OBBBA’s Error-Rate Penalties Are Drawing Closer. Are States Prepared?

Earlier this summer, the USDA released its annual SNAP payment error rate report, revealing that the national average error rate reached 10.62 percent in the previous fiscal year, 2025. The near-record high figure illustrates a critical challenge for states; to reduce an estimated $10.1 billion that states improperly distributed in SNAP benefits last year. 

Now, with new mandates Congress enacted in the One Big Beautiful Bill Act (OBBBA) with the urging of President Trump, most states face serious financial consequences if they fail to improve. Starting October 1, 2027, states with error rates between 6 and 8 percent will be required to cover 5 percent of their own SNAP benefit costs, while those above 10 percent will be on the hook for 15 percent. Illinois, for example, could face a penalty of about $700 million on account of its 14.7 percent SNAP error rate in federal fiscal year 2025. For states already grappling with outdated systems causing delays of over a month in all but one states for some families to receive the SNAP benefits for which they qualify, workforce gaps, and fiscal pressures, the error rate requirements pose an additional fiscal threat.

Contrary to some perceptions, these error rates mostly aren't due to fraud. Rather, they’re primarily attributable to both mistakes by case workers and applicants which result in both overpayments and underpayments. These improper payments are indicative of a long-standing structural problem: the outdated, fragmented, and understaffed systems states use to administer SNAP. 

The Root Problem: Systems Built for Yesterday

Many state welfare eligibility systems are relics of an earlier era. They are typically not integrated with dozens of other public assistance programs although the eligibility requirements are similar, and the software development cycle for each program  can take months of coding and testing. Staff must verify information such as earned and unearned income manually. Income documentation gets lost in paper stacks or siloed databases. 

In the nearly one dozen states with county-based systems, a worker in one county may not know whether someone in a household already received benefits in another. When human workers are overwhelmed by the volume of applications and outdated tools, errors accumulate, and eligible people lose (or never receive) benefits they are entitled to receive. 

The OBBBA penalty framework compounds this problem. States must reduce errors, but the very eligibility systems they rely on, and the lack of available investment resources to modernize them, e make achieving those reductions exceedingly difficult. All this coming at a time when food banks across the country are reporting consistently high demands for support.

The Gap Between Cost and Capacity

OBBBA also increases states' share of SNAP administrative costs from 50 to 75 percent, meaning states are simultaneously being asked to absorb 50% higher administrative costs and invest in error-reduction strategies while facing financial penalties if they fall short.

Some states such as Illinois are addressing the growing challenge, allocating $55 million in next year’s budget to the Department of Human Services to hire 450 additional staff and update eligibility determination systems. 

While Illinois should be commended for making modernization a priority, states must be cognizant of the dangers of leaning too heavily on full-time employees to tackle the problem. Massachusetts, which has carried the highest error rates in New England for the last two years, set out to reduce this problem by hiring 80 new caseworkers for the state’s SNAP program. Yet, according to a whistleblower, the additional employees have been unable to rein in the error rates because of the arcane systems they’re asked to run. “[The systems] aren’t adequate for our numbers,” he noted, “so there’s a backlog.” Considering that it can take up to three years for new eligibility caseworkers to reach full proficiency, it should come as no surprise that the large uptick in employees did not fix the issue.

A Smarter Path Forward

A more effective approach is to attack the root of the problem: the disconnected and inconsistent processes and systems that are responsible for most of this waste. 

This is precisely where cutting-edge technology can deliver the greatest impact, and 

where states should consider drawing on specialized, private-sector expertise. Experienced contractors can correct the root causes of waste at their source with, for example, real-time income verification against employment databases to decrease costly and inefficient manual review of pay stubs, and automated cross-checks can prevent duplicate SNAP payments across states or counties.

Whether through targeted short term consultant staff or rotational short-term assists from tech firms, states shouldn't be barred from bringing in external help for surge capacity. The private sector brings a fresh perspective to entrenched problems and can automate fraud detection or optimize call centers without displacing career staff, and at a fraction of the long-term cost of an army of full-time employees. For states attempting to dodge costly error rate penalties, every dollar counts. 

With SNAP serving approximately 42 million Americans, few federal programs have a more outsized impact on state budgets, taxpayers, and the families who depend on the program. This makes it even more critical to deliver the right benefits to the right people at the right time, 

The work force and technology to prevent these errors exists. States just need the political will and the modern-day tools to fix the archaic systems generating these errors. 

The Farm Bill Can Unlock Error Rate Solutions for States 

As states search for every possible tool in this fight to control error rates, the Senate has an opportunity to add a much-needed new option for states by passing the Farm Bill. 

The Staffing Flexibility Provision, which was included in both the House and Senate Farm Bills, represents an important first step by Congress to modernize the administration of the program by permitting states to contract with trusted private-sector vendors to supplement their existing workforce.

Opponents of the Farm Bill have argued the current implementation timeline doesn't allow states sufficient time to make the necessary improvements and modernize their systems and processes. This rationale, however, suggests that elevated error rates are a recent problem that states are only just now learning about, but that couldn’t be further from the truth. 

At the end of the Biden Administration, for example, then-Agriculture Secretary Tom Vilsack sent a letter to the governors of 44 states warning them to rein in their error rates and timeliness of application processing, something CAMI also echoed at the time.

Worse yet, with its roughly $100 billion in annual outlays – $25 billion above the baseline the Congressional Budget Office forecasted back in 2021 – SNAP may have grown beyond its intended role as a temporary safety net providing short-term nutritional help.

SNAP and states’ management of the program have been given the benefit of the doubt for years, and we cannot afford to keep kicking the can down the road. 

More than half of states are still falling victim to double-digit error rates and inadequate eligibility validation and verification. Now it is up to the Senate to get the Farm Bill across the finish line and provide states the flexibility they need to avoid the looming financial penalties that many cannot afford without program benefit cuts or cuts to other programs such as K-12 education.