By Max Goshert, Senior Research Associate

In the early hours of Thursday, May 1^st, the Arizona legislature passed a massive, $10.4 billion spending bill, HB 2663¹.  Buried within the hundreds of pages of legalese are two significant changes to how both charter schools and public district schools operate, further differentiating how entities within each system are expected to conduct themselves.

Specifically, the HB 2663 establishes that:

• School officials are personally liable for violations of state procurement regulations to ensure competition when districts seek bids for goods, services, and construction projects.
• It is a felony for school officials to violate procurement laws and to accept personal gifts worth more than $300 from a vendor.
• School districts must post their budgets and audit information on their websites.

The new legislation reacts to conflict of interest and self-dealing issues at Scottsdale Unified School District earlier this year. However, by exempting charter schools, it completely ignores the alleged abuse of taxpayer dollars by Discovery Creemos Academy and Starshine Academy earlier this year. The former closed suddenly in late January and the Arizona State Board for Charter Schools has moved to revoke Starshine’s charter.

GCI has already written at length about the numerous concerns surrounding charter school finances.  In GCI’s September 2017, Following the Money, GCI found that 77% of all charter holders engage in related-party transactions (when the charter school contracts with businesses owned by the charter holders, board members, or members of their family)². GCI’s latest report, Red Flags, showed that more than half of charter entities either do not meet the financial performance metrics set by the Arizona State Board for Charter Schools (ASBCS) or have cash flow problems³. GCI’s research indicates that greater financial accountability charter schools, not less, is in order.

Rather than utilizing this research to compel charter operators to handle taxpayer money more responsibly, the state legislature instead exempted charters from the Arizona State Board of Education’s procurement rules and the procurement gifting prohibition, further muddying the waters between charter schools and the companies they contract.

Compare these changes for charters to the new requirements for public district schools.  Starting July 2019, public districts must select builders for large construction requirements based solely on the lowest cost bid⁴.  Previously, districts could subjectively score bids and select a contractor based on that score. This new rule comes largely as a response to the scandal at the Scottsdale Unified School District earlier this year. Troubling relationships have certainly been found between construction firms and top school officials⁵. However, mandating a lowest-cost bid system risks returning to the low-cost bid-system circa the 1990s, when many projects ended in lawsuits.

While what happened at Scottsdale USD was certainly troubling, the strict transparency laws that school districts are bound by brought these issues to light and that the perpetrators were held responsible. Financial mismanagement and the misuse of funds will always be an issue where public dollars are concerned, no matter how strict the laws are in trying to prevent such issues.  However, transparency allows the public to be aware of any such activities and to act when deemed appropriate. Instead of being held accountable by the public, charter operators can use taxpayer money as they see fit behind closed doors.

The exemption of charter schools from the gifting prohibition regulations makes it that much harder for the public to determine that their money is being well spent and to discover how much of their money is going to the classroom vs. in the wallets of the charter operators. Expecting both charters and districts to act in the best interest of students while holding each to vastly different standards fails to recognize the reality that the incentives created by current regulations have shaped the two education systems as they exist today.

Update: This post has been edited to remove the section on HB 2663 exempting charters from posting their budgets on their website. HB 2663 removed a duplicate reference, not the requirement.

Works Cited

1. Irish, L. (2018, May 1^st). Legislature approves budget, including teacher pay increase. Retrieved from https://azednews.com/legislators-continue-to-work-on-budget-including-teacher-pay-and-school-safety-plans/.
2. Cardine, C., Wells, D. (2017). Following the money: twenty years of charter school finances in Arizona. Grand Canyon Institute. Retrieved from https://grandcanyoninstitute.org/following-the-money-twenty-years-of-charter-school-finances-in-arizona/.
3. Cardine, C., Wells, D., and Pedotto, A. (2018). Red flags: net losses-warning signs in the financial data of Arizona’s public charter schools and recommendations for ensuring sustainability. Grand Canyon Institute. Retrieved from https://grandcanyoninstitute.org/red-flags-net-losses-warning-signs-in-the-financial-data-of-arizonas-public-charter-schools-and-recommendations-for-ensuring-sustainability/.
4. Wyloge, E., and Small, J. (2018, May 14). Arizona upends school procurement laws in effort to cool cozy relationships with builders. Arizona Center for Investigative Reporting. Retrieved from https://azcir.org/news/2018/05/14/arizona-upends-school-procurement-laws-in-effort-to-cool-cozy-relationships-with-builders/.
5. Wyloge, E. (2018, May 14). Email reveals close ties between construction firms, top school officials. Arizona Center for Investigative Reporting. Retrieved from https://azcir.org/news/2018/05/14/emails-reveal-close-ties-between-construction-firms-top-school-officials/.

Photo by Nathan Dumlao on Unsplash