New York State has started its long-awaited conversion to electronically distributed food stamps and cash benefits.

Last week Citicorp Services Inc. began introducing the program to 12,500 households in Staten Island.

The job is expected to be completed in that borough next month and in the rest of New York City by yearend.

New York's plans for electronic benefits transfer were delayed for years by lawsuits and other complications. Citicorp Services-the Chicago-based Citigroup subsidiary that has captured most of the nation's EBT business- won New York's contract in 1996 but was promptly sued by two competitors over the way the award was made.

All states are required to distribute food stamps electronically by 2002.

After Citicorp Services finishes with New York City, it plans to move on to other counties in the state in 2000. When the work is completed, New York-with 773,000 food stamp and 467,000 cash benefit recipients as of October-would become the state with the largest benefit caseload wired for EBT.

Only California has a larger caseload, and it does not plan to start a conversion until after 2000.

New York's new EBT cards will function as debit cards, replacing a more cumbersome paper-based system for benefit access.

The U.S. Department of Agriculture said that 33 states had installed full or partial EBT systems as of January. New York's caseload will boost nationwide traffic significantly, said Dan Barry, EBT project director in the state's Office of Temporary and Disability Assistance.

That will bring much-anticipated economies of scale to Citicorp Services, and perhaps bring more efficiencies to other EBT programs.

"This is really what you live for," said Robert A. Bucceri, president of Chaddsford Planning Associates, West Chester, Pa. "You go through the pain with a lot of your smaller states with the hope of getting this economy built in."

Three years ago, New York was one of seven states to join an EBT pool, the Northeast Coalition of States, to bid on a contract collectively.

But Transactive Corp. and the New York Check Cashers Association mounted a legal challenge to the New York portion of the contract.

The New England states proceeded with rollouts, but New York was left behind in legal scuffling that culminated in a November 1997 appellate court ruling in Citicorp's favor.

The next year, Citicorp tried to buy Transactive, a Gtech Corp. subsidiary, but the deal was scuttled by the Department of Justice over antitrust concerns. Transactive is the second-largest vendor of EBT services.

Mr. Bucceri said the New York rollout is a larger technical and logistical challenge for EBT.

"If you can do it here, you can do it anywhere," Mr. Bucceri said. "There is no state that presents a myriad of problems as New York does.

"This is not for the faint of heart."

Mr. Barry of the state welfare agency said it chose to begin in Staten Island because of the borough's geographic isolation. Recipients tend to spend benefits in their own neighborhoods, so Staten Island presents a relatively closed-end system.

To educate recipients, the agency has relied on a Citicorp subcontractor, Lockheed Martin Corp., to offer training sessions. The state has also mailed letters and brochures to recipients and retailers.

"No matter what kind of training you do, the first time a recipient realizes they don't know what they are doing is when they are trying to do it," Mr. Barry said.

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