One way to think about the finances of a school nutrition program — according to Amy Stanley, school nutrition director in New Hanover County Schools — is to consider them a “restaurant within the school district.”
Using that analogy, Stanley’s program operates more than 40 “restaurants” — one in each of the district’s schools — and is solely responsible for the planning, budgeting, purchases, and labor that ensure meals are served to the district’s roughly 25,000 “customers,” or students.
But unlike a typical restaurant, school nutrition programs have to serve meals that meet strict nutrition standards while primarily relying on a federal reimbursement of roughly $4.70 per lunch.
“That has to pay for everything in that space — it pays for the food, it pays for the labor, it pays for the printer paper, it pays for the computers. It depends on the district — it might even pay for the toilet paper in the bathroom,” said Rachel Findley, senior director of the office of school nutrition and auxiliary services at the N.C. Department of Public Instruction (DPI).
School nutrition programs, also called school food authorities (SFAs), operate financially independently of school districts and are expected to be self-sustaining. In reality, as food and labor costs continue to rise faster than the annual increases in the federal reimbursement rate, many school nutrition programs in North Carolina are operating at a deficit. Learn more about the financial challenges facing school nutrition programs here.
Here’s a closer look at the primary costs and revenues of school nutrition programs.
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Costs
There are four primary types of costs that school nutrition programs incur to produce school meals.
- Food and food supplies: This includes all the food components that are part of a school meal, as well as the materials used to serve the food, from lunch trays to servingware.
- Labor: This includes the salaries and benefits of staff who prepare meals and oversee operations. In North Carolina, the state does not fund salaries and benefits of school nutrition personnel.
- Equipment: This includes the equipment used to produce school meals and store food, such as refrigerators and freezers.
- Indirect costs: School districts can charge school nutrition programs for indirect costs related to their operations within the school district. The indirect cost rate a school district can charge varies by district and is capped at 8% by state law. In order to charge for indirect costs, a district’s school nutrition program must have had an operating balance of at least two months of expenses at the end of the prior fiscal year. Indirect costs are then calculated by applying the indirect cost rate to a select set of expenditures — including salaries and fringe benefits (but excluding pension), workshops, travel, and supplies and materials. These categories reflect expenses that are often processed by the district’s central office. As of March 2025, school nutrition programs in 32 of the state’s 115 public school districts paid indirect costs to the district.
Revenues
School nutrition programs have two primary sources of revenue — federal reimbursements and student payments — with some funds provided by the state, and occasionally, local government.
Federal reimbursements
School meals are primarily funded through federal reimbursements from the U.S. Department of Agriculture. School nutrition programs receive a per-meal reimbursement for each qualifying meal served, which means the meal must meet certain meal pattern guidelines and nutrition standards. Claims are submitted by individual school nutrition programs, also called school food authorities (SFA), to DPI, which then reviews and approves claims to receive federal funding.
Based on income level and a variety of other certifying factors, some students qualify for free or reduced-price meals, while other students pay for full-price meals. The reimbursement rates also depend on which child nutrition program the meal is being served under. For example, there are different reimbursement rates for the Summer Food Service Program compared to the National School Lunch Program. For more on eligibility and the key child nutrition programs, read our school meals primer.
In the 2025-26 school year, schools in the contiguous 48 states received an averaged reimbursement of $4.70 per free lunch, with higher rates for programs serving 60% or more of their lunches for free or at a reduced price. For school breakfast, schools in the contiguous 48 states with severe need, defined as serving a high percentage of free and reduced-eligible children, receive $2.94 per free breakfast served, while schools with non-severe need receive $2.46 per free breakfast served. Reimbursement rates are lower for reduced-price and paid meals. See a full table of federal reimbursement rates here.
School nutrition programs also receive federal commodity funding and some cash in lieu of commodities. Allotted based on participation in the National School Lunch Program, these funds can be used to purchase commodity foods from the USDA such as beef, chicken, turkey, cheese, and apples. In 2024-25, programs received 30 cents per meal in commodity funding.
