Oversight of Arizona ESA school-voucher program ‘almost a sham’

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Save our Schools Arizona delivered 111,540 signatures to the secretary of state on Aug. 8, 2017, to put the controversial expansion of Arizona’s school-voucher program on the November 2018 ballot.

As state lawmakers debated creating a school-voucher program six years ago, critics warned the legislation had a serious flaw: It would be impossible for the public to see how the money was spent.

The auditing requirements were so weak they were “almost a sham,” Matt Schoenley,  of the Secular Coalition for Arizona, told lawmakers during a March 2011 House Ways and Means Committee hearing on the Empowerment Scholarship Account program.

His warning went unheeded: Senate Bill 1553 sailed through and was signed by then-Gov. Jan Brewer. The program allowed families with disabled children to use tax dollars, which would otherwise go to their local public school, to attendprivate schools or programs that best met their needs.

Since then, the Republican-controlled Legislature, with the help of powerful school-choice backers, has expanded the ESA program to children from poor-performing schools, tribal lands, and their siblings, among others. Gov. Doug Ducey signed a bill massively enlarging the program in April. Each expansion has been hailed by school-choice advocates.

As the program expanded, resources to scrutinize the expenditures — made using state-provided debit cards — never kept pace. The Legislature gave the Department of Education money for the program butwouldn’t authorize spending much of it.

The warnings of lax oversight and little accountability proved prescient. Money was misspent but the state recovered almost none of it.

For example, some parents transferred all of their scholarship money into a 529 college-savings account and then left the program — preventing the state from recouping the funds.

Others pocketed the money and sent their kids to public schools.

Some purchased books or other materials using their state-issued debit cards and then immediately returned them. The refunded money was put on gift cards, allowing parents to spend it with no scrutiny.

And despite the Legislature’s vehement opposition to public money paying for abortions, the ESA program became one of the only state programs to allegedly fund the procedure. In 2014, payment to a health clinic led education officials to believe ESA money had been spent on an abortion.

These illegal expenditures of taxpayer money have sparked little outrage and no widespread calls for changes from either the Governor’s Office or the Legislature.

State leaders’ apathy is in stark contrast to their condemnation of and crackdown on abuse of social-welfare programs. Arizona has in recent years implemented among the nation’s most restrictive rules for lower-income recipients of cash assistance.

Chris Kotterman, lobbyist for the Arizona School Boards Association, said that “double standard” reflects the special status Republican state leaders afford school-choice programs.

“Private-school choice is much more favored than cash assistance to the poor,” Kotterman said. “If it’s a welfare program, then strict accountability is necessary … On the school-choice side, there’s an inherent assumption that parents, no matter what, are able to make the best choices and the government should get out of the way.

“It’s ‘trust but verify,’ but there hasn’t been much verify,” Kotterman said.

The problems persist

The state’s initial struggles to oversee the ESA program have continued.

  • The state Department of Education cannot produce the annual audits required by law.
  • Officials cannot say how much ESA money individual private schools receive from the state.
  • Officials cannot produce records identifying parents who have been kicked out of the program before 2014 and it’s unclear if the department can do so now.
  • Employee turnover, an issue it has struggled with for years, continues to be a problem. It has used temporary workers at times.

Dana Wolfe Naimark, president and CEO of the Children’s Action Alliance, was stunned by the misspending uncovered by the media and a 2016 auditor general audit, the only comprehensive audit of the program.

In her view — one shared by ESA opponents — the Legislature’s design of the program made it vulnerable to misspending: Few programs, they note, give parents cards loaded with taxpayer money.

“There has been too little attention to the accountability and administration of it and much more attention on expanding it,” Naimark said.

Charles Tack, who will now oversee the ESA program, acknowledged its oversight problems, specifically the lack of transparency in tracking students, private schools and money. Tack was previously the department’s lobbyist and spokesman.

In an interview, he said a new electronic system will soon be implemented to help the state better track future ESA money.

Two years ago, education officials offered a similar response when asked about poor oversight of the program.

The problems continued. In some areas, they got worse.

Less money, more problems

Since lawmakers created the program in 2011, the Education Department has been underfunded, understaffed and incapable of producing basic information about program spending, fraud and waste.

Records and data about the program are essentially unavailable prior to 2014, Tack said in response to an Arizona Republic request for public information.

The department would have to sift through thousands of paper files to reconstruct ESA activity prior to 2014, Tack said. And the department is unwilling to dedicate the required staff to do so.

But the information available since 2014 is problematic at best. Among the issues:

  • The department can’t produce quarterly and annual audits required by state law. Tack said the department has audited the files of each parent each year even though there are no public documents to confirm those efforts.
  • Of the program’s seven full-time positions, only between three and five have been filled for much of the past year. It has had three directors since 2014, and the last director quit after a month and without having secured another job.
  • Only 22 parents were referred to the state Attorney General’s Office to collect money that was misspent in the past two years, according to information provided by Tack. Only 8 percent of the nearly $16,000 sent to collections has been recouped by the state, records show.
  • The ESA program referred three people in 2015 for fraud and 19 more for fraud in 2016. The referrals for fraudulent activity totaled nearly $40,000. Three of those people were indicted and 11 cases are ongoing. The other eight cases were declined.
  • No cases have been referred to the Attorney General’s Office for criminal prosecution since July 2016.
  • Of the 146 parents whose children were kicked out of the program in 2015 and 2016, almost 75 percent took ESA money while sending their children to public schools, a violation of the program agreement. It’s unclear if the state recouped the misspent funds.
  • A 2016 auditor general audit found numerous problems, including $102,000 misspent by parents in only six months. Less than 15 percent of the money was recovered, the audit found. The audit criticized the policy of not removing from the program participants who attempted to misspend money.
  • The Department of Education cannot say how much money or how many students go to individual private schools in Arizona. After The Republic exposed the flawed methods used to track how money flows to private schools, Tack said there are no plans to allow the public to see which private schools benefit.

