probably costs 50, 60 cents per transaction, and if you have someone come in and pick it up over the counter, the program is charged $1.30, $1.40, $1.50 per transaction.

As long as mail issuance is controlled and is limited to non-highcrime areas, it saves a lot of money in administrative costs.

The problem is that a few, just a few, urban areas started to use mail issuance, possibly out of the theory that these are Federal dollars.

The Department prepared regulations to limit the use of mail issuance in high crime areas or in urban areas, and said if the State wanted to go ahead and do it, they would have to assume the liability over 1 percent of any loss.

The General Counsel's Office in the Department ruled the current law does not allow legal authority to set up that kind of a system, and I would strongly recommend that it be added into the law this year, but if you do two things, if you make it clear that in a high crime urban area, mail issuance can only be used if mail losses are very low, or if the States are willing to pick up the liability over a certain level, and if you restrict the situations in which recipients who do not get the stamps in the mail will get replacements.

For example, the second time, this is what the proposed regs that came out in January do, the second time the same recipient says I did not get it in the mail, it was stolen out of my mailbox, that recipient would be taken off of mail issuance and would have to come in and pick it up over the counter, or maybe they would be put on certified mail or registered mail, so that you would not have those kinds of problems.

If you take those kinds of controls, you can significantly cut the loss and save money. The approach of mail issuance does save State governments and the Federal Treasury a lot of money in reduced administrative costs.

Senator LEAHY. What you are saying then, like in New York and Philadelphia, you tighten controls?

Mr. GREENSTEIN. That is right.

Senator LEAHY. These things we hear of as abuses have got to be taken care of.

Mr. GREENSTEIN. I guess that is true of most things, Senator. It usually is not the case that you need to throw the baby out with the bathwater.

If you were for example to prohibit mail issuance, you would increase by many millions of dollars the administrative costs, especially in rural areas. It would not make sense.

What you do need to do is to put controls on that limit mail issuance to low crime areas, and limit opportunities for replacement when there are losses, to require certified mail in the appropriate circumstances, and you can take care of both problems at the same time.

You can deliver the goods, lower the administrative costs and reduce the issuance loss.

Senator LEAHY. One of the things that everybody on this panel agrees with, if you have people who can work, that we might prefer that they be working, that they be doing that rather than having to rely on income supplements, welfare, whatever. That is neither

a Republican or Democrat philosophy, neither conservative nor liberal, it is commonsense, but there have been proposals made about food stamps and AFDC, and I am wondering if you look at these proposals, what effect they would have on work incentives for low-income people, or people who might be right at the line between working or not working? What do they do in such a circumstance?

Mr. GREENSTEIN. I think there are two basic issues here.

There are proposals, not before this committee, in the aid to families with dependent children program that would increase the amount of money you lose when you earn an additional dollar. Currently for many households if you are an AFDC mother who works and gets food stamps, and your earnings are above the Federal income tax threshold, you lose about 80 cents for each additional dollar you earn, although if you earn $300,000 a year, you lose 50 cents.

It is generally recognized by people regardless of political persuasion that this is a problem of the welfare system.

Unfortunately some of the administration's proposals as were found by recent study by the University of Chicago, it would increase the loss to 90 cents for each additional dollar you earn. That would be a work disincentive effect, and some proposals I have heard talked about, although the administration looked at and rejected in the food stamp program, to increase the food stamp benefit reduction rate, so that you would lose more than 30 cents for each additional dollar you earned in food stamps would have the same impact. It would have a major work disincentive impact and it would increase the tax rate so that you would be losing in some cases over 90 cents for each additional dollar you earned. The second group of proposals, the workfare proposal, which I would hope the committee would look at with great care, I think all of us agree that people who can work should work and should not be able to get food stamp or AFDC benefits.

What is important to understand I think is that workfare is only one of a number of ways to deal with work requirements and ultimately not the most satisfactory.

The reason it is not the most satisfactory is that workfare does not give people jobs in the private sector or reduce their food stamp benefits.

