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Policy Considerations Relating to Privatization in the Food Stamp Program

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The Food Stamp Act requires that state civil servants make all decisions about individual households’ eligibility for benefits. Throughout the program’s history, state civil service administration has been taken for granted. Last year, however, USDA approved a waiver for Florida to partially privatize administration of the Food Stamp Program in several counties. Now, at least two states are developing plans to contract with private entities to take over substantial parts of the eligibility determination process. Florida has decided it does not want to wait for the results of the experiment USDA approved and is seeking approval for a loosely-defined waiver to allow it to solicit bids for privatizing statewide an undetermined number of functions within the eligibility determination process.

On June 25, USDA expressed receptivity to Florida’s proposal but sought additional clarification. Texas has proposed to close more than half of its local offices, largely replacing them with kiosks and call centers that would determine eligibility based on materials received over the telephone and internet. Apparently some or all of these call centers might be operated by private contractors. Both states are pursuing similar changes in their Medicaid programs.

This paper first considers the inherent limits on states’ ability to reap the benefits of competition when contracting out program management. It then analyzes the challenges states face in making the transition from operating a program directly to letting and supervising contracts for program management, the different skills needed for these two functions, and the difficulty of crafting effective contracts for such a multi-faceted function as administering the Food Stamp Program. It attempts to identify the general factors that make a government function a more or less appealing candidate for contracting out. Finally, it suggests some safeguards that might be prudent if a political decision is made to experiment with contracting out food stamp eligibility determinations.