The school sets the policies via the 504 and other LTFA school-wide policies.
The other parent (room mom or PTO-whatever) has no business attempting to negotiate these with YOU or any other parent.
Sounds like as part of following the 504 and other LTFA policies, the school needs procedures in place that specify a set amount of time (say, 14 days out) from a planned event (like said "celebration") where the planning staff and parent(s) must do the following:
1. Submit the event in writing to listed administration/staff (say, 14+ days out? Perhaps suggest reasonable timeline.)
2. Staff should be able to outright catch the obvious concerns and details/plans that would violate school safety policy AND LTFA concerns AND 504 concerns. f the stated policy IS food-free, then all food use (eating and supply would be immediately NIXED. They would state reason as "see XYZ policy" and attach it.
3. Staff ASAP gives back plan with cross-outs and other items of concern and tells party/event-planner to do over and WHY without naming names or putting things all onn the back of LTFA kids.
4. Meanwhile, if there is some accommodation in place that allows for LIMITED food with parental (you and poss other med-need families) approval, then your 504C and/or school nurse should be coming to you (& those other parents, separately and discreetly, respecting privacy) with the ENTIRE event/party-plan so that YOU can help them in identifying other concerns and problems. How you handle these -- and how much/how often you accommodate the use/abuse of food is up to you. But, yes, I think you've already identified the slippery slope on this.
Is the food a NECESSITY in the planned event?
Halloween party?
IMHO, NO food needed for that event.
Totally do-able with ZERO food. If party happens to be a young kiddos' regularly scheduled "school mandated" in-classroom snacktime then each and every child should just be bringing own from-home "snack as usual" that follows the classroom restrictions (e.g. pnut free/egg free -- whatever the verbiage and rules are for your situation).
Truly, you should NEVER be put into position to have to "negotiate" this. You are not "asking for favors". And rightfully, you should not be doing the school's job.
The SCHOOL needs to work diligently to rein in the cupcake mommy. She may never understand that ANY food poses risk to ANY child (the "WHY"). But perhaps the school might at least get her to FOLLOW THE RULES and policy and that the "WHY" on that is so she doesn't risk injury or death to a child/student because it's SCHOOL SAFETY POLICY not to do so.
Pardon my capitalization -- am using for emphasis, not shouting.
Stand on the 504. Help the school develop policy and procedure that MUST be followed by everyone -- no exceptions.
Exceptions spell disaster.
You've already starred in that picture show.
~e