[Congressional Record Volume 140, Number 35 (Thursday, March 24, 1994)]
[Extensions of Remarks]
[Page E]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: March 24, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                          WELFARE REFORM BILL

                                 ______


                        HON. GERALD B.H. SOLOMON

                              of new york

                    in the house of representatives

                        Thursday, March 24, 1994

  Mr. SOLOMON. Mr. Speaker, Thomas Jefferson once said ``A departure 
from principle in one instance becomes a precedent for a second; that 
second for a third; and so on, till the bulk of the society is reduced 
to be mere automations of misery, and to have no sensibilities left but 
for sinning and suffering.'' In this regard, welfare reform seeks to 
meld responsible policy with fiscal realities. I firmly believe that 
welfare reform and deficit reduction are mutually inclusive goals. 
Responsible reform in welfare policy can result in both lower welfare 
levels and in decreased Government spending. As the Republic welfare 
reform bill demonstrates, comprehensive reform is possible through 
increased targeting of benefits, improved management of programs, and a 
tightening of eligibility requirements. The February issue of Reader's 
Digest portrays yet another reason why welfare reform is so essential 
both for society at-large and for the solvency of our Treasury. 
Consequently, I commend the article to your attention. It has raised 
the eyebrows of hundreds of my constituents, I hope it raises yours.

                         The Food-Stamp Racket


 crooks have turned this well-intentioned program into an illicit cash 
             machine--and taxpayers are stuck with the bill

                         (By Daniel R. Levine)

       Spyros Stanley was one of the wealthiest people in 
     Charleston, W.Va. He owned a bar and practically every 
     parking lot in the city. But, according to investigators, he 
     had also purchased $23,000 worth of food stamps--for a 
     fraction of their value--from welfare recipients and crack-
     cocaine dealers. Stanley was buying the stamps to purchase 
     food for himself and his bar.
       In Brooklyn, N.Y., J & D Meats, Inc., looked like a typical 
     big-city wholesaler, bustling with delivery trucks, vans and 
     forklifts. Its finances, however, were anything but typical. 
     J & D's owners were illegally trading meat for food stamps. 
     The wholesaler was converting the stamps to cash by 
     depositing them into the bank account of a retail meat market 
     it had once owned, but which was then out of business. In 
     nine years, J & D Meats redeemed $82-million worth of food 
     stamps at its bank.
       In Hampton, Va., food stamps became Lazaro Sotolongo's road 
     to riches. Penniless when he arrived from Cuba in 1980, 
     Sotolongo set up a drug ring that sold crack for food stamps 
     at 50 cents on the dollar. He converted the food stamps to 
     cash by selling them to unscrupulous authorized retailers. 
     Over three years he took in more than $1 million.
       Says Constant Chevalier, Midwest regional inspector general 
     of the U.S. Department of Agriculture (USDA):
       ``We've seen just about every type of fraud and abuse of 
     the food-stamp program you could think of.''
       In 1968, 2.2 million Americans received food stamps at a 
     cost of $173 million. Today, 27 million Americans are 
     enrolled in a food-stamp program that costs taxpayers $24 
     billion a year.
       Food stamps are available to anyone meeting certain 
     eligibility requirements, including individuals whose monthly 
     income is 30 percent above the poverty line. The eligibility 
     requirements are so generous that a family of four earning 
     $18,660 a year (and an individual earning $9,072) can qualify 
     for limited benefits. Maximum benefits for a family of four 
     with no income are $375 a month, while a family of eight can 
     receive up to $676 a month. The value of the stamps is 
     inflated to 103 percent of the cost of the government's basic 
     nutrition plan. This three-percent boost costs $850 million 
     each year.
       Even when required by law, getting Congress to cut food-
     stamp benefits is nearly impossible. Benefits are indexed for 
     food-price inflation once a year. But when food prices 
     dropped 1.3 percent between 1991 and 1992, Congress blocked 
     the law's automatic reduction in food-stamp benefits, 
     throwing a potential savings of $330 million out the window.
       At the same time President Clinton and Congress talk of 
     reducing the federal deficit, food-stamp spending will 
     increase by $3 billion over the next five years. Now is a 
     good time to take a look at what years of skyrocketing 
     spending have already produced.


