Currency Events

Very few statistics from North St. Louis end up influencing the Index of Leading Economic Indicators. That section of the city, like similar sections of many other urban areas, is part of an alternative economic system where currency exchanges act as local banks, food stamps are common capital and monthly bus passes are valued like blue-chip stock. That's all about to change, though, as welfare recipients -- and the profits they represent -- become the hottest commodity around. Beginning next April, people receiving public assistance in St. Louis, Kansas City and eight rural counties in Missouri will take part in a pilot welfare-reform program called the Electronic Benefit Transfer (EBT) program, which will be administered by the multimillion-dollar, international mega-banking conglomerate Citibank and its subcontractors, Lockheed Martin Information Management Services and Deluxe Data.That move toward privatization, expected to save the state $24 million over the next seven years, is the result of the federal push to cut the cost of welfare programs. With passage of the recent welfare-reform law, which block-grants federal funds for social services to the states, private businesses can now be handed everything from food-stamp distribution to total administration of state agencies. According to the U.S. Department of Agriculture (USDA), which administers the federal food-stamp program, 41 states have already implemented or have plans to begin EBT programs. It's expected that within the next 10 years free enterprise will encompass not only the administration of welfare benefits but also Social Security, veterans' retirement benefits, student aid, unemployment insurance, railroad-retirement benefits, federal pensions and military pensions.But don't expect taxes to go down as a result. Expect, instead, to see the profit margins of for-profit corporations like Citibank to shoot up. In Texas, for example, three major corporations are bidding on a state contract that would virtually eliminate governmental control over the welfare program by handing the winning bidder as much as $560 million a year and then letting them run the program pretty much at will. "For many years the states have had the ability to make use of contracts withprivate organizations for services, but states were not authorized to turn over the basic process of determining eligibility for assistance," says Mark Greenberg, senior staff attorney with the Center for Law and Policy in Washington, D.C. "Under the new federal law, states can now do that. Until now, there were federal requirements that said if a family met certain eligibility requirements, the state had an obligation to provide assistance. Those requirements have been eliminated, so it creates a risk of creating a structure in which private entities might maximize their profits by minimizing the provision of assistance to needy families."Missouri's EBT program isn't quite that radical; Citibank will not determineeligibility of welfare recipients. It will simply manage the mechanical aspects of EBT, which consists of benefit cards, similar to ATM cards, that will be swiped through a computer or ATM every time a food-stamp recipient buys food or a cash-assistance recipient needs cash. Citibank makes its money through a flat monthly fee paid by the state and through transaction fees paid by recipients."In Texas they're going to contract out the entire welfare system," says Gary Stangler, director of the Missouri Department of Social Services (DSS). "Three of my counterparts from around the country have now joined Lockheed Martin. "But I don't see this state going down that road as far, because this administration has been committed to a community-based process," Stangler continues. "It's my belief that where welfare-reform efforts have really succeeded, they have been local efforts, uniquely designed and tailored to the assets of a particular community, and very often have a charismatic leader or champion. None of those three things do you get by contracting out to a large corporation."The idea of EBT, in and of itself, is a good one. The fraud and theft associated with food stamps will virtually be eliminated, and there's little doubt that private companies can do a more efficient job in handling paperwork than governmental agencies."The primary motivator," says Stangler,"was the difficulties involved with having a secondary currency out there: food stamps that are so easily converted fraudulently. Secondly, most welfare recipients do not have personal bank accounts. They are, therefore, subject to the vagaries of the marketplace in terms of the charges they must pay to cash a check."The profit motive, however, looms ever larger over the picture. In Missouri, Citibank will run the EBT program for some 300,000 households and will charge the state 33 cents in transaction fees for the first two transactions of every recipient per month. After the two free monthly swipes, the recipient pays the transaction fee -- only this time around it's 85 cents per swipe, not the 33 cents that the government pays."I find it outrageous," says Barbara Leyser, a consultant for the Center for Law and Policy. "So the government gets this wonderful discount, and the bank makes up for it by charging recipients. It's inequitable, because every document I've seen indicates that a majority of recipients will need more than two transactions a month."Stangler says 85 cents is cheaper than what many welfare recipients now pay to have their checks cashed. "If you tried to cash your welfare check in certain places in St. Louis, we have found rates that are as high as $8 to cash just one check. You've got a captive audience."Al Leving, owner of 16 currency exchanges in the St. Louis area, points out that under the current system welfare recipients typically receive their cash-assistance checks in the mail, then cash them at a nearby currency exchange, where they can also pay their bills and pick up their food stamps. "We're the bank of the inner city," Leving says, "but I've never charged more than 2 percent of the check for a check-cashing fee. We just raised our money-order fees from 50 cents to 59 cents, while banks typically charge $2. But we're the bad guys."With EBT, cash-assistance and food-stamp funds will be automatically deposited in a special account. Recipients can only access their food-stamp money by buying food at a store that has an EBT machine. The state is required to provide any retailer with the EBT machine, but it's a machine that will only access food-stamp funds -- not cash-assistance funds. It is not an ATM.In order for recipients to get to their cash-assistance funds -- to pay a bill, for example -- they have to go either to a store