Senator MCGOVERN. Do you know how that comes out in percentage terms, just roughly?

Mr. FELTNER. The average cost of the lunch is now 85 cents. This 22 cents would be nearly 26 percent of that.

Senator MCGOVERN. Twenty-six percent increase.

Mr. FELTNER. That is correct.

Senator MCGOVERN. Are you aware, Mr. Feltner, that the Department has done a study recently that has been published that indicates that even a 10 percent price increase would reduce participation by 4 to 5 percent, so when you are talking about a 26 percent increase, if you project those figures, you have 12 to 15 percent reduction in participation, and I am told that that study relates primarily to the lower cost lunches in the 20 to 30 cents range. When you get up around 45 to 46 cents, if you increase the cost to the student at that point, you get a much sharper dropout rate.

So that when you are proposing a 26 percent increase in the price, you may have to be considering perhaps as high as a 50 to 75 percent dropout in the program.

Mr. FELTNER. Yes, sir, we are aware that significantly increased prices of the lunches to the children could result in large numbers of them dropping out. Again, however, we would hope that the State and local people would place a high enough priority themselves on the school lunch program, or that they would subsidize these programs to a greater extent, if they wish to do this, and thus prevent this cutback in the number of students participating.

Senator McGOVERN. The trouble with that approach. Mr. Feltner, as I see it, is that it is in those States where you have the lowest income, where the school districts would have the greatest difficulty making up the deficit. I think what is going to happen if you go forward with this program-and I do not think Congress is going to let you go forward with it--but if we were to do that, you are going to be penalizing the students in the schools that have the lowest economic base and the least capability of making up that difference when you withdraw support for these middle-income students.

Nobody on this committee has been any more concerned about the poor than I have, but I am also aware of the fact that these middleclass families are having a hard time. They are the ones that have been paving the bulk of the cost of this program, as you know.

Mr. FELTNER. Right.

Senator McGOVERN. Their costs have gone up: the cost of everything they buy has gone up. and they do not get any welfare assistance. They are living within the income of the family. I do not understand the administration's reasoning that would argue that at this time when our economy is under great inflationary pressure and probably when no one has been hit harder than these middle-income families that you are suddenly going to dump the full cost of this program on them, either that, or as you say, the alternative is to make the local school district pick up the difference, and that puts the heaviest load on the districts that are the poorest.

Do you see any answer to that?

Mr. FELTNER. Well, it is true, certainly, that some States and some districts within States would have a harder time picking up this commitment than others. On the other hand, it does have the effect of

asking States and areas within States to examine their priorities and hopefully they would place a high priority on the school lunch program and be able to provide these funds in some way.

Senator McGOVERN. I just want to make one more observation, and then I am going to yield to Senator Dole.

You are calling on the States to reexamine their priorities, Mr. Feltner. I would like to urge that you take back to the administration a request that the administration examine some priorities. I really do not understand a set of budget priorities where Congress is asked to cut $700 million out of the Federal contribution to child nutrition, and in that same budget we are called on to increase by some $16 billion the outlays for military purposes.

I realize you do not have any jurisdiction over that. Your efforts are confined to the Department of Agriculture. But this committee does have to deal with the matter of Federal priorities, and I would hope that every member of the committee would think about it in those terms. What is important to us as a country? Do we measure our strength primarily in terms of military outlays, or do we have the imagination to understand that healthy children also have something to do with national strength?

I think we get more in terms of real defense for this country out of keeping our children healthy and strong than we do from any other investment. If we are going to put this on a matter of priorities, let us look at the Federal priorities instead of throwing a new burden onto the lap of the States and telling them to make do with $700 million less on a program as important as this. I just touched on the school lunch program without going into these other things that are also very important the WIC program, the school breakfast program, the summer feeding program. All of these programs, I am afraid, are going to be hit very hard if we go ahead with the kind of cutbacks you are talking about.

Senator Dole?

Senator DOLE. I only have a couple of questions.