In fiscal year 2024, Congress appropriated $33.3 billion in total funding across all child nutrition programs, including school lunch, breakfast, summer meals, commodity funding, farm to school, and more.
In the 2024-25 school year, North Carolina claimed roughly $726 million in federal funding across 236 school nutrition programs that served more than 211 million meals, according to data provided by DPI.
Student payments
The second primary form of revenue comes from student payments for meals and à la carte items. Students who are not eligible for free or reduced-price meals pay the full price per meal. The exact prices for reduced-price and paid school meals are set by local school districts, usually with school board oversight.
School nutrition programs also receive payments when students purchase à la carte items. These include snacks from a concession stand or snack shop that are not part of federally reimbursable school meals.
State funding
Every state participating in the National School Lunch Program is required to provide a certain amount of matching funds. However, state funding for school nutrition programs varies widely, ranging from per-meal reimbursements to salary support to general funding for operations.
Nine states — California, Colorado, Maine, Massachusetts, Michigan, Minnesota, New Mexico, New York, and Vermont — have allocated state funds to fund free school meals for all students.
In North Carolina, state funding covers the reduced-price copay for all school meals, allowing students who qualify for reduced-price meals to receive them for free. A 2011 law allocated funding to cover the $0.30 copay for reduced-price school breakfasts. Then, in 2022, the state allocated funding to cover the $0.40 copay for reduced-price school lunches. In 2025, the state’s mini-budget maintained coverage of copays for reduced-price school meals.
According to data provided by DPI, in 2025, the state funding to cover reduced-price meal copays totaled $605,000 for lunch and $193,000 for breakfast, or just under $800,000 total.
Additionally, in 2023, the state allocated $6.3 million in recurring funding for the Community Eligibility Provision (CEP) Meal Program Incentive, which aims to “increase the number of students with access to healthy, cost-free school breakfast and lunch.” In the 2024-25 school year, the first year of the incentive program, 157 schools were eligible to use the incentive, and all schools participated in CEP, providing free meals to an estimated 48,550 students who were previously only eligible for paid meals.
In 2024, the state appropriated $16 million to supplement or replace lost wages for school nutrition employees due to school closures resulting from Hurricane Helene.
A note on the Community Eligibility Provision
The federal Community Eligibility Provision (CEP) allows eligible low-income schools to serve all students free breakfast and lunch without collecting applications. This provision is increasingly popular nationwide and in North Carolina.
According to data provided by DPI, in the 2023-24 school year, 1,662 schools were approved to operate CEP. That figure increased to 1,928 schools in the 2025-26 school year, a 16% increase.
As more schools participate in CEP, the number of reduced-price meals served in North Carolina is declining, requiring fewer state funds to cover reduced-price copays.
CEP eligibility and reimbursements are calculated using the Identified Student Percentage (ISP), a formula based on the number of students directly certified for free meals, such as by participating in SNAP or Medicaid. The ISP is multiplied by 1.6 to derive the total percentage of meals that can be claimed at the free federal reimbursement rate. The remaining percentage of meals are claimed at the paid federal reimbursement rate.
With an ISP of 62.5% or higher, all meals are claimed at the free reimbursement rate.
As fewer families participate in SNAP or Medicaid following federal cuts to those programs, fewer students will be directly certified for free school meals, causing ISPs to decline. This may cause some schools to lose their CEP eligibility, and other schools that are still eligible for CEP may no longer be able to afford to operate the program. Learn more here.
Local funding
In North Carolina, some local county commissioners allocate funding for school nutrition programs. For example, in Jackson County, the Board of Commissioners provided more than $500,000 in the 2024-25 school year to ensure the school nutrition program could continue to serve free school meals to all students under CEP. The Dare County Board of Commissioners has similarly provided funding to allow CEP to operate in Dare County Schools.
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