Grand Canyon Institute Study Finds Charter Schools Use Taxpayer Funds For Questionable Transactions

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A new policy report by the Grand Canyon Institute, reveals that up to 77 percent of Arizona’s charter school holders use their state taxpayer funds for potentially questionable financial transactions.

Specifically, many charter schools conduct business with a related party, in other words a for-profit business owned by the charter holder, a member of the school’s corporate board or a relative of either. In 2013-14, related-party financial commitments were worth half a billion dollars of state taxpayer funds, representing 48 percent of charter school expenditures for contracts, leases and rents.

Examples of these related-party transactions include:

  • Purchasing curriculum from the charter school holder’s for-profit company.
  • Hiring teachers from an employment services firm owned by the charter holder’s relative.
  • Contracting consulting services from a member of the charter school’s corporate board.
  • Leasing property from the charter holder’s parents.

In one case, a non-profit charter holder paid $12 million in one year to his own for-profit business to purchase curriculum software. In comparison, Mesa Unified School District spent less than 10 percent of this amount on their proprietary online learning management software.

View 2017 AZMerit scores here

“The practice of related-party transactions is illegal for public district schools but permitted for Arizona’s charter schools,” says Curt Cardine, a fellow with the nonpartisan think tank the Grand Canyon Institute (GCI) and principal author of the policy report Following the Money: Twenty Years of Charter School Finances in Arizona.

“State legislators created rules governing charter schools including financial regulations that are substantially less stringent than public schools. This was intended to give them greater freedom over their budgets, staffing, curricula and other operations to achieve outcomes of higher quality education and increased competition. While some charter schools use related-party transactions to achieve cost savings in the best interest of their students, in most cases they are used to produce questionable salaries and profits for the charter holders, at the expense of students and taxpayers.”

The policy report also finds that charter school teachers earn 20 percent less than public district school teachers while their executives (often the charter holders) earn on average 50 percent more than their counterparts in similarly-sized public school districts. In one of the most egregious cases, Litchfield Park’s Crown Charter School paid its top executive $276,350 annually to oversee 266 students, compared to Scottsdale Unified District’s superintendent who earned $203,000 to oversee 25,000 students.

The policy report’s key recommendations include that charter schools must:

  • Conduct public competitive bid processes similar to public district schools.
  • Ensure consistency among Annual Financial Reviews (AFRs), audits and IRS 990 filings.
  • Adopt executive salaries comparable to similarly sized public district schools.
  • Be subject to annual audits by the state Auditor General similar to public district schools.

“School choice is appealing to many families,” said George Cunningham, the Grand Canyon Institute’s Board Chair and a former state lawmaker. “The bottom line is that greater oversight is needed to ensure that taxpayer funds paid to charter schools are in fact used for the primary purpose of educating students. Transparency and accountability are required so parents can make an informed choice as to the best educational opportunities available to their children.”

The policy report is the result of three years of exhaustive research and forensic accounting. Sources include AFRs, audits, federal IRS 990 forms for nonprofits, and interviews with staff from the Arizona State Board for Charter Schools and the Arizona Department of Education.

3 Comments

  1. We know that you at ADI HATE charter schools. As usual you take a one sided approach to declare something sinister is going on. What are the academic standing of these schools? what are the AZMerit test results for these schools? Your readers need more information to make an informed opinion.

    • The questioned expenditures outlined in the article seem the kind that should be questioned and the recommended reforms are reasonable considering state money is being spent. On the other hand I was disappointed that ADI did not question TUSD`s extension of a contract for substitute hiring (and other) services with the company that made improper and perhaps illegal contributions to Board members Cam Juarez and Chrystal Foster during the last campaign for Board membership.

  2. There are opinions and there is biased journalism. This is one study, no test scores, no talk about the freedom that charter schools provide. Not to mention the public schools are following the federal guidelines on topics such as common core education, and training children on secular ideas that should be taught in the homes. How about student or parent satisfaction? Did you even interview a single student or parent? No parent can fire their public school. If the public school is failing, they are stuck. With a charter school, if the student does not accel, the parent can change schools. Let’s try doing a better job at journalism here instead of the usual opinion piece please?

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