Not what it says.

What it says is that they would rather not provide free school lunch to hungry kids than stop discriminating against LGBT kids.

It's not "We won't serve you if you're gay"

It's "We will starve the poor kids in the district if you don't let us bully the gay ones."

I don't believe the federal government will actually let them do this, but it is what they are willing to do.

(And want to do, because these people think malnourished children crying from hunger will motivate their parents to Stop Being Poor, which they think you can just decide to do. It's all tied together).