What you really want is someone to get a private wage paying job and get off food stamps and welfare and save the Government money.

Senator LEAHY. And pay taxes.

Mr. GREENSTEIN. And pay taxes, and the problem is that in all of the studies on AFDC that have been done, in California and in Massachusetts, workfare with the best intentions has turned out to be cost ineffective.

Enough data is not in yet on food stamps, but in the first preliminary study in San Diego that was issued by the staff there last April, they also found it was cost ineffective, and if there is one basic message in these studies, it is that if you mandate workfare and force it on States and localities that do not want to do it, it is particularly cost ineffective in those areas, and they find ways to take the Federal payment for administrative costs and use some of

that, but very few people ever get job assignments, so I would hope you would be very cautious about any kind of mandate in that

area.

It certainly would not be consistent it seems to me with the Reagan administration's general philosophy of allowing more State options and more State flexibility.

On the other hand, I would urge you to look more closely at the new regulations that the Department issued in January that toughen work registration and mandate requirements for job searches in the private sector.

That I feel in the long run would yield far more dividends in terms of decreased food stamp costs.

Senator LEAHY. Thank you.

I will now go to the Intelligence Committee and leave the fate of the Nation totally in your hands, Madam Chairwoman.

Senator HAWKINS. Thank you.

My concern is that the food stamp program that the American taxpayers are paying so much money to is a program that benefits nobody, if indeed there is any amount of fraud in it that is disproportionate to the service that it renders. We are all for feeding those people that cannot feed themselves.

I think that is one of the reasons so many people feel so keenly about the school lunch program. They do not take their sandwich, or whatever, and sell it to somebody else, and it is consumed. So in looking for fraud, we can deliver more food and that is the bottom line. I am concerned about fraud and the black market ring. I have read the statistics for New York City and in other places, but when you talk about eliminating mail in a high crime area, my concern is for the elderly that are homebound. In Miami right now where everyone is under siege practically because of the elements that are in that community, the elderly are homebound, and they may not want to feel they can leave home to pick up this.

Have you had a lot of experience with, No. 1, ID cards or a picture on a colored card, and, No. 2, with the new computer technology that we now have in most grocery stores. Is there the capability of using that card to get commodities without stamps? Mr. GREENSTEIN. As was stated earlier, last year the Congress passed a requirement for photo ID's. The Inspector General recommended it, that this would be cost effective in the urban areas, but since the cards cost $1 to $2 a piece, that it may not be in very small rural areas, and that is what the law and the regulations require. The comment period has ended, and hopefully the regulations will be out in a few months.

If I understand your question right, are you suggesting the possibility of eliminating the food stamp coupons themselves and just using the computerized card in the supermarket?

Senator HAWKINS. Cashless society or stampless society.

Mr. GREENSTEIN. There was a proposal of that sort submitted to the Department by the State of Massachusetts about a year ago, and at the time I left the Department work was going on, leading toward a possible pilot test of exactly that approach.

It does entail a lot of sophisticated computerization, you have to keep each household's total food stamp benefits on a central State

computer, and then when you put the card in at the grocery store, they hook into that and it tells you how much they have left. Senator HAWKINS. Banking in disguise?

Mr. GREENSTEIN. Yes. That is, I believe that that should be tested within the next year or two, but it is one of those things that I do not think there is enough capability in enough stores to use at the present time. It may be down the road, and I think that is the plan, it may be the wave of the future. I think probably it is something that we ought to start testing, and I think that is really the plan. In terms of mail issuance, I also think that the proposal the Department was looking at when I left would not have prohibited mail to elderly in high crime areas.

Senator HAWKINS. Would not what?

Mr. GREENSTEIN. It would not have prohibited mail to elderly in high crime areas.

The whole idea was that in a high crime area, you could, for example, if you wanted in Miami, issue food stamps by mail only to the elderly. You could probably issue them using certified mail just to elderly persons and not to the caseload.