                            Second Currency

       Once a month, a large percentage of food-stamp recipients 
     receive ``authorization to participate'' (ATP) cards in the 
     mail that show their monthly allotment based on household 
     size and income. They take these to a post office, bank or 
     check-cashing store and exchange them for food stamps, which 
     are used to buy food in authorized retail stores.
       But it's when recipients trade the stamps for cash or drugs 
     that the system breaks down. A typical fraud works this way: 
     A drug dealer approaches a food-stamp recipient outside an 
     issuance center and trades $50 worth of crack for $100 in 
     food stamps. The dealer then sells the stamps to a dishonest 
     authorized retailer for $75 in cash. The store then redeems 
     the stamps at a bank for their full value. As a result food 
     stamps have become a second currency used to pay for drugs, 
     prostitution, weapons, cars--even a house. Says Cathy E. 
     Krinick, a Virginia deputy commonwealth attorney, ``Food 
     stamps are more profitable than money.''
       In Camden, N.J., a USDA agent making an undercover 
     investigation into food-stamp fraud received a startling 
     offer in January 1991. Jack Ayoub, owner of a grocery store 
     authorized to accept food stamps, had already received $6700 
     in coupons from the agent for $3300 in cash. Now Ayoub 
     offered to trade a three-bedroom house for $30,000 in food 
     stamps and another house every two months using the same 
     scheme. After completing the first part of the deal, Ayoub 
     was arrested by federal agents.
       An art aficionado in Albuquerque, N.M., used food stamps to 
     fund his collection. He also owned a general store authorized 
     by the USDA to accept food stamps. But instead of milk or 
     eggs, he gave customers cash at 30 to 50 cents on the dollar 
     for their stamps. Then he redeemed them at the bank for their 
     face value. With his profits, he bought $35,000 worth of 
     stolen art.
       Food stamps are also easily counterfeited. Dennie Lyons of 
     New Orleans printed more than $127,000 worth of bogus stamps 
     and tried to sell them around the country. When caught, he 
     was sentenced to four years in prison, and his wife, 
     Johnette, got five years' probation for aiding him. But it 
     wasn't long before her phony food stamps were replaced by 
     real ones--soon after her indictment, she was admitted to the 
     food-stamp program.


                           Retailer Rip-Offs

       Only stores authorized by the USDA's Food and Nutrition 
     Service (FNS) can accept and redeem food stamps. But the 
     procedures for receiving authorization are woefully 
     inadequate. A retailer can receive certification merely by 
     filling out an application and stating that staple foods 
     account for over 50 percent of his sales. At the same time, 
     however, there are some 175 FNS people assigned to monitor 
     and investigate the activities of 213,000 authorized 
     retailers, of which 3200 are estimated to be illegally 
     exchanging stamps for cash.
       The FNS is so outmatched that even official sanctions don't 
     work. A USDA audit in 1992 found that there were ``no 
     effective procedures'' to prevent disqualified retailers from 
     continuing to accept and cash in food stamps. ``The 
     disqualification process is sorely lacking,'' says one 
     regional inspector general.
       Adds Craig L. Beauchamp, the USDA's assistant inspector 
     general for investigations, ``We are seeing more million-
     dollar-and-up frauds committed by retailers than we have ever 
     seen before.''
       In Toledo, Ohio, grocer Michael Hebeka was convicted of 
     fraud and permanently banned from the food-stamp program in 
     1984. Using falsified papers, he tricked officials into 
     believing he had sold his Ashland Market to an employee. Soon 
     the government reauthorized the store to accept food stamps, 
     and Hebeka was back in business. When he was caught a second 
     time in May 1991, he had already redeemed another $7.2 
     million in stamps.
       In Los Angeles, two small grocery stores bought food stamps 
     for half their face value in cash and redeemed them for their 
     full value. Between 1989 and 1992, they cashed in stamps 
     worth more than $20 million. For 16 months, one of the 
     markets averaged $19,000 a day in food-stamp redemptions--
     even though it had only $10,000 in inventory.
       In East St. Louis, Ill., Kenneth Coates, owner of Coates 
     Market, paid as little as 65 cents on the dollar for food 
     stamps, which he cashed in for full value. Over a year and a 
     half, he redeemed $1.3 million, enabling him to pay for his 
     children's private schooling and have enough left over for 
     $150,000 worth of stocks, at least five rental houses and a 
     Mercedes-Benz. This wasn't the first time Coates Market had 
     defrauded the food-stamp program. Ten years earlier, it had 
     been disqualified for fraud--only to be readmitted after six 
     months.