I think it is important that if we are going to consider an administration proposal, that we have it. It is difficult to consider when it is not before us. As the Chairman has pointed out, the end of the fiscal year is approaching. I note your reference to the Budget Committee; and as a member of that committee I can sympathize with any administration, either this one or whoever may be in the next one or the one beyond that, trying to do what needs to be done in all of the various areas, not only this program but thousands of others, and still try to strike some balance. I agree with you, that you should be healthy, but should you be broke also? I think that also is a consideration. I believe our Budget Committee faced up to the responsibility in a fair fashion in its first effort. There were members of various persuasions-conservative to moderate to liberal-who, when they saw the entire package, recognized you just cannot have everything. You can justify anything you may be interested in, but when you get into the total package and talk about the economy in this country and the middle class and the taxpayers, then we must draw a line somewhere on programs.

I do not know what the projected cost of existing programs might be, but I would guess there are going to be efforts to increase them. You are never going to decrease any program. That is why I do not really

believe the administration's proposal is going to make it here. It may get to the floor; but sooner or later the last rites will be performed and we will move on to some other program which could cost a great deal of money. So, I hope you are looking at some of the alternatives, and I hope we can have some response to some of the specific bills before us.

There may be ways we could compromise some of those differences. I am not suggesting that the administration wants to do any less for those who need help. I do believe you cannot help everyone. You used the terms needy child, and nonneedy, and poor child. Would you quickly refresh my memory on how a needy child would be defined, and a nonneedy child and a poor child?

Mr. FELTNER. Sir, it is an income level based on number in the family. In the continental United States, for a family of four, $4,510 per year is the poverty level.

Senator DOLE. That is total income? Are there offsets in there?
Mr. BOLING. Gross income, sir.

STATEMENT OF EDWARD J. HEKMAN, ADMINISTRATOR, FOOD AND NUTRITION SERVICE, U.S. DEPARTMENT OF AGRICULTURE

Mr. HEKMAN. For a family of four, they can get a free lunch, and be eligible for 25 percent above that.

Mr. FELTNER. Under current programs.

Senator DOLE. Right.

Mr. FELTNER. For example, 25 percent above that is $5.640 per year.. The current programs allow free lunch to be given to children from families with incomes less than that, a family of four.

Mr. HEKMAN. It is mandated at the poverty level. They can go 25. percent above.

Senator DOLE. I understand the thrust of your suggestion to be that you would save about $600 million insofar as limiting benefits to nonneedy children which would account for the greater part in a total savings of $700 million. Is that right?

Mr. FELTNER. That is correct.

Senator DOLE. Would there also be a savings in administrative costs under a block grant program that would be less expensive to administer?

Mr. FELTNER. There would be some savings in administrative costs, yes.

Senator DOLE. You do not have any figures?

Mr. HEKMAN. It should not be substantial.

Mr. FELTNER. It would not be a substantial figure. We do not have a dollar figure. We would expect it to be less, but that is not a major factor.

Senator DOLE. Is the USDA doing anything to encourage purchases of commodities from small local producers of various commodities? Mr. FELTNER. Yes. We are very much aware of the concern that some people have expressed in this area. What we normally point out to those who express concern is that currently fully 80 percent of the food that is purchased for use in schools, the purchasing is done by the local school districts now, and only about 20 percent of the total volume of food is provided in the form of commodities by the Federal Govern

ment. So, the local districts are doing the bulk of the purchasing now. We do feel that it is healthy that this purchasing be done as much as possible in the local communities. That is where the local businessmen are. They know the people; they know the tastes; they know the kinds of foods that people want.

Senator DOLE. Then you are familiar with the amendment offered by Congressman Jeffords of Vermont, the House amendment, which I think in essence precludes the Secretary from issuing any regulation which restricts local participation.

Do you have any position on that amendment?

You will probably get a chance to respond to that in the House. I am just curious. I had a letter from the Congressman yesterday. Mr. FELTNER. We are still looking at that.

If I might, I would like to submit something for the record to you on that.

[The following material was subsequently received for the record:]

JEFFORDS' PROPOSED AMENDMENT TO NATIONAL SCHOOL LUNCH ACT

The Department opposes the Jeffords amendment which provides that the Secretary shall not issue specifications which restrict local food processors from participating in the bid program for the National School Lunch Program.

