USDA ushers out paper food stamps

The paper food stamp is gone. Last week, Agriculture Department officials completed a 20-year effort to switch all 50 states to an electronic process for managing the $25 billion benefits program.

One USDA official described the Food Stamp Program's electronic conversion in personal terms. "A whole group of us began as social workers, and suddenly we became electronic bankers," said Tim O'Connor, acting associate deputy administrator for management at the Food and Nutrition Service, the federal agency responsible for the Food Stamp Program. In reality, the transition moved more slowly, O'Connor

acknowledged. Conversion to an all-electronic system took 20 years to complete and required cooperation from banks, grocery stores, state governments, Congress, the National Association of Clearinghouse Administrators and other groups.

Representatives from public interest groups and consumer organizations speak of the electronic food stamp system as a success. Although some technology groups had hoped to see smart cards play a greater role in the program's transformation, all but two states have issued magnetic-stripe debit cards to households eligible for the program.

And although USDA officials are pleased that fraud has been reduced by almost half with the new electronic system, they still have some administrative worries about the program on which 24 million people depend each month.

Program administrators did the right thing by persisting in completing the transformation that began in 1984, said Robert Atkinson, vice president of the Progressive Policy Institute and director of its Technology and New Economy Project. He said an all-electronic system "will improve security, reduce some fraud and maybe save money."

Program participants also like the electronic system because it serves their needs far better than the old system of paper coupons, O'Connor said. "We've eliminated an awful lot of stigma from the program." Paying for groceries with food stamp coupons, he said, "is about the most public thing you can do that announces you are poor."

Another advantage was demonstrated last summer during the power outage that hit several Midwestern and Northeastern states, said Ellen Vollinger, legal director at the Food Research and Action Center, a domestic policy group focused on eradicating hunger. During such emergencies, households typically have to discard spoiled food and apply for additional food stamps so they can replace perishables.

Last summer, however, Vollinger said, Michigan officials worked with the USDA and companies administering the Food Stamp Program to transfer a half-month's benefits to the electronic transfer accounts of those households in ZIP codes where the outages were severe, saving people another trip to benefits offices.

Plastic debit cards have been popular with participants. But proponents of smart cards maintain that the electronic benefits program could be even more effective if it relied on smart card technology. Wyoming and Ohio are the only states that use those cards to deliver food stamp benefits, but Ohio officials have said they plan to switch to magnetic-stripe debit cards.

"Smart cards make a lot of sense for these programs, but so far, they have not gained particular support within the states because of the perceived higher costs," said Randy Vanderhoof, executive director of the Smart Card Alliance, an industry group that promotes smart card technology. Vanderhoof said smart card prices have dropped since Ohio began its program several years ago.

A smart card, he said, would add no more than $50 to the $350 it typically costs to equip a grocery checkout line to handle the electronic benefits debit card. Smart cards have more capacity to store biometric information, he said, which makes them a better choice for benefits transfer programs.

"It depends on to what extent they want to address the fraud problem," Vanderhoof said. Standard magnetic-stripe cards cannot store the data needed for biometric matching of finger images, for example. The current debit card system relies on a personal identification number (PIN) to authenticate cardholders' identities.

PINs and debit cards have greatly reduced the rate of illegal trafficking in food stamps that 10 years ago was costing the program about $800 million, O'Connor said. Program losses from fraud have been cut to less than $400 million a year. "We're still not happy with where it is," he said, "but it's definitely moving in the right direction."

Program outlays are 25 percent more accurate than they were three years ago, USDA Secretary Ann Veneman said last week. So, for example, in the past three years, the program has paid $173 million to eligible recipients who otherwise would not have received food stamp benefits, she said. Likewise, erroneous food stamp payments have dropped by nearly a half-billion dollars in three years.

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