Is it a state or federal problem?

The Food Stamp Program

ILLINOIS had the highest error rate in eligibility determination (51.5 per cent) for the Food Stamp Program of any state in the country, according to a special report released by the U.S. Treasury Department in October 1975. When asked to comment, James L. Trainer, former director of the Illinois Department of Public Aid (IDPA), which administers the program, said in a Chicago Sun Times story on October 29, 1975: "I'm afraid the only response that I can make is in four letter words. It's a lot of nonsense, but nothing the USDA [United States Department of Agriculture] or the Feds do on this surprises me anymore." He added that the reporting requirements are "Mickey Mouse and stupid" and made it impossible to run an "effective program." Just a month later, Richard L. Feltner, an assistant secretary in USDA, was asked about problems in the Illinois Food Stamp Program. He was quoted by the State Journal-Register December 4, 1975, as saying: "The federal government may withhold funds from the Illinois Food Stamp Program to recover money lost when the state issued stamps to ineligible persons .... There is no workable club to hold over the states to make them want to do a good job." The obvious anger and frustration of the state and federal officials who made these comments grow out of a long and tangled history of government regulations, fraud, computer deficiencies and court decisions. This program is snarled in bureaucracy. Behind this snarl stand two pressing questions that desperately need answers: (1) What went wrong with the Food Stamp Program in Illinois? (2) What can be done to solve these problems? Illinois, like other states with large welfare programs, was caught in the crunch: escalating enrollments, overloaded welfare offices, anemic state administration and a national crackdown on fraud and error. To understand the current problems of the Illinois Food Stamp Program, it is first necessary to look at the 1971 effort of Congress to establish uniform benefits across the nation. Up to then, each state used its own public assistance formula for food allowances to calculate each household's food coupon allotment. As a result, the federal government had difficulty adjusting benefit inequalities

How it grew Once established in 1964, the Food Stamp Program grew rapidly, as most states joined. From 1974 to 1976, unemployment ignited explosive growth in participation and benefits. By mid-1975, the USDA was spending approximately $5.9 billion (60 per cent of its total budget for benefits to 19.5 million persons in the nation. The rapid growth magnified existing problems that the news media reported throughout the nation. In California, the courts affirmed administrative criteria that allowed "hippie communes" to receive food coupons. In Detroit, auto workers used food coupons to augment strike pay during the 1970 strike at General Motors. On campuses across the country, food coupons subsidized the education of graduate and undergraduate students. Some military, law enforcement and educational employees — with relatively low take-home pay but high fringe benefits — had enrolled for benefits. Coupons were being stolen, counterfeited and exchanged in black markets in the large cities. Careless certification and fraudulent applications were siphoning large amounts from the federal treasury. The U.S. Department of Treasury estimated that fraud and sloppy administration by the states in 1974 cost the federal government over $500 million — almost 20 per cent of the nearly 3 pillion spent that year.

16 / August 1977 / Illinois Issues

among the states and controlling total expenditures. In 1972, USDA required that each state adopt a standard set of calculation criteria — referred to as the "adjusted net income formula."

Problems in Illinois
In Illinois, this reform would have reduced benefits during a period of inflation and unemployment. The changeover would have decreased the total value of bonus food coupons distributed each month by $1.6 million dollars. Eighty-seven per cent of the families in Chicago public housing would have lost, on the average, over $15 a month. Illinois, New York and a few other states resisted the changeover, and the USDA granted extensions to July 1,1974. New York, the last holdout with Illinois, agreed to comply by January 1, 1975.

On September 10, 1974, James Trainor, who had just taken over as IDPA director under Gov. Daniel Walker, announced that Illinois would continue using its old food allowance formula to calculate benefits. A month later, Gov. Walker added his support to Trainer's position, saying he would not "cut back to needy people when food costs are rising." Walker threatened to seek court intervention if the USDA were to take an arbitrary position.

