Citicorp and other banks have gotten the green light to be the chief providers of electronic systems for delivering welfare and other benefit payments.
An 11th-hour addition to the Federal budget bill invalidated a recent court decision that questioned the Treasury Department's authority to use banks as prime contractors for electronic benefits transfer.
Signed into law Monday night, the development gives Chicago-based Citibank EBT Services the go ahead to deliver $13 billion in electronic benefits to the Southern Alliance of States, a coalition serving over nine million recipients. The contract has been estimated to be worth $400 million in revenues.
The court ruling had jeopardized Treasury-initiated pilot programs awarded to Citicorp.
Under the congressional revision, the designation of banks as financial agents for EBT is "an appropriate and reasonable use of the Secretary's authority."
Additionally, the law exempts the process from "judicial review."
Experts said the law will be a final defeat for Transactive Corp., an Austin, Tex.-based processing company that sued the government in hopes of getting access to the same contractual rights as financial institutions.
The U.S. Court of Appeals for the District of Columbia had ruled that Treasury Department's requirement to use banks to deliver benefits was "mistaken." Given the legislative change, that ruling "is moot," said a senior Treasury Department official.
The case will return to the courts, where it is expected to be overturned.
"We'd be delighted if we're able to move forward," said Mark MacKenzie, executive director, Citicorp Services Inc. "We're well equipped to support the Southern Alliance and Treasury."
The legal battle, initiated in March 1995, threw confusion into the EBT arena, an emerging payment system seen as lucrative for banks. The development may encourage financial institutions to enter the ring, presently dominated by Citicorp, which has won contracts with 26 states. Other banks actively pursuing EBT contracts include First Union Corp. and NationsBank Corp.
Transactive is "reviewing our options," said Marc Palazzo, a spokesman for the subsidiary of lottery processor G-Tech Corp. "This action is an insult to the extensive legal review and deliberation of the U.S. Court of Appeals," he said.
Mr. Palazzo said the legislation "was added in a clandestine manner during the waning hours of the congressional session."
Even so, Thomas Greco, associate general counsel for the American Bankers Association, said the law "should end any controversy with respect to the use of financial agents."
Melba Price, chairman of the Southern Alliance, said the group is "very pleased with Congress' action." The affected states actively lobbied for the legislation, she said.
A Mississippi pilot is slated to begin in early 1997, delayed by only three months. Had the Transactive victory been upheld, Ms. Price said states would have been forced to reopen the bidding process, adding delays of up to two years.
States have been banding together to gain the economies of scale that reduce prices for the delivery of EBT services. Other groups, including the Northeast Coalition and the Western States EBT Alliance have used the more traditional request for proposal bidding process to award contracts. Citibank was the winner in the Northeast and the West. It also provides services for Ohio, North Dakota, South Dakota, and Texas.
EBT, which streamlines the delivery of welfare benefits, food stamps, and other assistance payments, has been championed by vice president Al Gore. In its desire to reduce Federal government spending, "The Office of Management and Budget has supported EBT," said an administration official.
Experts believe the new law will have broader implications, and may be applied to other Federal programs in the future, such as the delivery of social security and veterans benefits.