Additionally, a rising demand for food increases the demand for other goods and services throughout the economy since the Federal "bonus dollars" continue in circulation after the food is purchased. And, too, recipient households are able to divert some of the money saved on food to the purchase of other necessities, thereby continuing a cash flow in the sluggish economy.

As an ancillary benefit, the increased business activity generated in this manner results in a greater demand for labor, favorably affecting a community's employment rate.

It is paradoxical that the program which has provided a lifeline to millions of low- and no-income families finds itself threatened. While we do not support the fixed-expenditure ceiling on social programs, we do accept the reality that expenditures for a program like food stamps which has grown as rapidly as the food stamp program must be evaluated in the overall budget reduction efforts of the administration and this Congress. Inevitably, Congress will consider some or all of the following when deliberating on the food stamp program: (1) Retrospective accounting/monthly reporting; (2) Value of school feeding programs as a deduction from program benefits; and (3) Energy payments as income.

I would like to comment briefly on each of these proposals. New York State currently uses prospective budgeting for both public assistance and food stamp programs. In this system a determination of need is based on the household's anticipated income and resources during a given period. Actual case circumstances are best reflected since only income and resources actually available for current use are considered.

This proposal would mandate retrospective accounting and monthly reporting in all States in the expectation of reduced welfare costs by a reduction in administrative errors.

While we would prefer that Congress not mandate retrospective budgeting, but rather continue it as a station option, we recognize that many people believe retrospective budgeting to be an effective cost-controlling device. Implementing retrospective budgeting in New York would require a full 2 years.

Retrospective budgeting, without adequate transition time, would do irreparable damage to several major statewide systems' efforts which are currently in process in New York-systems which are imperative in our efforts to control fraud and abuse. In addition, we believe that retrospective budgeting would increase administrative staffing needs and costs.

On the school lunch program offset, we believe that it is intended to offset the food stamp bonus by the value of school lunch subsidies received by participating families. Proponents contend that households should not qualify for similar benefits and that this proposal would prevent an excessive nutritional benefit per family. Significantly, households which qualify for both of these programs are at the lowest end of the economic scale and have the greatest difficulty in meeting household nutritional needs. Together, these programs are nutrition supplement programs; neither alone will do the job.

Further, this proposal would require a new and complex reporting-accounting system involving type of subsidy received and the number of meals consumed by each child during the period. I

believe that this is only going to lead to higher qualify control, error rates, and a need for increased staff, and as always in New York, probably legal action by some group.

The third comment I would like to make is on the application of home energy benefits to reduce the food stamp program's benefit. Again, this would create administrative and operational problems. The home energy assistance program was developed to supplement the budget of families at the lowest end of the economic spectrum: families in desperate need for special or additional supplementation.

To use payments from a subsistence level to offset each other creates additional hardship on those families with the greatest need. In essence, we would provide many low-income families with the abhorrent choice: food or heat. This was not the intent of Congress when they passed the low-income energy assistance program in 1980, or when the 1980 food stamp amendments specifically excluded energy-related payments as income.

There is no question that the austere economy and persistent inflation trend will have an effect on the shape and form of the future food stamp program.

Modification is a certainty. We are prepared to accept program changes which will be least harmful to recipients and those which tend to streamline an already complex and overregulated program. I would like to suggest in your deliberations you look at the following areas:

Review the outreach mandate in light of overall fiscal constraints. It doesn't make sense to have outreach mandated in a capped program.

Consider means of simplifying eligibility determination; for example, use of the gross income as the sole factor.

Eliminate the disparity in the program between households which have a member over 60 years of age and those that do not. Consider using the public assistance definition of household for public assistance households which participate in the food stamp program.

Allow States to use public assistance practices to recoup overissued benefits.

Eliminate underissuance as part of the formula for fiscal sanc

tions.

And consider a 90-day implementation time for all program changes.

In conclusion, in the final analysis, it will be the forthcoming congressional debate which will determine whether we will build on the established achievements of the food stamp program, or regress to an earlier period when this Nation was slow to acknowledge the plight of starving families in the heart of America. Thank you.

Senator LEAHY. I was not here when you introduced yourself. Could you introduce yourself?

Mr. HARWICK. I am John Harwick, food stamp director, New York State.

Senator LEAHY. You are here accompanying Mr. Fredericks?
Mr. HARWICK. Yes.

Senator LEAHY. I would yield to Senator Pryor for additional questions. Senator Helms had to step out briefly. He will be back. Senator PRYOR. Mr. Chairman, when I came to the meeting this morning, I thought we were going to hear these gentlemen from New York tell us about the trials and tribulations of running the largest food stamp program in America. But I find out now that Puerto Rico has the largest food stamp program in America. I was not aware of this fact.

You talked about the border of overregulation that you must confront in the administration of the food stamp program.

My first question would be, how would you feel if the States went into a block grant program where we sent the money to the States to permit the States to determine the eligibility, and take the USDA out of the program? What would be your reaction?

I am not saying I advocate that. But you folks are on the front lines, and I would like to hear your thoughts.

Mr. FREDERICKS. My department's position is, we are not totally opposed to a block grant. We do have some concerns about the level of funding. If you give us a block grant with a substantial reduction in funding, I don't think it would be acceptable to New York State.

Senator PRYOR. You would rather have less money with fewer regulations?

Mr. FREDERICKS. We would take some less money with fewer regulations; yes. Because then we would be able to control the program at the State level. But I am afraid that what might happen would be a major reduction in program benefits, which would have an adverse financial impact on many citizens of New York State.

