The “Preemption Problem” – How TANF Blocking Could Get Out of Hand

It’s been about 15 months since Congress passed a bill that included a requirement that welfare cash assistance (TANF) be blocked at ATMs and point-of-sale devices located in liquor stores, casinos and adult entertainment establishments. The law specified that states submit TANF blocking plans to the federal government by 2014 or be subject to reductions in the program’s block grant assistance.

Last April, the U.S. Department of Health and Human Services sought public to understand the challenges states and vendors may have implementing these plans. EFTA wrote DHHS and the Office of Family Assistance in June. HHS has yet to publish any final rule.

Congress did not invent the TANF blocking idea. As in most cases of federal law making, Congress adopted the approach taken in some states (California notably here). Congress must decide during the legislative process whether to preempt the states from passing stronger (and in many cases different) laws than the federal standard. It’s not the chicken and egg debate, but more of a the ceiling and floor debate. With apologies to Bard William Shakespeare, to preempt or not to preempt, that is the question. In the case of TANF blocking, Congress opted to preempt current and future states laws on TANF blocking. Thus, we have a floor and not a ceiling.

Many state legislatures were already well into their respective sessions when the TANF blocking law was enacted last year. So, state legislative action on TANF blocking was light in 2012 at best. However, 2013 has been a different story. State legislatures have had time to prepare for the issue and may have viewed enacted legislation as an important step in certifying to HHS that a TANF blocking plan indeed does exist. That’s all well and good. But, Houston, we are beginning to see a problem.

Certain states have proposed to expand the scope of the current federal law. This makes compliance and operational execution more and difficult and costly for companies who contract with states to deliver Electronic Benefit Transfer (EBT) cards services. Let’s take the case of Indiana. Last year, Indiana passed a law merely requiring signage at ATMs and POS terminals that cash assistance could be not be drawn at the following locations: liquor stores, race tracks, off-track betting sites, casinos, gun stores, nightclubs, bars and bingo halls.

 Just recently, Gov. Mike Pence signed into law a bill requiring ATM and POS owners, vendors and third party processors to disable access to EBT benefits at these venues or suffer stiffen penalties (possibly even criminal penalties). To make matters more difficult, the Indiana law is giving a very short (and impossible) timeframe to comply with the law (July 1, 2013). One state greatly expanded the scope the banned locales, imposed harsher penalties and gave an impossible compliance timeframe. One state down and 49 more to go.

I’m not predicting Armageddon here. I’m not suggesting that limiting access to public assistance funds at certain locations isn’t a worthy debate. Legislators and businesses providing EBT services to states serving needy individuals need to be active dialogue on what works best and is most cost-effective. Complying with a patch-quilt of state laws is never easy. There’s a solution out there and it’s not in arbitrary deadlines and stiff penalties.

Welfare Fraud: Let's Get the Story Right

By now you’ve probably heard or read the news stories about the use of state Electronic Benefits cards in vice locations like liquor stores, gaming halls, and strip clubs. Bill O’Reilly of Fox News, the New York Post the National Review and influential blogger Michelle Malkin have all weighed in on this misuse of taxpayers’ dollars this week.

Let me say from the start, I think it’s reprehensible that an adult would take money intended to help poor children—to provide clothing, shelter and the necessities of life—and use that cash for their own gratification-booze, broads and bingo.

But to read or see the stories this week you would think that 435 Congressmen, not to mention countless staff in multiple executive agencies, the White House, states, contractors and program regulators neither knew nor cared about what was going on. Nothing could be further from the truth.

The Electronic Funds Transfer Association and its eGovernment Payments Council have worked diligently with various government agencies over an extended period of time to solve this problem. Here’s the backstory you didn’t hear from the media this week:

In December 2011 EFTA and eGPC representatives met with the General Accountability Office to define the problem of misuse of welfare funds and talk about what solutions would be practical in solving it.

In January 2012 eGPC launched a survey of the 50 states to determine the extent of the problem and steps that states had taken to resolve it, since states are empowered by law to administer the electronic benefits programs.

In February 2012 eGPC began work on a white paper, Restricting Access to Tanf Funds at Specific Merchant Locations. Tanf is the acronym for the program that distributes cash subsidies to poverty-stricken families.

Also, in February Congress passed, and the president signed, the Middle Class Tax Relief and Job Creation Act.  Section 4004 of that bill specifically made accessing or using Tanf benefits in liquor stores, casinos or strip clubs illegal.

On April 17 of last year EFTA met with regulators from the Department of Health and Human Services, the federal agency in charge of the Tanf program to discuss how DHHS would work with states to enforce the law. Chairing the meeting was Mark Greenburg, Deputy Assistant Secretary for Policy, Administration for Children and Families. ACF is the branch of DHHS responsible for Tanf.

A week later, EFTA hosted a webinar on the issue to explain to explain the new law and what states could do to comply with it. Mr. Greenburg, who would be in charge of regulating states’ compliance with the law, participated in the webinar, a sign that DHHS considered this a serious regulatory matter.

On April 25, 2011 DHHS published a request for public comment on the new law and how states should go about enforcing it.

Two days later eGPC released Restricting Access to TANF Funds at Specific Merchant Locations.

In May, the eGPC conducted another survey of states, this time to gauge exactly the extent of the problem on a state level.

On June 4, 2012 EFTA, on behalf of itself and its eGovernment Payments Council, responded to DHHS’ request for public comment with a 12-page reply. The comment letter included the results of the May survey of states, technical information, and recommendations on how to best enable compliance with Section 4004.

In addition, scores of interested groups, companies and individuals submitted commentary to DHHS on compliance with Section 4004.

Finally, in July of last year the GAO issued its long-awaited report, Tanf Electronic Benefit Cards: Some States Are Restricting Certain TANF Transactions, but Challenges Remain.

Since then DHHS regulators have been engaged in the federal regulatory process: drafting regulations to ensure compliance with the law, reviewing them, putting them out for public comment one last time, and issuing the final regulations. This isn’t bureaucracy. It is part of our system of getting laws enacted and enforced in a fair, transparent and democratic way. I’m sure enactment of laws is faster and easier in Cuba or China.

So images of pole dancing, cheap liquor and slot machine tendonitis  may make for good copy, but they do very little to inform the debate on welfare fraud. And while most sane people want these tax dollars spent the way Congress intended them, stories of Tanf-financed strip trips do nothing to advance that cause.

Next time one of these stories comes up let’s hope the media takes 20 minutes to dig in and find the real backstory.