I am actually a PTA president from Texas at an elementary that sounds like it is about the same size as your school. If the principal is supporting this crummy idea, then shame on this man or woman. In my opinion, whether your group is a PTA or a PTO, the purpose of your group to exist is to enhance the value of your childrens' educations. We (although we live in a small town) provide luncheons for much less money. We HAVE done potlucks and catered events. Even our catered events, cost no more than $500. If they do, we don't proceed with them. Perhaps this principal needs an education as to what your group can do to help the students (if properly used)!
Our teachers are invaluable, and we as PTO leaders need to remember that while we're in and out of the school in a couple of years, the school is effectively their home. Having said that, I can't see how a $1000 staff lunch is possibly a reasonable PTO expenditure, and am surprised that the teachers would be in favor of it. In addition to school budgets shrinking, the Educator Expense tax deduction expired at the end of 2013 - I would suspect that there are other things that the teachers would prefer the PTO could support!
I'm not sure how much time you have before the meeting at which you expect this issue to be raised, but I would second the suggestion that you do some preparation and have a plan ready. Simply saying "$1000 is too much" sets a negative tone for the discussion and paints you into a corner. If you can start from an approach of "Teacher Appreciation is really important to us, and we want to do it right. At the same time, we need to be sure that we're optimizing the benefits we get from PTO spend. I think we can do both if we..." and lay out your approach. Maybe it's a mix of catering and potluck, maybe it's still 100% catered but with a different group (some folks mentioned restaurants that will donate food/services), maybe it's potluck and buying a new coffee machine for the staff room - whatever makes sense for your school! But I think spending some time to think about options and the costs/benefits from each will help you be ready for whatever discussion comes up.
The other aspect that I would recommend considering is what potential expenses you want or need to save for. Does the PTO partially fund school supplies? Is there something you've been wanting to have as a school that you couldn't afford (new picnic tables or benches or sports equipment or a guest artist/storyteller/scientist/etc, or...)? Earlier on the agenda than the discussion on teacher appreciation week, propose allocating the great earnings from your carnival to such a project (try to have one in mind). If the topic of allocating the excess funds to lunch is broached, then your PTO is weighing the benefit of spending those monies on a single lunch versus something lasting for the school. Without a specific project in mind, people may look at the decision between spending available monies on teacher appreciation versus just letting them sit in the bank account. This way they're looking at two concrete options and weighing their relative benefits. However the group then decides to spend the monies, you will have ensured that the PTO made an informed decision - and really that's the best we can ask for.
Gosh, I think $1000 is outrageous for a lunch. And I appreciate one of the previous posts about treating the teachers well and maybe they will support you more in the future, but that doesn't seem to be the case, at least at our school. We only have a handful of teachers that will take time to help us for events etc. Most of the time they complain about having to do anything even if it just for an hour or two after school hours. So maybe I'm a little jaded, but I think you can do a decent appreciation lunch for a lot less than $1000. My goodness.
Our PTA had a pretty strict guideline that our funds were to be used for things that weren't consumable; we wouldn't even buy things like paper for the art department. We tended to fund things for the classroom or for the teachers that would persist over the year(s) and continue to give value.
We too provided (and they continue to provide) many meals for teachers, during staff training days or at the beginning of the year, or "just because"; all potluck. They are always wonderful. When the staff does volunteer appreciation brunch, it is also potluck, and also wonderful.
Think about what the folks who supported your fundraiser were told, and make sure the funds go to that purpose. If it was in support of the school, or in support of the students, then IMO spending it on a large catered meal is out of line.
The teachers at our school love when we do pot luck. The parents show up wig all kinds of delishous treats. There are always leftovers for days. It's the way to go. $1000 can go a long way to provide the kids with additional learning materials or opportunities.
We are a school with very limited funds, our teachers love parent potlucks! PTA then supplements. Maybe you could do the potluck and then "gift" teachers with gift cards? 1000.00$ seems a lot for a catered lunch!