September 21, 2014

Card Game

John D. McKinnon | 9/1/1995
After years of delay, state and federal officials finally are taking steps to convert Florida's vast government benefits business from a paper-based system to electronic debit-cards. Financial institutions are fighting tooth-and-nail to win the bidding to run the system, which would start up early next year.

Not everyone thinks it's a fair fight. Transactive Corp. of Austin, Tex., has filed suit in Washington, D.C., to block the federal bidding process, which covers Florida and several other Southern states. The company is getting encouragement from some members of Congress. Another lag in Florida's long-delayed conversion to electronic benefit transfers (EBT) now appears to be a real possibility. That could hurt not only banks, but also merchants, benefit recipients and ultimately taxpayers.

Here's what's happened: For several years, Florida has trailed some other states in developing an electronic benefits card for state-administered welfare programs such as food stamps and Aid to Families with Dependent Children. In large part, that's because state officials wished to avoid a repetition of the nightmare they experienced with the state's first efforts at large-scale welfare computerization, the costly and crash-prone FLORIDA eligibility system.

For this reason, Florida joined the Southern Alliance of States (SAS), a group that was being formed to hire a single contractor to run all the region's benefit cards. At about the same time, the Clinton administration decided to make electronic benefits transfers a centerpiece of its government reform efforts. The administration worked out an agreement with SAS to piggyback federal direct payments such as Social Security on the group's card and also set up a bidding process to pick the group's lead bank.

Now, Florida is poised to begin rolling out the first SAS card in test markets in Pensacola, Jacksonville and Miami beginning next year. The card could be used in automatic teller machines and point-of-sale card readers in authorized stores. Benefit accounts would be maintained on computer by the lead bank or a subcontractor. Eventually, EBT boosters say as many as 50 to 60% of Floridians could have the card - a telling comment on how dependent the state has become on entitlements.

But this spring, card-service provider Transactive Corp., a subsidiary of lottery giant GTECH, filed suit, claiming the current contractor selection process is unfair. For political junkies, there's a delicious twist to the story. The recently hired head of Transactive Corp. turns out to be Greg Coler, the former secretary of Florida's Department of Health and Rehabilitative Services, who oversaw the development of FLORIDA. Coler has defended his actions in the FLORIDA fiasco, saying the system was in good shape when he left office in 1991.

In its suit, Transactive claims it was wrongly shut out of the process because officials chose to seek bids under a special federal procurement process called an "invitation for expression of interest" (IEI). The effect of this process was to limit the competition to banks. Since Transactive, which operates a state-benefits card network in Texas, isn't a bank, it objects to the IEI process, calling it unfair. Transactive contends the federal government should use the arguably slower request-for-proposal procedure, which is open to non-bank providers, too.

Transactive is getting sympathy in Congress, where some members worry that the Clinton administration's one-card approach is both unfair and unwieldy. In the current political environment, it's also clear that GOP strategists worry that a successful EBT launch would give the Clinton administration a bragging point.

Banks stand to benefit from the switch to EBT cards. In addition to administration fees and extra ATM charges, the deal simply means more money to handle for the lead bank and its subcontractors.

Banks and stores alike are expected to benefit from the elimination of paper food stamps, which now must be counted and estimated a dozen times during their brief life cycles. "It's going to be great," says Bruce Congleton, a lobbyist for Florida Food Industries Inc., the grocery trade group. The government even plans to offer help to small stores that don't have card readers.

If EBT is delayed again, the public might be the big loser. Beneficiaries in preliminary tests reportedly like the enhanced security and dignity they gain through the cards. And taxpayers gain from reduced levels of fraud - and increased levels of confidence in the country's much-maligned welfare programs.

Tags: Florida Small Business, Politics & Law, Business Florida

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