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TESTIMONY OF RICH SAVNER, DIRECTOR OF PUBLIC AFFAIRS AND GOVERNMENT RELATIONS, PATHMARK STORES, INC. ON BEHALF OF THE FOOD MARKETING INSTITUTE BEFORE THE SUBCOMMITTEE ON DEPARTMENT OPERATIONS, OVERSIGHT, NUTRITION AND FORESTRY WEDNESDAY, JUNE 27, 2001

Chairman Goodlatte, Congresswoman Clayton and Members of the Committee:
     
Good Morning. My name is Rich Savner. I serve as Director of Public Affairs and Government Relations for Pathmark Stores in Carteret, NJ. I also serve on the Food Marketing Institute’s (FMI) Government Relations Committee and in that role have spent a significant amount of time on issues related to Food Stamp benefits.

I want to thank you for the opportunity to testify on behalf of the 21,000 retail food stores represented by FMI. Before I proceed, I would like to take a moment to tell you about my company. Pathmark is one of the top 20 food retailers in the country and is one of the market share leaders in metro Philadelphia, New York City and New Jersey with $3.8 billion in annual sales. Pathmark services many urban communities and a significant percentage of our customers receive some form of public assistance, including Food Stamps or EBT and WIC.

A considerable portion of my time and that of my colleagues in the industry is spent working to ensure that recipients of our nation’s food assistance programs are able to access their benefits without difficulty in our stores.

As you know, the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 requires Food Stamp benefits to be delivered electronically by October 1, 2002. Currently 40 states have implemented EBT and several others have signed contracts for implementation. As you also know, at times implementation has not been smooth. There was a period of time last year when outages were so significant, they caused chaotic situations in some of our stores. Thankfully, outages have been reduced significantly over the past seven months.

Although over 80 percent of the country has implemented EBT, and the feedback at this point is basically positive from customers and retailers alike, there are a few technical issues that need to be resolved. Generally these issues are common sense initiatives that cost little or no money and would improve efficiency for both recipients and retailers. Today, I am going to tell you about three of the needed initiatives.

1. The need to get FNS Authorization Numbers 14 Days in advance of a store opening.

A number of retailers have expressed frustration with the delay in getting FNS authorization numbers in order to be allowed to accept Food Stamp benefits from a customer.

Many times those numbers are not available to retailers until the day before opening or up to two weeks after a store opening. This prevents the retailer from advertising that Food Stamps/EBT will be accepted and prevents retailers from testing their point-of-sale equipment to ensure the Food Stamp/EBT components work successfully. If a retailer does not have an FNS Authorization number and a customer attempts to purchase products with Food Stamps on opening day, there is often an upset customer and a backlog of other customers given the high volume which the typical supermarket does in its grand opening week. With first impressions being lasting ones, an upset recipient may not return to a store that is not authorized. In contrast, our store that opened in Harlem, NY, two years ago was authorized from the outset, and both Pathmark and the recipients were able to benefit.

There are seven regional FNS offices across the country with varying requirements for obtaining authorization numbers. Those requirements are often dependent on other government agencies’ timely response with information which is outside of the store’s control, (i.e. health inspectors, tax numbers). For example, some requirements, like having a tobacco license, seem to be unnecessary, since you cannot purchase tobacco products with Food Stamp benefits. The requirements should be streamlined, reduced to necessary items and put in written guidelines with allowances for a “temporary FNS number” to bridge the gap between store opening and the day federal and state agencies are able to provide their part of the application back to the store. If the store fails to complete the application after opening, the FNS Authorization number would be pulled and reimbursement/settlement would not take place. USDA has recently verbally given their field offices greater flexibility in this area and has told us that they will issue written guidelines, streamlining this application process for states. This is a step in the right direction and we look forward to its completion.

2. The need for live retailer-purchased test cards.

It seems only obvious that retailers would want to have assurance that something as important as EBT is going to work correctly. We test fire alarms, refrigeration equipment and credit card transactions prior to opening a store or anytime we upgrade equipment – why not EBT? Retailers have continually expressed the need for live EBT test cards so they can do just that – test the system, particularly in the event of a customer problem. With a live card, store personnel would see the same message prompts a customer sees and thus can more readily identify the problem. A live test card could also more easily ensure the accuracy of computerized Food Stamp eligible product flags, and could determine when the EBT system is reconnected following an outage. Retailers want to ensure the integrity of the program and are more than willing to compensate the appropriate party for the value loaded to the card. We would also be responsible for security of the card and preventing unauthorized use of the card. Additional support from this Committee, particularly written encouragement to states, FNS and EBT contractors to help make this happen, would be greatly appreciated.

