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California Signs Contract With Citicorp To Privatize Delivery Of Food Stamps And Welfare Benefits

Tuesday, July 31, 2001

Consumers Union Urges State to Monitor Citicorp’s Performance
to Ensure That Recipients Enjoy Easy, Cost-Free Access to Benefits

SAN FRANCISCO, CA – On July 26, the state of California signed a contract worth hundreds of millions of dollars with Citicorp Services, Inc., to privatize the delivery of food stamps, CalWORKs and other public assistance benefits to eligible recipients in the state. Citicorp was the sole bidder on the state’s contract to deliver the benefits through a new Electronic Benefit Transfer (EBT) system mandated by federal law. Consumers Union today called on the state to monitor the performance of Citicorp closely to make sure that recipients in California avoid the problems that have been encountered by residents in other states with similar programs.
“We applaud state officials for negotiating a contract with Citicorp that holds the company to high standards,” said Debra Garcia, Policy Analyst with Consumers Union’s West Coast Regional Office. “But the contract leaves some important issues to be decided in the future. We urge the state to keep a close eye on Citicorp’s performance to ensure that California’s poorest families won’t be burdened with new costs or face new barriers in accessing their benefits.”
EBT will eliminate paper food stamp coupons in California and will deliver these benefits through an electronic card similar to automated teller machine (ATM) cards used by most bank customers. Federal law requires EBT to be used for food stamp benefits in every state. California counties may also choose to use the EBT card to replace CalWORKs and other public assistance checks. The state is requiring counties to make this choice by August 6, 2001. After this date Citicorp must develop cash access plans for each county choosing to use EBT to distribute cash benefits.
Based on estimated figures for FY 2001-2002, California distributes approximately $1.5 billion in food stamp benefits and $3.3 billion in cash benefits annually. Alameda County is slated to be the first county where EBT cards will be used for both food stamps and cash benefits. The first card is expected to be used in June 2002.
Citicorp is the largest U.S. operator of EBT programs, with contracts in more than 30 states. The company’s performance has come under fire in some states because it has failed to provide enough no-cost ATMs in low-income neighborhoods where recipients can easily access their benefits. Last April, the New York Attorney General settled a lawsuit against Citicorp that requires the company to install 149 more ATMs in low-income neighborhoods in New York City. The original Citicorp New York plan offered non-ATM access to benefits at various merchants across the city. However, the New York Attorney General’s review of Citicorp’s performance leading up to the lawsuit revealed that 90 percent of these businesses that were supposed to provide benefits through Citicorp were either refusing to do so or inappropriately charging for the service.
California’s contract with Citicorp includes many favorable provisions that should help to ensure that the state’s EBT program will be user-friendly. For example, Citicorp will operate a 24-hour a day, seven-day a week toll free hotline for recipients to report lost or stolen EBT cards. Written training materials on how to use the EBT system will be provided in low-income communities in ten different languages. Live customer service will be offered in six languages. Recipients will be able to check their EBT balances for free over the phone.
Crucial decisions about how California’s new EBT program will operate still need to be worked out between state and county officials and Citicorp. In addition to developing cash access plans for each county with cash EBT, Citicorp will work with state and county officials to develop systems for converting recipients to the new program, determine where local walk-in training centers will be located, and how recipients will receive replacements for lost cards. Consumers Union has urged state and county officials to work closely and consult with local organizations for their input on these decisions.
“The state’s new EBT program has the potential to reduce the stigma associated with paper food coupons,” said Garcia. “EBT could help recipients become more familiar with the technology used in the traditional banking system. But the state needs to be diligent to make sure that Citicorp avoids some of the mistakes it has made in other states and that it implements a program that provides recipients with convenient, cost-free access to their benefits.”

Gail Hillebrand
Consumers Union, publisher of Consumer Reports, is an independent, nonprofit testing and information organization, serving only the consumer. We are a comprehensive source of unbiased advice about products and services, personal finance, health, nutrition, and other consumer concerns. Since 1936, our mission has been to test products, inform the public, and protect consumers.