Less Money, More Problems

Last Thursday, Kansas Gov. Sam Brownback signed into law an unprecedented set of restrictions on how the state’s most economically vulnerable families can access and use their monthly cash assistance (Temporary Assistance for Needy Families, or TANF). Beginning July 1^st, the lifetime limit on receiving TANF in Kansas will be reduced to 36 months; recipients will only be able to withdraw $25 a day; and families will no longer be permitted to use or withdraw cash assistance at a wide array of establishments, including movie theaters, jewelry stores, cruise lines, lingerie stores, and nail salons, to name just a few.

While the lingerie stores and cruises have drawn the most headlines, the bigger scandal is that the Kansas law perpetuates a long legislative tradition of stigmatizing poor families through costly red tape designed to address vastly overstated “fraud” in the system, rather than crafting systems that help the poor to join the financial mainstream and effectively limit actual waste inherent in the way assistance is distributed.

Indeed, although the particular details are unprecedented, the Kansas law is just the latest in a litany of punitive policies aimed at reducing “waste” while actually imposing significant costs on taxpayers. The proposed restrictions on food stamp purchases in nearby Missouri are another example, but from fingerprinting in New York to drug testing in Florida to unannounced home visits in San Diego, the daily indignities poor families have to face as conditions of receiving basic assistance date back decades. And each of these hurdles has required significant state resources to implement.

The new law has already come under fire from everyone from Kansas’ own legislators to Jon Stewart– and for good reason. TANF applicants already have to jump through numerous hoops to qualify and remain eligible for a max benefit of about $14 a day for a family of three, ranging from meticulous documentation of their work activities to asset tests that often require burdensome amounts of paperwork. The law further singles out poor families for heightened scrutiny and surveillance, while ignoring the fact that we all get government benefits, which are often no-strings-attached if you’re rich. And the $25 withdrawal limit, which will compel weeks of daily ATM trips to accumulate enough twenty-dollar bills to pay the rent, is vastly out of touch with the reality of low-income families’ lives (not to mention the way ATMs work).

While Kansas is taking it to an extreme, the new law has its origins in federal policy.

What’s more, Kansas didn’t come up with this particular restriction on its own. As some media coverage has noted, quite a few other states already have similar limitations on where EBT cards can be used. What those stories neglected to mention is that the restrictions stem from a federal law passed in 2012, requiring states to implement policies ensuring that EBT cards cannot be used to withdraw money at casinos, liquor stores, or strip clubs. Some members of Congress felt this didn’t even go far enough, prompting the introduction of the amazingly non-satirical “Preserving Welfare for Needs not Weed Act” last September. While Kansas is taking it to an extreme, the new law has its origins in federal policy.

As I wrote at the time, the federal EBT restrictions simply write stereotypes into law, without any basis in evidence. In Florida, a 2010 analysis revealed that a mere .01% of cash assistance was accessed at liquor stores or casinos. Studies from California, Indiana, New Hampshire, and New Jersey have all found similarly insignificant rates of alleged misuse. And as with other stigmatizing measures, these restrictions are a massive waste of public money. California reported spending an initial $150,000 to identify and disable over 6500 ATMs across the state, along with ongoing expenses of $6600 a month to maintain compliance.

Given the state’s (manufactured) budget crisis, couldn’t Kansas be using its limited resources to address real problems instead?

The short answer is yes. And some states are already showing us the way. So what are some alternative steps Gov. Brownback could have taken to make TANF better, rather than just harder to access?

First, the state could allow and encourage direct deposit of assistance, and connect more TANF households with low-cost, no-fee bank accounts. This would help address two real problems: the high costs of ATM withdrawals and the high costs of being unbanked. According to the FDIC, nearly a quarter of Kansans making less than $15,000 don’t have a bank account. While the reasons low-income consumers eschew bank accounts are complex, the consequences are consistent: reliance on high-cost fringe financial services and no safe mechanism for saving.

What’s more, encouraging and supporting more low-income families to have bank accounts would advance Gov. Brownback’s stated goal of moving families to jobs and self-sufficiency.

Kansas currently disburses TANF assistance only via EBT cards. This is a missed opportunity to promote financial inclusion. Families who receive their assistance through their own bank accounts can often avoid ATM fees by simply making withdrawals at their own bank’s ATMs or branches. What’s more, encouraging and supporting more low-income families to have bank accounts would advance Gov. Brownback’s stated goal of moving families to jobs and self-sufficiency. An EBT card is useless once you transition off of assistance; a bank account is a basic necessity for depositing paychecks and managing money. In Vermont, direct deposit is actually the default method of disbursing TANF assistance, while in Pennsylvania and Washington, innovative pilot programs are connecting TANF recipients with free or low-cost bank accounts and targeted financial education.

Second, for those using the EBT card, Kansas could strengthen consumer protections. Federal law explicitly excludes EBT cards from basic consumer protections that apply to bank accounts, though some states, including California, have passed their own state-level protections. Last year, California further bolstered these protections through a new law that ensures families getting cash assistance receive information on how to avoid fees (including by selecting direct deposit), and directs the state to establish a website through which recipients can have online access to their transaction histories.

Finally, Kansas could ban ATM fees for EBT card withdrawals within the state – or at least permit a reasonable number of free withdrawals each month. As some have noted, the new law is yet another “tax on the poor,” which will result in poor families sacrificing up to 13% of their monthly assistance just to access it. This is due to the two types of costs that typically accompany using an EBT card at an ATM: a transaction fee levied by the EBT contractor, which is paid either by the state or directly by TANF households, and surcharges levied by out-of-network ATMs. Many states offer a limited number of fee-free withdrawals each month, but Kansas does not—each withdrawal costs recipients $1.00 plus any additional surcharge assessed by the bank. Kansas could start by increasing the number of monthly fee-free withdrawals—particularly since recipients are now essentially required to make as many as twenty withdrawals per month. To take it a step further, the state legislature could ban ATM surcharges for EBT withdrawals within its borders, as Illinois did back in 2004.

Kansas’ new TANF restrictions are a lose-lose. The law hurts low-income families and will result in thousands of dollars of taxpayer money going into big banks’ pockets instead of toward reducing poverty. Rather than wasting time and money fighting a contrived problem rooted in stereotypes, Gov. Brownback and other policymakers should redirect their efforts toward helping TANF recipients join the financial mainstream, avoid fees, and build up their savings—steps that would actually help promote a pathway to self-sufficiency.