When the USDA began to emphasize economic sanctions and court action look unfavorable, the state negotiated a compromise. In June 1975, IDPA mailed out a form letter informing recipients that their benefits would be reduced when the new formula was implemented in July. The Legal Assistance Fund of Chicago (LAFC) filed a suit against the state (Banks v. Trainor) to prevent the changeover, contending that implementation of the formula by IDPA denied recipients due process. Because the letter did not give the information used to calculate the new benefit level, recipients had no opportunity to review and correct possible errors. On July 8, 1975, U.S. District Court Judge Perry ruled against the state. IDPA appealed to the U.S. Supreme Court on the grounds that the notification procedures ordered by the district court were not feasible. On March 22, 1976, the Supreme Court upheld Judge Perry's decision. Attorneys from IDPA worked with the Legal Aid Foundation and the court to establish a suitable procedure to inform applicants. During the summer of 1976 —four years after the initial federal deadline and two years after the last extension — Illinois implemented the new formula. By the state's own estimate, IDPA had been issuing approximately $ 1.6 million of overpayments per month from 1972 to 1976. USDA is reviewing the case to see if legal grounds exist to seek reimbursement from the state for one or two of these years.

Paying for delays
While processing files to notify recipients of their benefit changes, IDPA officials discovered that 14,000 recipients had been wrongly suspended from all food stamp benefits. In September 1976, the Illinois department moved the 14,000 files and two staff members from Chicago to Springfield, where files were manually reviewed. Just before Christmas, it was agreed between IDPA and the LAFC that recipients who were wrongly suspended would receive $2.63 million in lost benefits. Just a few weeks earlier, USDA had agreed to reimburse Illinois for this part of the settlement.

The state was sued, lost and is paying for noncompliance with federal regulations which specify that the state must complete the determination of eligibility for food stamps in 30 days and the authorization of benefits within 40 days. During the growing unemployment from 1974 to 1976, applicants swamped local IDPA offices for assistance from all programs administered by the department. Backlogs in unprocessed food stamp applications reached 26,000 during December 1975. As recently as February 1977, the offices in Cook County averaged 14 days from the time a person requested food stamp assistance to the time a staff person began the certification review. IDPA offices, particularly in Chicago, were not complying with the time limits, which

How it works Although the media portrays the Food Stamp Program as part of the "welfare mess," it started as part of U.S. agriculture policy to reduce commodity surpluses and improve nutrition. The U.S. Department of Agriculture (USDA) contracts administration of the program to the states and finances 100 per cent of the benefits and 50 per cent of administrative costs. Although the state finances none of the benefits, it must administer the program in accordance with detailed federal regulations. Illinois administers the Food Stamp Program in the Department of Public Aid (IDPA). A small Springfield bureau (21 employees with personnel expenditures of about $357,000 for fiscal year 1977) coordinates the implementation of federal regulations. Public Aid assigns the equivalent of another 229 employees in local welfare offices to food stamp work at a cost of $3.62 million. A welfare worker certifies eligibility and determines benefits as part of a larger process covering all of the state's public assistance programs. During a typical month in 1976, IDPA staff handled approximately 35,000 food stamp applications. Benefits are based on the recipient's adjusted net income and family size. The total dollar value of food coupons issued to each household increases with inflation. Once certified, the recipient is mailed an Authorization to Purchase card (ATP) and an Identification card by the Illinois comptroller. The ATP authorizes a sales agent to give the recipient a dollar value of food coupons (total allotment) in exchange for a smaller amount of cash (purchase requirement). The difference is called the bonus allotment of food coupons. For example, a four-member family with a net income of $250 a month pays $71 to receive $166 in coupons. In September 1976, 315,695 Illinois households (which included 880,777 persons) negotiated 409,635 ATP cards with sales agents. In that month, the households spent $16,260,148 of their income to receive a total allotment of $39,014,633; the bonus allotment was $22,754,485. Seventy-four per cent of these households were in Cook County and accounted for 76 per cent of the state's dollar value of bonus coupons. Of all food stamp recipients in Illinois during that month, 20 per cent (175,573 individuals) were not public assistance cases. During one year, between 250 and 300 million federal tax dollars flow into Illinois for benefits. The USDA operates 7 regional offices, with one in Chicago, to monitor the states' compliance with federal regulations, instructions, and memoranda. The Food Stamp Act mandates that USDA seek repayment for bonus food coupons that the federal treasury wrongly redeems due to fraud and negligence in the states' administration.

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meant that some applicants did not receive their food coupons for one or more months during which they were legally entitled to stamps according to federal regulations. In 1975, LAFC filed a complaint (Goldenson v. Trainor) against IDPA in the U.S. District Court in Chicago, requesting that Illinois pay damages to each food stamp applicant who lost benefits because IDPA did not complete authorization within the 40-day limit. The central concern of IDPA attorneys engaged in negotiations with LAFC was to limit the scope of the state's potential liability for damages. Here they confronted a serious problem: IDPA's computer information system for the Food Stamp Program had fundamental deficiencies. Incomplete information made it difficult to determine which applicants were certified within the time limits.

