(The table referred to follows:)

Proposed allotments, matching fund program, fiscal year 1964

Mr. NATCHER. Mr. Smith, how do you intend to finance the increases for fiscal year 1965? You have a reduction here. In other words, you have an increase of $75,000 for fiscal year 1964. What I have in mind is the financing for your new work in fiscal year 1965. How will we finance it?

ABSORPTION OF 1965 DECREASE

Mr. SMITH. Well, the funds called for in fiscal 1965 are $1,425,000 compared with what we have for the current fiscal year 1964 of $1,500,000, or a decrease of $75,000.

Now, as far as that $75,000 is concerned, we will review in detail all of the projects that now are in effect with the 42 or 43 States with whom we have agreements. Those projects which can be terminated with facility, or that we are otherwise scheduling to terminate at the end of this fiscal year will be discontinued. This is the way we plan to absorb the $75,000 decrease.

Mr. NATCHER. In other words, Mr. Smith, the increases that were made State by State will not necessarily be withdrawn?

Mr. SMITH. No. The withdrawal will be on an entirely new basis. In other words, they will submit here, in another month or so, all of their projects; they are reviewed; they will be appraised; and irrespective of what the additional allotment was in 1964, withdrawals will be made. There have been some projects for example on certification of disease-free nursery stock-well, there are such projects underway in several States. Those are in the process of terminating.

There are factfinding projects which fall into the category of more detailed crop reporting data, and some of those are scheduled to terminate. Some of the States have been carrying on promotional projects and those are scheduled to terminate. So we don't anticipate any problem of absorbing the $75,000 decrease, Mr. Chairman.

Mr. NATCHER. All right, Mr. Lennartson.

Mr. LENNARTSON. We permit the States all of the latitude they desire in this respect. They will have to make the judgment. It will not be us dictating to them what they should cut out.

SPECIAL MILK PROGRAM

Mr. NATCHER. At this point describe the operation of the special milk program.

Mr. SMITH. I would like Mr. Davis to do that, Mr. Chairman.

Mr. NATCHER. At this point we might put in the necessary pages in the record.

Mr. DAVIS. Pages 108 through 111 of the notes.

Mr. NATCHER. They will be inserted at this point, without objection. (The material referred to follows:)

STATUS OF PROGRAM

CURRENT ACTIVITIES

The special milk program is aimed primarily at increasing the consumption of fluid milk by children. Nonprofit schools of high school grade and under, all nonprofit summer camps and child-care institutions devoted to the care and training of children, are eligible to participate in the program. From its inception in fiscal year 1955 through fiscal year 1962, the program was financed through advances from Commodity Credit Corporation funds. The Agricultural Act of 1961 (Public Law 87-128), approved August 8, 1961, changed the financing to a direct appropriation beginning July 1, 1962, and extended the authorization through June 30, 1967.

In 1963, milk consumed under the program, based on the half pints reimbursed, was more than six times the quantity in 1955-the first year of the program. The volume amounted to more than 2.5 percent of the total nonfarm consumption of fluid milk. This was in addition to the 2.6 billion half pints used in the school lunch type A meals.

Operation of the program through fiscal year 1964 is as follows:

1. Assistance is provided, in the form of reimbursement payments, to eligible schools and child-care institutions to help them to inaugurate a milk service or to expand the existing service through reducing prices to children and establishing new times of service.

(a) The maximum rate of reimbursement in schools and institutions where milk is sold as a separately priced item is 3 cents per half pint except for schools which also serve type A lunches in the national school lunch program. The latter may receive up to 4-cent reimbursement per half pint but may not claim reimbursement for milk served as part of the type A lunch under the national school lunch program.

31-088-64-pt. 3-10

(b) In those schools and child-care institutions that do not sell milk as a separate item, the reimbursement rate is 2 cents per half pint for all milk served to children. In order to qualify for participation in the program such schools, camps and institutions must submit for approval the specific methods and practices by which they will increase milk consumption under the program.

(c) Special provisions were inaugurated in fiscal 1962 to provide assistance to those schools which, because of poor local economic conditions, had not been able to operate a food or milk service and were in need of special assistance to serve milk without charge to needy children. In 1963 this phase of the program was made available also to needy schools already in this program but not serving lunches and which have a large number of children unable to pay for their milk.

