponsors each year from 1991 through 1998. The types of organizations serving as program sponsors were similar in fiscal years 1996 and 1997. In both years, schools represented the largest group of sponsors (about 45 percent), followed by camps (19 percent), government agencies (about 17 percent), private nonprofit organizations (about 16 percent), and National Youth Sports Programs (3 percent). School sponsors can serve meals to children at school buildings as well as at other types of locations, such as parks and churches. Similarly, the rate reduction did not have a significant effect on the number of sites operated by sponsors. For example, in both fiscal years, half of the sponsors (51 percent) operated 1 site, and 6 percent operated 25 or more sites. In addition, between fiscal years 1996 and 1997, the total number of sites increased by 5 percent, from 29,220 to 30,587. As tables 2 and 3 show, the 1997 reduction in meal reimbursements did not appear to cause sponsors to change the size of their programs. There was little change in the size of sponsors—in terms of the number of meals and children served—between fiscal years 1996 and 1997. However, the number of meals and children served by individual sponsors varied greatly in each year. For example, one of the smallest nonprofit sponsors served 92 meals in 1997, while the largest—the New York City Board of Education—served over 8.8 million meals. In both years, a small percentage of the sponsors provided most of the meals. Only 5 percent of the sponsors served 62 percent of children participating in July of each year, 1996 and 1997. Similarly, 5 percent of the sponsors served 58 percent and 59 percent of all meals in 1996 and 1997, respectively. After the first year’s experience with the reduced reimbursements, both USDA and some state officials expressed concern that more sponsors would drop out of the program in the future than did in 1997 because of the reduced rates. USDA officials believed that some sponsors chose to continue participating in the program in 1997 to test their ability to manage the program financially with the reduced reimbursements and to determine whether they would continue in 1998. However, an increase in dropouts did not occur in 1998. According to the states’ information, a total of 675 sponsors have stopped participating in the Summer Food Service Program since the reimbursements were reduced. Of those that participated in fiscal year 1996, 370, or 9.9 percent, did not return in 1997; and 305, or 7.9 percent, of those that participated in 1997 did not return in 1998. According to state officials, few of the sponsors that dropped out of the program left specifically because of the reduced reimbursements. State officials identified the reduced reimbursements as the major reason for dropping out for only 37 (5.5 percent) of the 675 sponsors that left in fiscal years 1997 and 1998. For an additional 182 sponsors, state officials were unable to identify the major reason for dropping out. For some of these sponsors, the reduction may have been the reason they dropped out. The remaining 456 sponsors left for a variety of other reasons, such as the loss of personnel or lower participation than anticipated. Table 4 shows the number and percentage of sponsors leaving the program for various reasons since the rate reduction. According to our nationwide data, small sponsors were more likely to drop out of the Summer Food Service Program than large sponsors, and private nonprofit sponsors were more likely to drop out than other types of sponsors. This was also true for the sponsors that state officials identified as leaving the program because of the reduced reimbursements. For example, the sponsors that left the program in fiscal year 1997 because of the decrease had served an average of 207 children in July 1996, while the sponsors that remained in the program in 1997 had served an average of 809 children in July 1996. (App. II provides information on the dropout rates for various types of sponsors.) Some states and USDA took actions following the reduced reimbursements for meals served to enroll new sponsors and/or encourage current sponsors to expand their programs. These actions may have mitigated the impact of the rate reduction. For example, officials from several states said that they expanded outreach efforts to enroll more new sponsors. Some states’ Summer Food Service Programs—such as those in Minnesota, New York, Vermont, and Washington—received state funds to offset the loss of federal funds in fiscal years 1997 and 1998. In addition, in 1998, USDA began an initiative to encourage sponsors’ participation by conducting outreach and reducing the administrative burden on sponsors.