School Choice & Charters

U.S. Audit Raps Arizona’s Use of Charter Aid

By Rhea R. Borja — December 03, 2003 5 min read

The Arizona education department improperly gave more than $1.1 million in federal money to charter schools run by for-profit companies, according to an audit by the U.S. Department of Education’s office of inspector general.

But Arizona state schools Superintendent Tom Horne is challenging the office’s findings as flying in the face of his state’s equal treatment under law of nonprofit and for-profit charter providers.

The federal audit calls on Arizona to repay at least $1.1 million, and possibly more than double that amount, in aid under the Title I compensatory education program and the Individuals With Disabilities Education Act. Since 2000, the audit says, the state has passed on the federal funding to more than 29 for-profit providers operating at least 75 charter schools.

“Private, for-profit entities that hold charters for public schools are not public entities under the administrative supervision or control of a government other than the federal government,” Richard J. Dowd, a regional inspector general in the federal Education Department’s Chicago office, says in the Nov. 6 final audit report. "[S]uch entities are not allowed to exert control over Title I and IDEA funds.”

Appeal Planned

Unlike all other charter school states, Arizona allows federal money to go directly to charter schools instead of channeling it through local public school districts or other governing agencies. Three authorities in Arizona can issue charters to schools: the state board of education, the Arizona State Board of Charter Schools, and individual school districts.

Mr. Horne, a Republican elected last year, vehemently objected to the audit’s recommendations and said he would not repay the funds in dispute. All charter schools in Arizona—no matter who manages them—are public schools, he said.

“This is just plain wrong,” he said in an interview. “We may even go to court.”

“The federal government has decided to ignore Arizona law in this matter,” Mr. Horne elaborated in a strongly worded written statement. “I intend to exhaust every avenue of appeal available to me.”

Superintendent Horne plans to file an appeal by Dec. 6 with the Education Department’s assistant secretary for elementary and secondary education and its assistant for special education and rehabilitative services, who have the authority to demand that the Arizona education department repay the federal funds at issue in the audit. An Education Department spokesman said last week the audit report was under review by those assistant secretaries.

The audit findings have caused some consternation among charter schools in the state, said Doug Nick, a spokesman for the Arizona education department.

Auditors from the federal inspector general’s office randomly selected 20 Arizona charter schools. Some are run by non-profit entities. Some are managed by for-profit management companies such as the Leona Group Arizona LLC of Phoenix, which operates 12 high schools with more than 5,000 students and is affiliated with a national charter school management company, and Crown Charter School Inc., which manages a 140-student school in western Phoenix that was a private school until 2000.

The final amount that Arizona may have to repay could be higher. The audit report analyzes how the state education department disbursed federal money to charter schools from Oct. 1, 2000, through Sept. 30, 2001.

But it also recommends that the state agency refund the federal aid that Arizona provided to for-profit charter schools from Oct. 1, 2001, through June 30 of this year. That could at least double the $1.1 million that the audit recommends be repaid now.

It remains unclear whether the views of the inspector general’s office on federal funding to for-profit charter schools extend to those nonprofit charter schools that contract to be managed by for-profit companies.

Definition of ‘Public’

The audit report took Kristen Jordison, the executive director of the Arizona State Board of Charter Schools, by surprise. It’s unfair for the federal government to require public schools, including charter schools, to provide special services to certain students yet not provide the Title I and IDEA money that some of the charter schools need to do so, she said.

"[The federal government] seems to be coming in and redefining the rules of the game,” Ms. Jordison said. “These funds are generated based on students’ needs. So if the students generate that revenue, then the school should spend that revenue to meet the students’ needs.”

The findings by the inspector general’s office, she added, contradict the independence given charter schools under the No Child Left Behind Act, the 2001 reauthorization of the Elementary and Secondary Education Act, which includes the Title I program.

“This recent inspector general report undermines the autonomy charter schools were promised in the development and implementation phases of No Child Left Behind,” Ms. Jordison said in a written statement.

Arizona has nearly 500 charter schools, more than any other state. Most of them are managed by school districts or nonprofit groups. They cannot charge tuition and must serve all students, including those in special education and from low-income families.

Such “independent public schools,” as described under Arizona’s charter laws, educate about 8 percent of the state’s public school students. Charter schools get roughly 80 percent of the state funding that Arizona’s regular public schools receive.

The Arizona dispute centers on the differing views held by the federal inspector general’s office and the Arizona education department on the definition of the term “public school.”

Mr. Dowd, in his final audit report, refers to definitions of “public” in federal regulations as well as in the IDEA and the 1994 version of the Elementary and Secondary Education Act.

“Title I and IDEA funds are required to stay in the control of a public entity,” the audit report states. “Giving control of federal funds to a nonpublic entity is contrary to the law.”

Mr. Horne, the Arizona schools chief, in a written response earlier this fall to a draft of the audit report, pointed out that Arizona law defines charter schools as public schools, “regardless of whether they are operated by a public or private entity, or a nonprofit or for-profit organization.”

“We find no federal statute or regulation that prohibits for-profit charter schools from receiving Title I or IDEA funds,” he continued.

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