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CU urges public input in state computer contract to handle $4.9 billion in public assistance benefits

August 9, 1999
Gail Hillebrand


SAN FRANCISCO, CA – The state began a process last week of selecting a private contractor to design and run a multi-billion dollar computer system to deliver food stamps and potentially welfare cash benefits. The bid request (known as an Invitation to Partner, or ITP), calls for private entities to submit proposals to run this program with at least $1.8 billion in food stamps and up to $3.1 billion in cash benefits pumping through it annually.
The new Electronic Benefit Transfer (EBT) program is a permanent change in the way food stamps and cash public assistance will be delivered to California’s recipients of public benefits. Paper food coupons will be replaced with an electronic card similar to a debit card in every county in California by October 2002. At the option of each county, the EBT card may also replace paper public assistance checks.
In a December letter, more than 20 groups, including Consumers Union, California Food Policy Advocates, Catholic Charities of California, and the Western Center on Law and Poverty, urged the state to schedule a public hearing to discuss the EBT program. The state has met with some groups, including Consumers Union, but has required that all discussions remain confidential until after the bid request is released. In responding to the letter, the state said that public hearings would occur “later” when regulations are developed.
“Important questions remain unanswered,” said Shelley Curran, policy analyst with Consumers Union. “Where are clients going to get their money and how much is it going to cost? The public must be included in these decisions. This program will not be a success unless those who are using the system are brought to the table as these decisions are being made. The state needs to actively solicit this input. ”
Consumers Union commended the state for certain provisions in the bid request, including requiring customer service in ten languages and plans to accept client advocate input as county cash plans are developed. However, the inability for the public to provide input and lack of regulations before the state issued the bid request has led to serious potential problems, according to Consumers Union. These include:
· Unequal treatment for public assistance recipients. The bid request does not give EBT program participants the same protections that bank customers have when their debit card is lost or stolen. The vendor need not protect benefits in the event of lost or stolen debit cards until after the card has been reported missing. Therefore, families who lose a food stamp debit card or have a card stolen and do not realize it immediately will simply lose the balance of food money available on that card if it is misused before they report it. Traditional bank customers, on the other hand, are protected if their debit cards are lost or stolen from the moment that the card is lost.
· Lack of guaranteed no fee ATM access. The bid request does not require bidders to provide any ATM access, thereby sacrificing a key opportunity to use EBT to bring public assistance recipients closer to the mainstream banking system.
· No plan for access at farmers’ markets before the vendor is selected. The bid request does not require vendors to reveal how they will provide access to food stamp benefits at farmers markets until after the contract is awarded. U.S. Department of Agriculture statistics show that farmers are losing thousands of dollars in food stamp sales. Food stamp redemption at farmers’ markets fell 78% in Florida, 94% in Texas, and 100% in New Mexico following implementation of EBT.
“The state’s decisions over the next three years will determine whether the new system is helpful or hurtful to Californians who use these programs,” Curran said. “Certainly, the EBT program has the potential to reduce the stigma of paper food coupons and provide users a familiarity with the technology used in the banking system. However, national experience shows us that EBT could also impose new costs and barriers on recipients. If it’s expensive or hard to use, it could drive users further away from the mainstream banking system.”
Electronic benefit programs are now being implemented across the U.S. The national experience shows that without strong advocacy, recipients may face problems such as restricted language access, high fees for cash withdrawals, lack of protection for lost and stolen cards before the theft is reported, and inadequate training of store clerks and recipients. In New Jersey, thousands stood in line for hours to get their EBT cards because of the private vendor’s miscommunication with recipients about the new system and the training program.
California’s three demonstration programs are not free from problems. The EBT computer system crashed on the first day in San Bernardino County’s demonstration in November 1997. In San Diego, only 15% of recipients picked up their EBT cards during the first month in April 1998, and four months into the demonstration only 37% of over 1,500 grocery stores were accepting EBT cards. In a Sacramento County trial of EBT for general assistance payments in beginning in August 1998, recipients had wide access to withdrawals at grocery stores, but restricted access to bank ATMs.

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