[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.
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