Senator PRYOR. Don't you consider yourself as humane and as sensitive and as caring in New York as the people in Washington? Mr. FREDERICKS. I certainly think we are as humane and as caring.

Senator PRYOR. Can't you do this just as well in New York without going through the bureaucracy in Washington?

Mr. FREDERICKS. I think we could do that, Senator.

Senator PRYOR. What would be your opposition then to a block grant program?

Mr. FREDERICKS. We are not opposed to a block grant. We are opposed to a block grant with substantial reductions in funding. In other words, if nearly the same amount of money were coming into New York State under a block grant, we would not oppose it. Senator PRYOR. Then let me ask this question.

I have heard-and I think these figures are correct—and that there is a 10-percent administrative cost to the food stamp program.

I am talking about the Federal involvement, the State involvement, the local welfare and distribution agencies' involvement: 10 percent.

In addition to this, I have tried to do as much research as I can on this. I understand that about 5 percent of the food stamp program-this is in addition to the 10 percent administrative costs-that 5 percent of the food stamps are given to ineligible recipients. Another 5 percent is overissued to eligible recipients.

I would like to have your comment to see if these figures are in the ball park as being nearly correct.

Mr. FREDERICKS. They are, sir.

Senator PRYOR. So the point I would like to make is that about 20 percent then of the food stamp dollar is either in administrative cost or ineligible recipients, or an overissue to eligible recipients. Is this correct?

Mr. FREDERICKS. Yes, sir.

Senator PRYOR. Now, please make your point.

Mr. FREDERICKS. First, in terms of the administrative cost of running the program, I would like to point out that the 10 percent figure is probably fairly accurate. In New York State, the annual cost of administering the program is about $80 million, which is shared equally by the Federal and State government. The bonus value coming into New York State is approximately $900 million a year at this point. It is under 10 percent.

On the error rate, yes, we do have problems with the error rate. And we are not alone. The program is very difficult to administer. It is very easy in doing a food stamp eligibility determination to make an error.

The program has also not remained static for any length of time. So we have seen some major changes implementing the act of 1977 and the amendments of 1979, Senator, where we have had to increase our temporary staff, particularly in New York City, where 80 percent of our program is, to deal with the redetermination of eligibility on a manual basis. So it is error prone. It is very difficult to administer that program, given the current rules and regulations.

Senator PRYOR. Thank you.

May I ask our friend from Tennessee that question?

What would you think about a block grant, about eliminating Federal requirements, Federal regulations, and permitting the States to set the necessary eligibility requirements?

Ms. PUETT. I think I have the same kind of reservations as were expressed by my counterpart from New York State. The form that the grant takes and the obligations that come with it could make it acceptable, or unacceptable.

It is like most of the things we read; when you read it in theory, the idea is good. But when it gets passed down, it sometimes becomes a different program than we thought it was going to be.

But the philosophy is one thing. Yes. If we really truly have total control of that program so that we do not have to add a large number of State dollars to that program, then a block grant might be acceptable. The State of Tennessee certainly doesn't have any more dollars to put into the program. And that is part of the problem we have right now.

Senator PRYOR. My time has expired.

Thank you.

Ms. PUETT. There is one other thing that I think should be said about the errors, though, because I think the implication is that all of these are agency errors.

When you analyze the source of those errors, it is certainly true in Tennessee that more than half of the errors that are made are client errors: failure to report earned income or giving us incorrect

information, which we simply cannot verify in all instances. Error rates get distorted when we suggest that it is only the workers who make the errors.

Senator PRYOR. Could I ask one more question?

The CHAIRMAN. Certainly.

Senator PRYOR. I would like to ask this question. This has always concerned me.

When you have a food stamp recipient or a prospective food stamp recipient, is it possible in the present system to ascertain the other Federal or State programs of assistance or welfare aid that that individual might or might not be on?

Is that a possibility?

Ms. PUETT. To find that out?

Senator PRYOR. Yes.

Ms. PUETT. Normally, they are applying for all of those at the same time. The same worker determines AFDC eligibility, medicaid, medically needy eligibility, food stamp eligibility. Now, those are the ones administered by the Department of Human Services. And normally many of those people are participating in all of them.

Senator PRYOR. Do you use the social security number to make the determination?

Ms. PUETT. Yes. That is the requirement that even children must be enumerated with their social security number.

Senator PRYOR. Thank you.

The CHAIRMAN. Ms. Puett, just for the record, and I am sure you already know this, Senator Thurmond has introduced legislation, which I am cosponsoring, specifically to make the change you have recommended with reference to boarders. Also the administration is very likely to include that recommendation in its proposal concerning the artificial splitting of households and the replacement of stolen or lost benefits. They have already announced the prorating of benefits for the first month, which you have suggested.

I might mention I have a letter from an administrator on the county level in North Carolina. And in January she was upset about the fact that at 2 p.m. on New Year's Eve, in came an applicant for food stamps to whom she had given food stamps for the whole month of December. And she wrote at some length about how, first of all, she was far from convinced that this man, who was able bodied, that he came under the classification of "truly needy."

Well, do you have any statistics regarding what percentage of the people in your State of Tennessee are receiving food stamps for the first month?

Ms. PUETT. Not what percent are receiving food stamps for the first month. One-seventh of Tennesseans, one in every seven is on food stamps, which is about 15 percent of our population. We just simply don't keep figures to determine how many are first-month recipients. I just don't know that.

The CHAIRMAN. It is sort of a measurement of how rapidly the program is growing.

Now, Texas, for instance, has reported 9.2 percent of recipients in that State are in their initial month of participation. Wisconsin officials have reported 16.1 percent. The adminstration has calcu