Electronic benefit transfers put food stamps out of date

Wired on Friday: All 50 states and the US territories have now succeeded in replacing coupons for food stamps with electronic cards.

The process began with a demonstration project in Reading, Pennsylvania in 1984 and within 10 years, nine states had electronic benefits transfer (EBT) systems for their food stamp programes, which provide low-income households with benefits to buy food.

Congress mandated EBT in 1996 and conversion in all the states was completed last June, when California became the last state to move from a paper-based system to an electronic-based benefit system.

The US department of agriculture (USDA) administers the Food Stamp Programme at the federal level through its food and nutrition service. State agencies administer the programme at state and local levels.

Agriculture secretary Ms Ann Veneman announced the end of the "paper era" in June.

"The transition to the electronic benefits transfer technology has improved administration of the programme, saved money and made it easier for low-income families to purchase nutritious foods for their families," she said.

The Food Stamp Programme provided an average of $1.52 billion (€1.23 billion) a month in benefits in fiscal 2002. Participation has now grown to nearly 24 million people a month and that figure could continue to climb as it is estimated that only three of five eligible people are participating.

When states use EBT to deliver food stamp benefits, participants receive a plastic card with magnetic stripe (similar to a debit card). They use this card to access their food stamp EBT account at authorised food retail outlets. Along with the EBT card, they receive a personal identification number (PIN) to protect their benefits from unauthorised use.

Some states mail the EBT card and then the PIN a few days later. Other states deliver the EBT card over the counter.

Food stamp benefits are automatically deposited into the food stamp EBT account once the participant is determined eligible to receive them. A worker at the local food stamp office tells the participant which day of the month the money is deposited.

When eligible items have been totalled at the store's cash register, the participant passes the EBT card through a point-of-sale (POS) terminal at the checkout.

In most cases, the POS terminal connects with a computer where the food stamp benefits are stored. In some states, the benefits are actually stored on the card.

The cost of the food stamp items are subtracted from the amount in the food stamp EBT account. Once the transaction is complete, the participant receives a receipt that shows the amount of the food stamp purchase and the amount remaining in the EBT account.

The advantages of EBT technology over paper coupons mean that participants use their EBT card as any shopper would use a debit or credit card and so there isn't the embarrassment of handing over food stamps at the cash desk.

Participants can only buy food with the money because they cannot withdraw unused money as cash.

New York state began rolling out EBT in phases in March 1999 and completed it in all boroughs by 2001, according to Mr Jack Madden, spokesman for the New York state office of temporary and disability assistance in Albany.

New York state also switched its cash welfare benefits to this technology and included it on the same debit card as the food stamps.

EBT "provides savings for the state's tax payers," Mr Madden says.

"It's a more efficient and effective way to deliver cash benefits for welfare and benefits for food stamps. It also provides protection against theft and is more convenient and safer for the participant."

Instead of receiving a welfare cheque, participants can now go to an ATM to withdraw their benefit money. New York deals with 1.1 million cases a month, with 830,000 food stamp participants and 264,000 cash welfare benefit cases.

In implementing its EBT programme, the state joined with a consortium of six New England states (Maine, Vermont, New Hampshire, Massachusetts, Rhode Island and Connecticut).

"These states brought in extra numbers so there was better volume and the price came down," Mr Madden says.

The state signed a seven-year contract with Citicorp in March 1996 to administer the programme. Because of delays in getting the project going, the contract runs until March 2005.

Citicorp sold the EBT part of its business to JP Morgan in late 2003. The government pays JP Morgan to run the programme and the contract is worth about $21 million a year (it's based on the number of monthly participant transactions).

This amount includes all services, such as the distribution of cash assistance, food stamps, card production, vendor payments and other services including the help desk.

New York has, on average, seven million transactions a month for food stamps as well as one million transactions for cash.

The Food Stamp Programme traces its origins to the Food Stamp Plan, which began in 1939 to help needy families in the Depression era. It restarted as a pilot programme in 1961 and was made permanent three years later.

Expansion of the programme occurred most dramatically after 1974, when Congress required all states to offer food stamps to low-income households. The Food Stamp Act of 1977 made significant changes in programme regulations.

Now with the full implementation of EBT, the term food stamps becomes redundant. So, the USDA is looking to the public for a new name for the scheme.