If the court awarded damages that were retroactive — in addition to ongoing — local welfare offices might have to go through their case files manually to determine which food stamp applications had not been certified within the time limit. To conduct a review of this magnitude (35,000 food stamp applications are reviewed in an average month), IDPA would have to hire and train sizeable numbers of new staff and face substantial disruptions in its other assistance programs.

Legal counsel for IDPA sought a settlement that would limit retroactive damages to the period when the information system was generating the necessary information. A tentative agreement was reached in late fall 1976, but IDPA officials were cautious about moving toward a settlement until Gov.-elect James R. Thompson's administration reviewed the case.

On April 2, 1977, the U.S. District Court ruled in favor of the plaintiffs. The state was ordered to pay retroactive damages to recipients whose benefits had been delayed, but only back to January 1976. The court directed IDPA to revamp its administration of the Food Stamp Program to comply with the time limit. Illinois is also paying ongoing damages of $100 to each eligible applicant who has not received benefits within 40 days of his application.

Fraud and theft
During the past three years, the USDA's Chicago Regional Office has stepped up its audits and reviews to check up on IDPA's administration of the program. During 1976, the regional office discovered that some recipients were buying food stamps with their original Authorization to Purchase (ATP) card one month and then using duplicates to buy more. When a recipient negotiates his original card and a duplicate for two or three months in a row. Public Aid's Investigation Office should investigate for fraud. Legally, a duplicate is issued only after a person files an affidavit that the original has been lost or stolen.

Once again the management information system was a source of problems. The auditing and control procedures for ATP cards did not provide the necessary information to monitor the issue and negotiation of duplicates. Also, the procedure IDPA used to audit emergency ATPs in its local offices was weak. As a result, theft and fraud by IDPA staff were difficult to trace. The Illinois Legislative Advisory Committee on Public Aid estimated in early 1977 that recipients illegally obtain up to 15 per cent of their coupons at an annual cost of $25 million to the federal government.

The Chicago Regional Office exerted pressure for IDPA to upgrade its audit and control system for the Food Stamp Program. The possibility existed that USDA would use formal sanctions and not reimburse a portion of the state's administrative costs for ATP cards, IDPA did revamp the audit and control procedures for ATP cards in 1976 and early 1977, but USDA will continue close review of Illinois' food stamp operation to insure effective implementation.

Currency exchanges
A federal grand jury uncovered a problem with personnel working in Chicago currency exchanges, which are sales agents for the Food Stamp Program in Illinois.

Mailmen are being robbed of mail sacks with the thieves' primary interest in the ATP and ID cards for food coupons. The thieves are apparently bribing personnel of some of the food stamp sales agents — primarily the 514 currency exchanges in Chicago — to negotiate large numbers of stolen ATP cards for food coupons. The coupons are then sold at a street price that is discounted from their face value. These coupons, along with counterfeits, supply the black market that exists in Chicago.

The USDA Regional Office will look carefully at the grand jury's findings. Although the USDA will not hold the state responsible for fraud by its subcontractors, the sales agents, there may be grounds to recover monies from the sales agents.

What needs to be done?
What needs to be done to reduce the food stamp problems in Illinois? As a result of court and USDA pressure over the past three years — as well as the recent economic upturn — some problems have subsided. The regional office reports substantial improvement during the last year-and-a-half. Between December 1975 and December 1976, IDPA reduced ineligibility errors from 62 to 39 per cent. The number of food stamp applicants who must wait more than 40 days for their benefits has been declining. As a result of the Goldenson decision, IDPA is increasing the staff for food stamp certification. New audit and control procedures for Authorization to Purchase cards are being implemented

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to reduce the problem of duplicates and theft by IDPA staff. But the illegal certifications that result from applicant dishonesty and staff fraud are difficult to halt.

Three other problems continue to create substantial costs: (1) theft of ATP cards from the mails, (2) illegal negotiation of duplicate ATP cards, and (3) counterfeit coupons. The costs are substantial. A conservative estimate puts losses nationally between $500 and $840 million in 1974. Illinois' part is about $25 million annually.