Such schools must submit an application for such special assistance indicating the specific circumstances which would make them eligible for the program and stating that they will serve such milk without charge to needy children in the school. The level of Federal reimbursement for milk served to needy children without charge may be up to the cost of milk to such schools. The level of Federal reimbursement for milk served to paying children in such schools is in accordance with the regular reimbursement as outlined in (a) above.

2. Procedures have been established to assure that maximum use of the reimbursement payments is made to reduce the price of milk for children, as a means of encouraging increased consumption. Participating schools are permitted to use up to 1 cent to pay the cost of distributing the milk within the school. They may retain up to 12 cents for this purpose in instances where justified by unusually high labor costs or the rental or purchase of equipment.

3. The program is administered within the States by the State agencies to the greatest extent possible. AMS administers the program directly for private schools where the State agency is prohibited by law from disbursing funds to such participants and in other outlets for which no State agency has assumed responsibility for administration. Initial reserves are established for each State on basis of prior year participation and expenditures. This provides the States with a basis for planning operations in relation to past program growth. Funds for reimbursement payments are scheduled to be advanced in 10 monthly payments to State agencies in amounts consistent with anticipated program needs. As an additional measure of control to assure that program operations are kept within available appropriations for fiscal year 1964, reimbursements to participating outlets subsequent to November 1963 are initially being reduced below the full amount of the claim vouchers. Pro rata distribution of the balance of available funds will be made to all participants after all claims have been received.

4. No Federal funds are used by the State agencies for administering this program in the States.

1955.. 1956..

1957.

1958.

1959

1960.

1961.

1962.

1963.

Selected examples of recent progress Program statistics by fiscal years

1964 (estimated).

1965 (estimated).

From 1962 to 1963 the number of participating schools and institutions increased from 88,188 to 90,486. Of the latter figure there were 85,220 schools and 5,266 child-care institutions and summer camps. The number of one-half pints of milk reimbursed increased from 2.6 billion in 1962 to about 2.8 billion in 1963. During this same period expenditures rose from $89 to $93.9 million.

A total of 438 needy schools serving more than 13,600 children participated and consumed approximately 6.2 million half pints of milk under the limited experimental program of special assistance.

The following table reports by State the number of outlets participating, number of half pints reimbursed, and obligations for 1962 and 1953.

5,724

1,420

374

9,304

538

2,053

3,710

1,683

1,550

Mr. Davis. The 1965 funding for the special milk program is placed at $99.8 million to be provided by transfer from section 32 funds. This is about the same amount as the Congress provided under a direct appropriation for 1964, after adjusting for the new funding arrangement for the Office of the Inspector General.

PARTICIPATION IN MILK PROGRAM

This year nearly 3 billion half pints of fluid milk will be served in 92,000 schools and child-care institutions. This is in addition to the 2.7 billion half pints that will be served as part of type A lunch in the schools. Together, these two programs are utilizing more than 5 percent of all nonfarm fluid milk consumption. That level of usage is providing stabilizing support to dairy markets, we believe.

At this point, the Federal funds under this program are used to increase fluid milk consumption by children in schools and in other nonprofit child-care institutions such as settlement houses and summer camps. Basically, this increased consumption is achieved by using the Federal funds to reduce the price at which schools and child-care institutions offer and sell milk to attending children.

As in the school lunch program, we have been experiencing a normal 6-percent growth in this program from year to year.

EXPENDITURE CONTROLS

This fiscal year the appropriation was $100 million. To hold expenditures to this amount, starting in December, claims from participating schools and institutions have been subject to a 2-percent cut. In most cases, we believe the schools have been able to absorb or find other means of financing this small reduction in Federal assistance.

In order to assist in the reduction of total Federal expenditures, we are requesting a continuation of the 1964 level of Federal support for the special milk program. It will be necessary in 1965 to further reduce the level of Federal cash reimbursement payments to live within a fund of $100 million.

The specific nature of such adjustments we have already started working out with some representative State school lunch directors and we have another meeting scheduled in April to review these possible measures further with them. Any measures however, that will be used will conform to the legislative history both in this committee and in others of Congress, wherein the program will continue to be operated in such a manner that each State will have equal opportunity to expand their participation in the program and the program will be insured operation throughout the entire fiscal year.

Within our budget request and with the reduction in reimbursement rates, we believe there will still be some expansion of this program in 1965. Fluid milk markets will, of course, be further benefited from the additional funds we are requesting for the school lunch program.

REIMBURSEMENT RATES

Mr. NATCHER. Now we would like you to discuss for the committee the various rates of reimbursement which range from 2 to 4 cents per half pint.