Kansas' 'War on the Poor' Is Good News for Banks

Public Pensions Kansas
John Hanna/APKansas Gov. Sam Brownback
10 years ago, Harper's Magazine columnist and "What's the Matter With Kansas?" author Thomas Frank dropped a bombshell on his home state.

Blasting politicians from the Sunflower State for leaving their poor and middle classes to wither on the vine, Frank argued that politics in the Heartland favored the rich. Kansas, wrote Frank, had created "a social order in which wealth is more concentrated than ever before in our lifetimes, in which workers have been stripped of power and CEOs are rewarded in a manner beyond imagining."

10 years later, Kansas is doing it again.

Heartless in the Heartland?

Last month, Kansas Gov. Sam Brownback signed into law legislation that will, among other things, forbid welfare recipients from spending government financial assistance to purchase massages or manicures, cigarettes or cruise ship excursions, jewelry, liquor or lingerie. Agree or disagree with these restrictions, there's one line in Kansas's new law that should simply shock the conscience of taxpayers -- be they conservative, liberal or none-of-the-above.

From now on, Kansans subsidized by taxpayers under the Temporary Assistance for Needy Families program will be forbidden from withdrawing more than $25 a day from their ATMs.

Supporters of the restriction argue it is designed to make it harder for TANF recipients to spend money on luxuries, to focus instead on the necessities, and, as Kansas State Sen. Michael O'Donnell, the Wichita Republican who sponsored the bill, put it, to thereby achieve "prosperity." "This is about having a great life," the senator said.

But things may not work out quite as well as proponents intend.

TANF Isn't Food Stamps

Like the similar food stamp program (now known as the Supplemental Nutrition Assistance Program, or SNAP), TANF funds are disbursed via electronic debit card. Unlike SNAP though, which can only be used to purchase food, TANF is designed specifically to provide low-income families with money to pay for electric bills and other utilities, rent and bills for other necessary goods and services. TANF cardholders can withdraw cash from ATMs for these purposes.

Indeed, thanks to Kansas' new law, they may have to make a lot of withdrawals.

Consider: If a cardholder uses her TANF card to pay the $750 rent on an apartment, for example, then under Kansas' new $25-a-day withdrawal rule, it would take 30 separate trips to the ATM to withdraw enough cash to make the entire rent payment. That's literally an ATM visit a day, every day of the month, just to make one transaction.

And even that may not be enough.

Welfare for Bankers and Bureaucrats?

You see, the Kansan government charges TANF cardholders a $1 fee for every withdrawal they make from an ATM, and notes that "the ATM may also charge an additional fee." According to Bankrate.com, ATM fees charged by banks now average anywhere from $2.77 to $4.35 a transaction, depending on whether the ATM is "in-network," and whether the person withdrawing the funds is a customer of the bank.

As a result, for every $25 TANF card withdrawal, combined state and bank fees could eat up anywhere from 15.1 to 21.4 percent of the cash withdrawn.

That's a huge transaction cost on TANF. It's also a huge diversion of financial benefits that taxpayers are paying to subsidize our least-well-off fellow citizens. Instead of going to the needy, these taxpayer dollars will be diverted to the pockets of government functionaries ($1) and the banks that own the ATMs ($2.77 to $4.35). Suffice it to say, this isn't likely what Kansas voters were looking to accomplish when they approved the $25 daily-withdrawal limit on TANF cardholders.

And it makes us ask, again -- emphatically if rhetorically -- "Seriously, folks. What is the matter with Kansas?"

Motley Fool contributor Rich Smith counts it as a claim to fame that he actually read "What's the Matter With Kansas?" before writing about it. He doesn't own shares of any of the stocks mentioned above. The Motley Fool doesn't, either. Try any of our Foolish newsletter services free for 30 days. Check out our free report on one great stock to buy for 2015 and beyond.
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