One way to reduce the losses is to substitute a food allowance check for the value of the free food coupons that IDPA calculates for an applicant on the basis of the adjusted net income formula. Under this arrangement, the Illinois comptroller would mail monthly food allowance checks with the same computer technology now used to mail state payroll and public assistance checks. ATP cards, sales agents and food coupons would be eliminated. Recipients would no longer negotiate ATP cards with sales agents to obtain a food coupon allotment. This change — relatively minor in terms of technology and procedures — would substantially eliminate problems of sales agent theft, fraud and food coupon counterfeiting.

The $5.5 million that the state pays (fiscal year 1977) to sales agents to negotiate ATP cards would be eliminated. This amounts to nearly half of the $11.3 million administrative expenditures for the program in Illinois in 1977. The change would also eliminate extra bookkeeping by grocery stores, banks in the Federal Reserve System and the federal treasury.

But this reform requires congressional action that will be strongly opposed for the following reasons. The proposal would require alterations in the philosophy and politics of the program. Its origins and rationale in agricultural policy would be completely lost to the welfare objectives. Groups inside and outside Congress will resist transferring the program's jurisdiction from the agriculture committees to the welfare committees. The proposal would raise moral indignation. Citizens can accept the government spending their tax dollars for food coupons to increase agricultural demand and supplement nutrition more easily than they can the distribution of "blank checks" to welfare clients. But such a position overlooks the costs of theft, fraud, counterfeiting and black markets to convert coupons to cash. The reform would also tend to reduce demand for food and agricultural products and may generate opposition from these interests. Finally, labor unions rely on food coupons to supplement strike funds and will resist changes.

What's likely to be done?
In light of this opposition, what reforms are likely to occur in the near future? Current authorization for the Food Stamp Program expires on September 30, 1977. Congress resumed deliberations on program reform and will pass some proposals that were stalemated just before last fall's election. These include reduction of benefits to recipients near the income ceiling in order to concentrate food coupons among the very poor. On April 7, 1977, U.S. Secy. of Agriculture Robert Berg- land proposed reforms similar to those Congress is considering — with one important exception: Bergland's proposal eliminates the purchase requirement. This would increase enrollments among families who do not participate because of the relatively large cash outlay needed to "purchase" the "free" food coupons. As a result of the combined changes, 1.5 million persons would be added to the 17.3 million currently enrolled without an expenditure increase — according to the Carter Administration. But elimination of the purchase requirement is a major source of controversy. During the last reform debates in Congress a consensus was developing to reduce total participation and expenditures. However, the new and more liberal Congress, backed by the Carter Administration, may be able to successfully oppose the old consensus in the House and Senate agriculture committees. The Carter administration views the current Congressional action as a stopgap measure; comprehensive welfare reform was one of Carter's most prominent campaign promises. Joseph Califano, U.S. Secy. of Health, Education and Welfare, is putting together a complex plan, announced on May 2, that would substitute a cash grant for Aid to Families with Dependent Children, food stamps. Supplemental Security Income and a public service job program. The proposal will not be sent to Congress until the fall but, if passed would require an additional three years to implement. The dramatic nature and magnitude of the changes make full-scale implementation doubtful.

In the meantime, the Food Stamp Program will continue with some changes. The increasing pressure from the courts and USDA to tighten up administration in Illinois will reduce certification delays, errors and hold down costs somewhat. The new accounting and information system for the ATPs will reduce duplicate negotiations and theft by IDPA staff. But costly problems still remain: theft of ATPs from the mails, the negotiation of stolen ATPs at currency exchanges, counterfeit coupons and black markets. These abuses will continue until Congress replaces the costly and cumbersome combination of ATPs, coupons, sales agents, etc. with a simple cash grant for food.

Quern wants changes by Congress "THE Department of Public Aid is engaged in a full scale effort to put our administration of the federal Food Stamp program in first rate shape," stated Director Arthur F. Quern on June 6. "Considerable progress has been made over the past several months. Quality control error rates continue to decline and many other problem areas are being addressed. "Administratively, we soon expect to be in full federal compliance. However, until Washington sees fit to bring all welfare programs under the same administrative jurisdiction and general rules, delivery of these services at the local level will be complex and imprecise at best. "The Food Stamp program is the closest thing we have to a national welfare program. Yet it is composed of a different set of federal rules, federal administration and eligibility standards from all other welfare programs. It is paper intensive and constantly subject to changing instructions. "While we have every intention to fulfill our responsibility to do the best possible job of administering this program in Illinois, real, lasting progress will only come with a fundamental restructuring of the Food Stamp program by Congress. "We hope positive changes will be forthcoming in this present Washington legislative session."

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