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Published in Print: October 4, 2006, as U.S. Circuit Court Bars Ariz. For-Profit Charters From Federal Payments

U.S. Circuit Court Bars Ariz. For-Profit Charters From Federal Payments

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In what may be the end of a long legal road, the U.S. Court of Appeals for the 9th Circuit has ruled that for-profit charter schools in Arizona cannot receive federal funds.

The San Francisco-based court in the ruling filed Sept. 25 upheld a previous U.S. District Court decision that federal money may go only to nonprofit charter or regular public schools.

The ruling is a decisive blow to the Arizona State Board for Charter Schools and the for-profit charter school companies in the state, 11 of which were named as plaintiffs in the appellate court’s opinion. They include Phoenix Education Management LLC, Intelli-School Inc., and the Leona Group Arizona LLC, all based in Phoenix.

Arizona has 469 charter schools, 43 of which are for-profit.

For-profit charter schools will lose some $2 million in federal funds anticipated this school year for special-education and low-income students as a result of the ruling, said Kristen Jordison, the executive director of the state charter school board. In anticipation of the recent court decision, 13 of the state’s 56 for-profit charter schools switched to nonprofit status this fall, she said.

She added that on average statewide, about 10 percent of a charter school’s budget comes from federal aid for students who qualify for the Title I program for disadvantaged students and the Individuals with Disabilities Education Act.

“This is not $2 million going to line a for-profit business’s pockets,” she said. “These funds have a specific, designated purpose.”

Ms. Jordison added that the state charter board is scheduled to discuss Oct. 10 whether to appeal the unanimous decision by the three-judge panel to the U.S. Supreme Court.

No Alternative Definition

Arizona first faced the prospect of losing federal funds for for-profit charter schools in late 2003. That’s when an audit by the U.S. Department of Education’s inspector general’s office called on the state to repay at least $1.1 million in federal funds, maintaining that for-profit charters did not meet the federal definition of local education agencies. ("U.S. Audit Raps Arizona's Use of Charter Aid," Dec. 3, 2003.)

The federal Education Department later said it would not require Arizona to repay the federal money, according to a state education department spokesman.

Unlike all other states with charter schools, which are publicly financed but largely independent, Arizona gives federal money directly to charter schools instead of channeling it through local school districts or other governing agencies. According to federal law, federal aid can go to for-profit operators of charter schools if the funds first go through nonprofit organizations that oversee the schools.

Arizona state schools Superintendent Tom Horne challenged the federal Education Department’s findings. He stated that the department ignored state law, which called for equal treatment of nonprofit and for-profit charter schools. The state attorney general’s office agreed. ("Arizona Opinion: Give Federal Aid to Company-Run Charters," Aug. 11, 2004.)

In June 2005, the charter board and the for-profit charter school companies sued the federal Education Department in the U.S. District Court in Phoenix. The court decided in favor of the Education Department, and the charter board and companies appealed the ruling.

The appellate court’s ruling in Arizona State Board v. U.S. Department of Education centered on the word “including” to define the schools eligible for federal aid. The federal IDEA and the Elementary and Secondary Education Act—last reauthorized as the No Child Left Behind Act—define such a school as “a nonprofit institutional day or residential school, including a public [elementary or secondary] charter school, that provides [elementary or secondary] education, as determined under state law.”

U.S. Circuit Judge Michael Daly Hawkins wrote in the court’s opinion that the “Arizona Charter Board seeks to introduce an alternative interpretation, arguing that the subsequent term ‘including’ expands, rather than simply illustrates, the definition of eligible schools.” But the meaning of the word, he wrote, “is both plain and unambiguous.”

Vol. 26, Issue 06, Page 18

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