                         bureaucratic nightmare

       After Medicaid, the food-stamp program is the most 
     expensive in the federal welfare system, and one of the most 
     poorly run. Even when the number of recipients has dropped, 
     operating costs have gone up. In 1990 there were 600,000 
     fewer people on the rolls compared with 1981. But 
     administrative costs soared from $1.1 billion to $2.5 
     billion. The bureaucracy has grown so unwieldy that 
     mismanagement and inefficiency permeate the program.
       Most welfare programs are jointly funded by state and 
     federal governments. But food stamps are entirely funded and 
     regulated by Washington, while state and local agencies are 
     responsible for administering and distributing the coupons. 
     Essentially, states run the day-to-day operation of a program 
     in which they have little incentive to manage costs 
     efficiently.
       Mistakes are rife. In 1992, $1.7-billion worth of food 
     stamps were overpaid or sent to ineligible people. The 
     government has fined states that have high error totals, but 
     the penalties are rarely taken seriously. During the past 11 
     years, $869 million in fines have been levied, and only $5 
     million collected.
       With over $20 billion in federal food stamps circulating 
     every year and little reason for the states to manage them 
     effectively, it's no surprise that the program is easy 
     pickings for crooks--even those ``inside'' the system.
       In Detroit, the department of social services sent $26,000 
     in food stamps to Mae Duncan. But she didn't exist. The name 
     was one of 26 invented by Patricia Allen, a 39-year-old 
     social worker. Over a nine-year period, she collected more 
     than $221,000 worth of food stamps. In Baton Rouge, La., two 
     sisters who were social-service caseworkers issued $50,000 in 
     food stamps to nonexistent recipients. And in St. Paul, 
     Minn., nobody noticed when a state clerk pocketed $180,000 
     worth of returned food stamps in nine months.
       Of the $24 billion taxpayers fork over for food stamps, 
     nearly $2 billion is lost to fraud, waste and abuse. Says 
     welfare and social-policy expert Charles Murray of the 
     American Enterprise Institute, a Washington, D.C., think 
     tank, ``This is a program that for three decades has grown 
     year after year, without any evidence that it should grow.''
       Clearly, radical reform is needed. Here's what can be done:
       1. Tighten eligibility. Food stamps should be focused on 
     helping the neediest Americans--those living at or below the 
     poverty line. Lowering the income eligibility ceiling to that 
     level (except for families with elderly and disabled members) 
     would guarantee that taxpayer dollars are going to those who 
     truly need assistance.
       2. Cut excesses. Reducing benefits so that they reflect 100 
     percent, rather than 103 percent, of the government's basic 
     food plan would save $850 million annually. And states with 
     excessive error rates in administering food stamps should be 
     forced to reimburse the federal government for the lost 
     money. If incentives are put into place, taxpayers could be 
     saved hundreds of millions of dollars each year, and 
     recipients would be served more efficiently.
       3. Crack down on criminals. Last August, Congress passed 
     legislation introduced by Sen. Mitch McConnell (R., Ky.) 
     toughening penalties against recipients and retailers 
     convicted of food-stamp trafficking. This is a good start, 
     but much more can be done. Recipients should be permanently 
     barred from the program the first time they are caught 
     trading food stamps for drugs, just as they are when they 
     trade for weapons, ammunition or explosives. Now they are 
     given two chances.
       As for retailers, information they provide the FNS, such as 
     sales-volume and coupon-redemption data, should be shared 
     with federal law-enforcement officials. Currently, only other 
     welfare agencies are allowed to see these numbers. Also, 
     tougher standards should be imposed before retailers can be 
     certified to redeem food stamps and after a store has been 
     disqualified. Regular store visits and interviews with the 
     owners should be the rule, not the exception. Some of the 
     savings from the program should be used to hire much--needed 
     additional FNS investigators.
       Ultimately, however, it is up to Congress to control the 
     rapid growth of food stamps. But over the program's 30-year 
     history, Congress has rarely taken the bold steps necessary 
     to rein in costs. Eliminating illicit trafficking and 
     ensuring that food stamps reach only the neediest Americans 
     in a cost-efficient manner should be a top national priority.

                          ____________________