The food product specifications for our purchase program have been developed to assure that high quality products åre bought competitively and delivered economically to schools. These specifications are developed so as to attract both large and small bidders. Most of our purchases are made in carlot sizes (38,000 pounds) to take advantage of minimum freight rates. This precludes some small processors (producers) from bidding on the program. To accept bids less than carlot sizes is not economically feasible. It should be pointed out that the General Accounting Office has been critical in the past when the volume shipped per delivery unit has not been at least at the minimum weight charged under freight rate schedules.

The Jeffords amendment would also negate the economic advantage of our centralized procurement system. It would result in added transportation and related costs-funds which otherwise are used to purchase commodities. Since only about 20 percent of the money spent for school lunches is expended by the Federal Government, there is a tremendous local market available to these smaller firms who can service their local schools.

Senator DOLE. I wonder if you or anybody at USDA has had the opportunity to make any evaluation, preliminary or otherwise, of the cash in lieu of commodities program that we are operating in Kansas?

Mr. FELTNER. It is my understanding, Senator, that this has been a very successful program in Kansas, and that the people there are very happy receiving cash rather than commodities. I believe you mentioned earlier that you have someone here from Kansas who may be speaking to that later.

Senator DOLE. That is Ms. George, who I think, is the primary reason it has been successful this year.

Mr. FELTNER. Certainly from our standpoint we see no problems with it whatsoever. Do you have any further comment on that?

Mr. HEKMAN. I think I would like to point out to the committee that there are no problems, as the Secretary says, as it relates to the school lunch. It is working very well. I know Ms. George and I have spoken to her about it. I am very much aware that it is working well.

Our problem, Senator, is in some of the smaller programs, for example, the programs for the elderly, where there is this 10 cents in commodities available, and that is just in commodities. We have no way

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under present arrangements in the State of Kansas to make that food help available to those programs. We would appreciate, frankly, some way to help the State. It is a sizable amount of commodities.

Senator DOLE. Do we need to change the law? Would that be helpful?

Mr. HEKMAN. This is really a personal observation, but I have made it to some staff members. If the bulk of the payments for this elderly program, Senator, are in cash and our contribution is in commodities at a very low level of 10 cents, and you are dealing with HEW and Agriculture, it would seem that if in the will of the Congress there is this type of resource, this type of resource should be added on. It would just make sense to add it on in the form of cash or through the HEW payment, rather than for the States to put into place a program to distribute 10 cents in commodities to these, what are really rather small programs when you compare them with the school lunch program. That presents quite a problem to the States.

We are asking the Governors, basically, to designate that it be done through the school programs. But the items are limited. They have to be because the amount is small. It would seem that if it was an all cash program, for those programs, it would work a lot better. But you seemed to indicate earlier that you were thinking of making this program available to other States. That is going to multiply this problem, you see, because it is a problem in Kansas right now.

Senator DOLE. OK. I will have the staff check it, and I will have Ms. George's comments on it later.

Maybe we can figure something out. We do not want to create any more problems. We have enough of those.

That is all I have, Mr. Chairman.

Senator McGOVERN. Mr. Feltner, there is one thing which has been bothering me about the overall thrust of what the administration is trying to do here, and that is this. The original purpose of the School Lunch Act, and I am quoting now, is "to protect the health of all the Nation's schoolchildren."

Now, in effect, is not what you are proposing to limit that Federal responsibility simply to the poor children, not to all children? One of the reasons I ask that question is that we had the Secretary before this committee a while back, and he and I had a rather sharp exchange in which he indicated that he was very firmly against putting the Department of Agriculture into the welfare business. He said that this is not the basic function of the Department and that he would resist any further trend in that direction.

Well, it seems to me that you are working at cross-purposes with what the Secretary has told us. You are saving, in effect, that the school lunch program is a welfare program, it is just for poor people; and that the middle class now is going to have to make it on their own; that this is not essentially in your view a nutritional program to embrace all of our children, but that it is a program to help the poor.

Does that not seem to contradict both the original intent of the program and also the reluctance of your Secretary to move in the direction of a welfare program?

Mr. FELTNER. I do not believe there is a contradiction, Mr. Chairman. Certainly, I think I can say there is no one in the Department of Agriculture, there is no one in the administration who wants to do