BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
AB 1917 (Dickinson) - School Districts: Food Service Contracts
Amended: August 6, 2012 Policy Vote: Education 6-2
Urgency: No Mandate: No
Hearing Date: August 16, 2012
Consultant: Jacqueline Wong-Hernandez
SUSPENSE FILE.
Bill Summary: AB 1917 establishes new requirements to be met if
a school district governing board enters into a contract for the
acquisition of food services.
Fiscal Impact: Potentially significant ongoing costs to school
districts that currently utilize, seek to utilize, or may seek
in the future, fixed-price food service contracts.
Background: School districts and county offices of education are
required to provide for each needy pupil, one nutritionally
adequate free or reduced-price meal during each schoolday. A
school district or county office of education may use funds made
available through any federal or state program to provide these
meals. (Education Code � 49550)
Current law defines a nutritionally adequate meal as a breakfast
or lunch that qualifies for reimbursement under federal child
nutrition program regulations.
(EC � 49553)
The School Nutrition Program is a federally assisted meal
program operating in public and nonprofit private schools and
residential child care institutions. In California, the School
Nutrition Programs consist of the National School Lunch, School
Breakfast, Special Milk, Meal Supplements, and Seamless Summer
Feeding Option. California's School Nutrition Program is
administered by the California Department of Education (CDE).
School districts, county superintendents of schools, and charter
schools may receive state and federal funding for this purpose.
(Education Code � 49490-� 49590)
Proposed Law: AB 1917 requires any school district governing
AB 1917 (Dickinson)
Page 1
board that enters into a contract for the acquisition of food
service, to:
1) Develop and adopt policies and procedures for the
acquisition of food services to ensure that a service
contractor fully disclose to the school district all
discounts, rebates, allowances, and incentives received by
the contractor from its suppliers;
2) Require a food service contractor that receives a discount,
rebate, allowance, or other incentive from any supplier, to
disclose and pay to the school district the full amount of
the discount, rebate, or applicable credit that is received
on the basis of purchases made on behalf of the school
district.
3) Include language stating this requirement in food services
agreements entered into by the school district.
4) Ensure that all discounts, rebates, allowances, or
incentives received be paid to the school district during a
mutually agreed upon time frame and be available for review
as part of any legally required audit.
5) Make changes to comply with these provisions upon the
renewal, extension or amendment of existing agreements or
as part of any new service agreement.
This bill defines "rebate" for purposes of the bill to include
any return of monetary value, including but not limited to a
volume discount, allowance, or discount purchase incentive.
Related Legislation: AB 450 (Wieckowski) 2011 would have placed
similar requirements on California State university food service
contracts but was vetoed by the Governor, whose message read, in
pertinent part:
This bill targets a narrow set of contracts between the
California State University campuses and their food vendors.
It aims to correct a problem that may or may not exist by
requiring those vendors to disclose supplier discounts and
pass them on to the campuses. Since they can already do this
on their own, this measure is not necessary.
AB 1917 (Dickinson)
Page 2
Staff Comments: In order to comply with federal law regarding
(providing one nutritionally adequate meal to) needy pupils,
school districts are generally required to offer lunch service.
School districts can provide food services directly, or they can
contract out for many of the functions related to food
acquisition and service. Generally, schools that contract for
food services enter into either cost-reimbursable or fixed-rate
contracts.
In a cost-reimbursable contract, a school district outsources
the management of its food services, but pays for the actual
costs of goods purchased by the contracted provider by
reimbursing the provider for the food items used in school meals
it supplies (and which are agreed upon by the school district).
Thus, if the prices of items fluctuate, the school will pay
fluctuating costs.
In a fixed-rate contract, a school district pays the provider a
fixed amount per eligible meal served (according to district
specifications and, generally, to meet federal requirements). In
a fixed-rate contract, price fluctuation only affects the
provider. If prices rise, the provider loses profit; if they
drop, the provider is still paid the same fixed-rate.
Federal regulations require that when school districts enter
into cost-reimbursable contracts, they be notified and credited
by the provider for any discount, rebate, or other credit the
provider has received. The regulations are to ensure that a
school district is reimbursing the provider only for the
provider's actual cost for the items purchased; when prices are
lowered for any reason, the school district should realize
savings, just as it is responsible for paying higher costs when
prices increase.
This bill would require the same benefit for school districts
with fixed-rate contracts. Schools districts would agree upon a
price-per-meal, but would be entitled to have any discount
passed on to the school. If an item's price increases, however,
it would still be the responsibility of the provider to bear the
increase.
This bill would remove the incentive for food service providers
to enter into fixed-price contracts with school districts.
Currently, both the risk and benefit of price fluctuation are
AB 1917 (Dickinson)
Page 3
borne by the provider in this contract; under this bill, they
only bear the risk, but pass on any additional benefit to the
school district. It is unclear why they would agree to this type
of contract.
Currently, school districts agree to pay a specific amount per
meal, and many enter into the contracts for budget security and
ease of implementation. If providers are less likely to offer
these contracts, schools will have more limited options for
acquiring food services. Additionally, there is significantly
higher administration involved in cost-reimbursable contracts,
because school districts have to verify costs of items, in order
to pay for them, in addition to simply paying for the management
of food services. They would need to verify, as well, that they
are receiving their discounts and the items for which they were
billed. Some school districts are better equipped to do this
than others; this bill could result in all districts having to
assume additional responsibilities in their food service
administration.