An unanticipated consequence of the Telecommunications Act of 1996 may be throwing a wrench into states' electronic benefits transfer programs.

Under an October 1997 ruling by the Federal Communications Commission, states must bear the cost of "800"-number calls that welfare and other aid recipients place from pay telephones to the government agencies that run these programs.

As these bills start to come due, state officials say, they have become yet another costly hindrance to their efforts to convert welfare checks, food stamps, and other such paper to cards and electronic funds transfers.

With the FCC letting the owners of pay phones charge "800"-number providers 28.4 cents a call, "the whole EBT universe is shaking and baking," said William Kilmartin, state comptroller of Massachusetts. "No one was expecting this. It sort of came out of nowhere."

All states are required to have a benefits transfer system operating by 2002, as stipulated by the welfare reform law of 1996. Much of the benefit money comes from the federal government, but the states are the administrators.

States are required by the Department of Agriculture to maintain free help desks for food stamp recipients. The toll-free lines let people report lost and stolen cards, change their personal identification numbers, and check account balances.

In Massachusetts, for example, the EBT help desk received more than 60,000 calls from pay phones in December 1997. At that rate, the state would owe telephone companies more than $200,000 a year.

States are mulling their options. They could pay the bills; seek to scale back benefit recipients' telephone access in some way that federal agencies could approve; or they could mount a legal challenge against the FCC's interpretation of the 1996 law.

Bills for the telephone calls fall first in the laps of the companies like Citibank EBT Services and Deluxe Electronic Payment Systems Inc. that have won contracts to run state EBT programs.

The contractors would then pass the phone costs along to the respective states. The Citicorp and Deluxe Corp. EBT affiliates have sent letters to state agencies offering two options: pay for the calls or have the calls blocked.

"We said to our customers, 'This is a service we haven't been contracted to provide,'" said Thomas McLaughlin, vice president of government and merchant services at Deluxe Electronic Payment Systems.

"The legal angle is being explored," said Melba Price, associate director for policy coordination at Missouri's Department of Social Services.

A few states have already taken action. Massachusetts, which relies on Citibank, has invoked a contract clause that calls for a 90-day dispute resolution period before legal action is taken. The two parties are attempting to reach a compromise through an independent arbiter.

Many states have not yet received bills from their contractors, who in turn are awaiting bills from telephone companies.

But some state officials have met with contractors to come up with alternative solutions. Citibank and Deluxe met with representatives of several states in Atlanta last month, for example, but state EBT coordinators are less than enthusiastic about the various proposals.

One would be to set up special 950 telephone numbers that circumvent the toll-free charges. But EBT directors say this option is still too expensive.

Another idea is to have states set up telephones in county offices, but that would restrict welfare recipients' access to help desks. Easy access to help is viewed as part of the mission of social services.

State officials point out that welfare recipients are less likely than others to have telephones in their homes. Ms. Price said that in some Missouri counties, as many as 50% of recipients do not have telephones.

Jeffrey Cohen, chief of the Department of Agriculture's EBT branch, said state systems were certified with the understanding that easy help-desk access would remain intact.

The states "should come to us with some impact analysis on how they would approach these situations," Mr. Cohen said. "The intention is not to close the door to any kind of changes. We just have to go about it in a deliberate manner."

The states and contractors are also talking about a long-term legislative fix, like amending the Telecommunications Act to exempt certain government agencies. A Senate Commerce subcommittee has scheduled a hearing for April 15 on the phone-charge issue.

The pay-phone reimbursement rule is also making waves outside the world of EBT. Any government agency and business that operates a toll-free number is affected, and some states say the change may cost them millions of dollars annually.

"I don't think Congress saw the impact of this on the government and the consumer," said Mr. McLaughlin of Deluxe. The FCC has "ended up pushing this cost over to the government agencies at a time when government agencies are cutting back."

"Time is of the essence here," said Mr. Kilmartin. "These charges are accumulating. We need to have some time to work out a short-range solution and a more permanent solution."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.