3. The need to enhance customer service and reduce retailer liability in the event of a system outage.

EBT system outages present tremendous inconveniences to our customers and significant financial losses to retailers. There are a couple of areas that need to be addressed to improve efficiency and reduce retailer liability. The first is to allow “stand-in” processing to take place for EBT transactions just as it is done in the commercial world. A few states do not currently allow the practice. The second is to allow re-presentment of charges made during a system outage or “store and forward” processing. Some retailers have invested in system upgrades to continue servicing EBT customers when the EBT system is not operational. As a result, the EBT customer is not limited in their purchasing ability during an outage, as is the case with using a manual voucher. EBT customers would receive the same services under this system as commercial credit/debit card customers. This “stand-in” processing or “store and forward” processing refers to the practice of storing the details of a transaction when the EBT system is down and forwarding it for authorization and settlement when the EBT system is again operational. Under this scenario if a customer purchases $20 worth of groceries at a time when the EBT system is not operational, the store could choose to store the transaction in its computer system until the system is operational again. When the system is again on line, the retailer would present the stored transaction with the PIN for authorization. Currently, the issue for the retailer comes when the transaction is declined due to an insufficient account balance. In this instance, the return message will tell the retailer that there is only $10 remaining in this particular account. At this point, the customer is no longer in the store. The retailer could create an adjusted transaction for the available balance in the account and thus collect the $10 remaining in the account instead of losing the entire $20 as current regulations require. My company, Pathmark, is currently engaged in an FNS approved pilot project in the state of New Jersey to test this process. To date, we have had several outages when transactions were stored and forwarded and then represented under this pilot. We have been very pleased with the results thus far, recovering over 50 percent of lost funds and allowing our customers to make EBT purchases without any interruptions. We would ask this committee to endorse further pilots and nationwide availability to this process, thereby improving customer service and reducing retailer losses. As a business we are willing to accept certain levels of risk, this pilot has successfully proven to reduce the amount of that risk. We were very pleased with a letter from the Acting Deputy Under Secretary for Food and Nutrition and Consumer Services at USDA indicating their willingness to work with state agencies to find two more sites for this test.

Finally, after all of this talk about EBT, there is one item I would like to mention regarding the application process that grocery stores must complete to serve both Food Stamp and WIC recipients. Currently there are two levels of government in different agencies that review store applications and inspect stores for compliance for each program. There needs to be a more efficient way to authorize stores that participate in the WIC program, and the Food Stamp Program provides a good model. The Food Marketing Institute encourages this Committee to review the application process for these two programs and make recommendations to USDA to streamline the duplicative procedures.

I’d like to illustrate with one example from my company. Two years ago we opened a store in North Philadelphia, in a very poor neighborhood. Several retailers had turned down the chance to build at this location prior to our involvement. Pathmark spent $7 million building the store, and had our Food Stamp authorization prior to its opening. However, we did not have authorization for WIC. Pennsylvania has vendor-limiting criteria by sections, and we experienced a three month delay in obtaining authorization at this store, as well as a three month delay when we opened in a similar neighborhood in Philadelphia. While the State of Pennsylvania has since increased the number of slots available for stores, there is no guarantee a retailer will be authorized when they open a store. We believe that as there has been a national focus on investing in the inner city, and having invested millions of dollars in building a quality operation, it serves both the interests of the recipient and the retailer to have WIC authorization at the time of opening. The food retail industry has made a significant commitment to revitalizing communities, and timely authorization to participate in the WIC program will help us provide nutrition to populations in need.

In summary, feedback on Electronic Benefits Transfer has been positive. We certainly had bumps in the road, but hopefully most of the potholes are behind us. A year ago I would not have been comfortable saying that. In my part of the world, that is saying a lot. We are asking for your help with three common-sense, low- to no-cost improvements to bring greater efficiency to both customers and retailers: (1) getting FNS Authorization Numbers 14 Days in advance of a store opening, (2) live retailer-purchased test cards, and (3) enhancing customer service and reducing retailer liability in the event of a system outage using a “store and forward” process. We look forward to working with this Committee and the new Under-Secretary and his staff to further improve both EBT and the Food Stamp program.

Thank you for giving me the opportunity to testify. I will be glad to answer any questions you may have.

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