Tack said the department’s top priority is to hire soon a new director and fill vacant staff positions and then add more. The department wants to bring the number of employees to 10 and eventually 12.

One of the new positions will focus on auditing and reviewing transactions and expenses. The staffer will report to the department’s audit division rather than the ESA director to prevent conflicts of interest, Tack said. “We’ll have a system in place to make sure everything is being checked,” he said.

Working in a program that is politically sensitive can be high-stress.

He said the goal is to “change the culture” and to reduce the department’s “high turnover rate” and hold onto employees for longer.

Tack and the former ESA director had many of the same responses in 2014: A newly expanded staff would solve problems and a new automated system would make their job easier. But the problems persisted.

No tracking of private-school money?

The state being unwilling or unable to identify which private schools are benefiting most from public money is potentially more problematic than misspending by parents, said Dan Hunting, a senior policy analyst at Arizona State University’s Morrison Institute for Public Policy.

“When you hand that debit card over to schools, it’s essentially a blank check they can use any way that they want,” Hunting said.

Most large and recognized private schools would use the money responsibly, he said. But some may not. It is possible fraudulent and disreputable schools could be set up to collect the money, he said.

The money could also go to a school based on satanism or a madrasa teaching jihad and the state would be powerless to do anything about it, he said.

Hunting said the state is prohibited by statute from learning anything about private schools other than their number of students and student immunizations.

The state only requires that private schools teach reading, grammar, math, social studies and science.

“We could have state dollars going to a school teaching 2 plus 2 equals 5, and there is nothing that we can do about it,” Hunting said.

Tack said parents report the school that their child attends and the state can only aggregate information provided by the parents. The Republic found that as a result, state oversight efforts were “opaque, incomplete and riddled with errors.” Some parents reported their children attended “Bank of America” and “Amazon.”

If the state gets a better system that automatically tracks what money goes to which private schools, the Department of Education would share it, Tack said.

“We have to focus on what the law is asking us to do,” Tack said. “Private schools are not tracked the same way a public school is. We don’t have the ability to compel them.”

Still underfunded

Under state law, the Department of Education gets 5 percent of the money spent on ESAs to oversee the program.

Even though the department is entitled to the funds, the Legislature has never given the department the authority to spend that amount on oversight. The Legislature has instead capped the oversight budget and helped prevent the hiring of staff to check transactions and audit the program.

Initially, the department wasn’t allowed to spend any money to oversee the program.

This year, the oversight budget is about $800,000, a far cry from the nearly $2.5 million — 5 percent of the roughly $49 million program — the department is entitled to.

Asked if the Legislature is deliberately underfunding education officials’ ability to adequately oversee the program, Tory Roberg, a lobbyist for the Secular Coalition for Arizona, responded: “Clearly they know what they’ve been doing. It’s not by accident.”

Former schools Superintendent John Huppenthal, a supporter of the ESA program, agreed that records showing which private schools are receiving ESA dollars should be made public.

He said he expects “the Legislature will step up and they’ll do what they need to do to bring in all the accountability. I think they’re just concerned right now about killing it with too much administration, so they want to keep the administration very lean.”

Republican Sen. Debbie Lesko of Peoria, who has sponsored the legislation to expand the ESA program since 2011, acknowledged the Legislature has slowly increased funding for oversight.

As the head of the Senate Appropriations Committee this year, Lesko said she wanted to make sure the department received more money but not everything officials wanted. “I want to make sure they are using the money appropriately,” she said.

Lesko disagreed with perceptions that there have been problems with the program. But she said she would welcome more oversight.

“I do think it needs to be tightened up,” Lesko said. “I want to make sure this program is successful.”

She said she couldn’t answer if the ESA recipients are treated differently when they misspend money than lower-income Arizonans who receive cash assistance or food stamps. She said she would need to study the issue.

Chad Campbell, the former Democratic House minority leader who was in the Legislature when the ESAs originally passed, said Republican lawmakers do pick and choose which programs should be transparent depending on the ideology behind them.

“There’s no real auditing (of the ESA program) going on. There seems to be abuse of the program,” Campbell said. “Most elected officials always talk about being good stewards of public money … I don’t think you can say that’s the case for this program.”

Kotterman, of the Arizona School Boards Association, said expansion of the program has been politically beneficial for Arizona Republicans, who are more interested in being seen as school-choice pioneers than in properly overseeing the program.

“The proponents get to go out and say how successful they have been in implementing school choice in Arizona and hold it up as a shining beacon of choice for all students,” he said.

Originally published by Rob O’Dell and Yvonne Wingett Sanchez with The Arizona Republic on June 22, 2017 at 6:00 am