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Inventing Durable Solutions to Welfare Fraud

The late Supreme Court Justice Louis Brandeis once famously referred to state governments as  laboratories of democracy. It is at the state level that lawmakers who are closer to their constituents than the Congress craft legislative solutions to solve the pressing issues of the day.

If that’s the case, then there are a lot of state lawmakers walking around places like Springfield, Albany and Austin in their white lab coats trying to discover how to eradicate the thorny issue of welfare fraud.

In early 2012 as a sidebar to the Middle Class Tax Relief and Jobs Creation Act Congress for the first time sought to reform the Temporary Assistance to Needy Families, or Tanf, program. This is the grant program, jointly funded by the states and the federal government, that provides cash subsidies to poor families and is often called as welfare.

The law cracks down on the use of Tanf money by beneficiaries at what I call vice locations: liquor stores, casinos and adult entertainment (read strip clubs) venues. That all sounds well and good, but it is going to be difficult if not impossible to enforce the law from Washington, which seems to have its own law enforcement issues these days.

So rather than waiting, a host of states are getting into the act, looking for their own solutions to the misuse of cash benefit programs like Tanf. A recent survey shows that there are some 40 bills pending in state legislatures across the country that would in one way or another tighten up on misuse of welfare reform. Some states have multiple bills pending. New York and Illinois, for example, are considering three bills. Tennessee legislators are sorting through four.

Three states—California, New York and Indiana—are considering whether to mandate a “systemic” solution to misuse of benefits. Since many benefits, like Tanf, are delivered to beneficiaries via an electronic benefits transfer system, a systemic solution would vest in the EBT system the intelligence to decide whether a payment card was issued by the government and therefore should not be honored at a specific location.

At least seven states—Illinois, Massachusetts, Oregon, Pennsylvania, Rhode Island, Tennessee, and Texas—are looking to strengthen security in these benefit programs by switching in some way to photo I.D.s.

The problems with the new federal law is that states will be responsible for policing fraud according to yet unwritten rules into which they have had limited input. The effect on fraud will be limited at best. Those states which fail to clean up their acts will see their Tanf grants cut by five percent. This ancient moribund solution, which penalizes everyone for the sins of a few, dates back to the days of imperial Rome. States, on the other hand, are closer to the problem. They can take enforcement down to the level where it should be: the beneficiary and the sin venues where the EBT cards are used.

For example, in Arizona, liquor stores could lose their licenses for accepting EBT cards. In Missouri, beneficiaries who use their cards for purchase of forbidden goods or services could lose their benefits for up to three years. Rhode Island would suspend retailers from the Snap, formerly food stamp, program who fail to validate the identity of shoppers presenting EBT cards for payment.

Perhaps most creative is an Illinois bill that would force the state’s Human Services Department for the first time to share recipient information with the Department of Corrections to prevent cons from receiving public aid while they’re locked up.

Most of these bills will never make it out of committee, let along make it to a floor vote. But they show the ingenuity that lawmakers are using to solve a local problem that has become a national one. Congress was right to address this problem, but states know welfare fraud first hand. They’re the ones better positioned and more experienced in crafting longer lasting, more effective solutions to the misuse of taxpayer dollars.