that has purchased an enhanced EBT machine (really just an enhanced credit-card machine) or to an ATM. Therefore, for a currency exchange to continue serving welfare recipients, it must either buy an enhanced EBT machine and then start selling food or purchase its own ATM. "And that's cost-prohibitive," Leving says. "ATMs are really only for banks. Oh, some large stores have them, but they can cost upwards of $20,000. So it hurts not only the currency exchange, it hurts the inner-city merchants, too."Most inner-city merchants can't begin to consider investing in an enhanced EBT machine, let alone an ATM. Eddie Mae Binion, whose family owns Dr. J's in St. Louis, worries she'll go out of business once EBT comes to town. Her business is a small grocery store and one of the few in the neighborhood to survive the economic atrophy of North St. Louis. Most of the currency that's passed between the steel bars above the store's counter consists of food stamps and small change. Not that third-party vendors -- companies that sell credit-card machines adapted for EBT -- haven't made an effort to get their products into her store."It's going to kill small businesses like this one, because of these third-party processors," Binion says. "And let me break down who the third-party processors are -- these fools running around out there selling EBT machines for $2,000 to $3,000 that we have to buy if we want to access food stamps as well as benefits. There's a whole bunch of them out there foaming at the mouth. I mean, can you picture someone coming in here with a MasterCard for $1 worth of bologna? Or a 25-cent bag of chips? First of all, people in this community don't even have a MasterCard. No. 2, if they did, do you think they'd buy a 25-cent bag of chips with it?"If I didn't buy the expensive EBT machine that would access benefits and just took the one from the state that accesses food stamps, I'd lose business, because what happens if you come in and want to buy $20 worth of food? I can swipe the card and take it out. But if you want to buy some soap powder or bleach, you can't buy it here, because you cannot purchase that kind of stuff with food stamps. You'll just go someplace else where you can buy your food and access your benefits at the same time." And if Binion did decide to buy the enhanced machine, it would create a different problem that she is not in a position to cope with. If, for example, 100 recipients decided they wanted their total cash benefits at one time (the average monthly cash benefit is $300, and remember that they only get two free swipes), Binion would have to have $30,000 on hand in her store. "We live month to month here," she says. "Where do we get that kind of money?" Leving has an idea. "Maybe they have $30,000 under their mattress. Then they wouldn't have to pay to borrow it from the bank," he says dryly. "The currency exchange is in the business of money. We borrow from the bank on a daily basis. We call the bank, we have money delivered in an armored car, and we deposit checks, which is payment for the loan. We do this daily. We're geared for this. The inner-city merchant is not. We have security. We have bulletproof glass that is over 2 inches thick. We provide safety checks for the clerks, the customers and the money."Most inner-city merchants only have guns under their counters. I have a friend who owns a sandwich shop, and he was robbed and hit over the head with a gun. I asked him what he was going to do to keep that from happening again, and he comes walking out with an automatic weapon. That's how he protects himself, and he's only selling sandwiches. What's a person going to do if they're giving out $30,000? It's ludicrous."One of the benefits of EBT is stated in a report issued by the federal Department of Treasury: "EBT can provide basic bank-like services in neighborhoods where no physical banks exist." Yes, well, if there are no physical banks, no ATMs and no nearby stores with enhanced EBT machines, it could create a bit of a problem."The card will work great in areas where you've got three or four grocery stores," says Glenn Koenen, director of the Circle of Concern food pantry, "but in large parts of St. Louis people have to use their food stamps at the local corner market. With EBT, you're putting a burden on those smaller stores, because they'll have to get involved in the electronic on-line system. If you're a Schnucks and you're already doing that for debit cards and check cashing, that's one thing. If you're a small retailer who's employing one person full-time and two people part-time, it's a different matter. It's much more of a cost to you. In rural areas this could be a realproblem."According to a report issued by the U.S. Department of Health and Human Services, the success of EBT (for the welfare community anyway) depends on sufficient access to benefits. This means enough ATMs and enhanced EBT machines in areas that are accessible to the recipients. Unfortunately, the report indicates that "both the banking and the welfare communities seem to agree that ATMs are not generally located in areas where the recipients live."But the state will save $24 million in the next seven years! (That, by the way, is less than 1 percent of the state's budget for the next seven years.) Meanwhile, private companies are getting ready to adjust their bottom line of assets. In Texas, the three companies that are contending for the state's contract are Lockheed Martin (worth $30 billion), Electronic Data Systems Corp. (worth about $12 billion) and Andersen Consulting (worth $4 billion). According to published reports, the state's contract could be worth as much as $1 billion to the winning bidder, who will essentially be administering the entire social-welfare program.But reports indicate that these and other businesses that are dipping into the welfare pot are also dipping into places they shouldn't be near. Lockheed Martin, for example, was bailed out several times in the past by the feds and is still behind in about $50 billion of its contracts with the federal government. Lockheed is also in hot water in Florida, where it has been accused of botching its $240 million welfare project, and in New York City, where a company executive admitted bribing city officials for private contracts in the 1980s.Others worry that politics will play a huge role in who wins what contracts in which states. According to one report, several large companies that expected to benefit from passage of the federal welfare-reform bill, including Lockheed Martin, Electronic Data Systems and Andersen Consulting, contributed heavily to lawmakers who were on committees responsible for passage of the original bill.

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