And you could have the rest of the caseload come in and pick them up in person and realize the best of both worlds.

There are a few, and I hasten to add, only a few, maybe two cities in the country, that were doing mail issuance to everyone, not just the elderly, and in cities that probably should not be done. Apparently there may not be the legal authority right now for the Department to deal with that, so you probably may need to put into the legislation this year something giving the Department some authority to control total mail issuance.

Senator HAWKINS. Do you agree with me, I take it, that we should do all we possibly can to eliminate the fraud in the program?

Mr. GREENSTEIN. Absolutely.

Senator HAWKINS. If you were a Senator sitting here today, as we are and you were aware of the numbers that are so staggering with the increased costs and the increased numbers of waste and abuse, what type program would you propose in keeping with the Reagan economic program for a food stamp program. What program would you propose that would be in keeping with the President's program?

Mr. GREENSTEIN. Well, I think that the food stamp program basically is a good program, and the thing to look at is what reforms are needed to take care to reduce costs somewhat, or to take care of whatever error or problems exist and can be lessened.

I think some of the President's proposals, I think, are moving in that direction, I think others, like I mentioned, like the school lunch offset, or the changes in the deductions just hurt people below the poverty line without tightening the program.

I do think that there are a large number of things that the Congress did last year that will substantially tighten the program when fully implemented, and a lot of the effort at this point is administration rather than legislation.

There are a few further areas that I think actions could be taken, mail issuance is one, and another would be that in computer matchup, which earlier today was mentioned as one of the keys, to

check income, I know you are very familiar with the Florida report.

In Florida I think the situation is okay, but in many States, State law prohibits access to employment data in the State unemployment compensation files, and that is the single best source of income data for the computer matches to deter fraud.

The Congress last year passed an amendment to authorize access into the State unemployment files. It took an act of the Congress because of the privacy act and the State laws, but that act is not effective, that provision, although the Department last year proposed, and I know that people like Chairman Helms support it, but by the time it got through the Congress, it was not effective until January 1, 1983, so that in all States where State laws bar access to the most important source of data for computer matching, the States cannot do it for another 2 years.

I would urge the Congress to make that effective immediately, rather than waiting for 1983, and that one provision more than anything else you are looking at, I think, has the potential to reduce false reporting of income.

The CHAIRMAN. I thank you very much.

We have to move along here. I think this is the first time the lady Senator has presided over the Agriculture Committee.

I have to go to the Foreign Relations Committee, and I will be back.

We will proceed to the next witness, Mr. John Dempsey.
Mr. Dempsey, will you please come forward?
[Senator Hawkins assumed the Chair.]

STATEMENT OF JOHN T. DEMPSEY, DIRECTOR, MICHIGAN DE-
PARTMENT OF SOCIAL SERVICES, AND CHAIRMAN OF THE
NATIONAL COUNCIL OF STATE PUBLIC WELFARE ADMINIS-
TRATORS OF THE AMERICAN PUBLIC WELFARE ASSOCI-
ATION

Mr. DEMPSEY. Madam Chairperson, I am John T. Dempsey, director of the Michigan Department of Social Services and chairman of the group known as the National Council of State Public Welfare Administrators, that includes the chief administrators of the 50 State agencies.

On my left is Dr. Leland Hall, who heads the office of food programs for the State of Michigan and is chairman of the National Association of Food Stamp Directors.

I have a rather lengthy statement that I would like to submit for the record and then try to summarize it verbally if that is all right with you.1

Senator HAWKINS. Fine.

Mr. DEMPSEY. First of all, let me comment, Madam Chairperson, that I have been director of the Michigan Department of Social Services for 6 years, and so I am quite familiar with the AFDC program, the medicaid program, the food stamp program, and other welfare programs.

In addition, previously I spent 4 years as State Budget Director for the State of Michigan, and, thus, I am generally familiar with all State government programs.

See p. 395 for the prepared statement of Mr. Dempsey.