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Digital Public Benefits: A New Era Takes Hold

The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.

By Barbara L. Neuby
October 23, 2023

Changes of great magnitude happen in one of two ways: all at once or via a slow drip of mini-changes over a longer time. Public benefits are going digital, rolling in a digital currency under the guise of technological progress.

In the previous three columns of this four-column set, the central bank digital currency (CBDC) was introduced, explained and the beginning foundations of it discussed in the form of electronic benefit cards and the like. Electronic Benefit Transfers (EBT) have doubled between 2018 and 2021. The Federal Reserve recorded 2 billion transfers in 2018 valued at $60 billion and 4 billion transfers in 2021 valued at $160 billion. The transition to digital currency can be seen in stages from cash benefits via check, to bank account funds transfers, to electronic benefit cards and finally to a retailer/provider portal connection. Stage five is a cashless, cardless system where individuals have a digital identity and can then connect to the providers and agencies electronically. Such a system of the latter type was recently piloted and paves the way for the move toward an entirely digital benefits system.

The U.S. Department of Agriculture operates the Supplemental Nutrition Assistance Program, (SNAP) a card-based food stamp program. The SNAP program has been plagued by fraud where beneficiaries sell their cards for cash with numerous cards redeemed at the same “hotspots.” In the throes of the COVID emergency, with authorization from Section 4011 of the Agricultural Act of 2014, the U.S. Department of Agriculture began an online SNAP benefit redemption pilot program. The Program’s goal is to move the SNAP redemptions online through a portal. No card would be issued, no cash redeemed. The system would use only electronic digital receipts. Eight retailers were chosen but, due to implementation challenges, only five persisted in six states. The retailers were Amazon, Walmart, Aldi, Wrights Market and Shoprite, and the six states were AL, IA, NE, NY, OR and WA. A thirteen-month study was conducted and found that while initially most beneficiaries visited a retailer’s shop to purchase items, colder weather and COVID fears eventually drove them to online purchases—the Program’s goal. The pilot program was nationwide by the end of 2020. In another program, Temporary Assistance for Needy Families (TANF) recipients prefer bank account transfers, but the Administration for Children and Families adopted cards tied to the program participant. This program is another example of benefit programs that will eventually be digitally-based.

Digital monetary benefit programs stand in the shadow of the digital identity system now being created. At each stage, the beneficiary’s access to and control of the benefit is decreased bit by bit (no pun intended). Agency leaders and the White House Office of Science and Technology Policy realize that digital portal systems cannot be implemented throughout the range of government services until the identity problem is solved. Electronic cards must be eliminated and theft of user-names and passwords must become a thing of the past. Failure of the “digital wallet” provision in the 2020 Banking for All Act, SB3571, showed identity had to be secured to maintain wallet security. Whether the United States adopts a Bill Gate’s style “ID 2020” system or something like Sam Altman of Chat GPT’s “iris scan”, technology remains to be seen and is something that the Office of Science and Technology Policy has under consideration. In 2021, the Biden administration tasked the General Services Administration (GSA) to assemble a cadre of digital experts to help move all government services online. In 2022 the Digital Corp Program enrolled a first cohort of 40 fellows who will reimagine new electronic government services. As the federal government moves benefit programs online with new software, hardware and networks, eventually state and local government offices will have to follow suit for grants and direct payments. Thousands of offices will have to adopt new identity and account management systems.

The gradual move away from cash will also require thought and planning as to what becomes “legal tender.” Ostensibly, Congress and the Federal Reserve would have to agree on who has the authority to issue and honor cash-like benefit packages i.e., what will be legal tender. In a speech in August of 2023, Chairman Jay Powell indicated Congressional authority may not be necessary to proceed with a wholesale digital currency but would likely be necessary to create a retail system. If a retail currency is to be issued and used to maintain government managed accounts, it must be accepted by retailers for goods and services.  The claim has been made that the United States must adopt a digital currency to maintain its financial standing worldwide. When the switch happens, all government services will have to honor this new digital system.

The gradual removal of cash benefits, cards and other forms of physical money are moving us toward a cashless, electronic digital world and, at the same time, adds additional administrative and budget burdens to all federal, state and local benefit agencies and lessens our individual control over our finances and lives.

AuthorDr. Barbara L. Neuby is a Professor of Public Administration at Kennesaw State University where she teaches budgeting and other administrative courses. Interests include the changing roles of governments around the world and numismatics. She can be reached at [email protected].

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