Video complaints of delays in approving Empowerment Scholarship Account applications led an Arizona legislator to ask for an investigation of the process and the Superintendent of Public Instruction to again request the Legislature release the full ESA administration funding allowed by law for the school choice program.

In a series of videos, parents and the American Federation for Children, a school choice advocacy group, criticized Arizona Superintendent of Public Instruction Kathy Hoffman for taking longer than the 45 days allowed by state law to send out ESA approval letters. This led Arizona Rep. Mark Finchem, R-Oro Valley, to ask Arizona Attorney General Mark Brnovich to investigate the delays.

Last legislative session, Rep. Finchem sponsored House Bill 2022, which would have given the Treasurer’s Office exclusive authority to issue requests for proposals, select payment processing vendors and execute contracts with vendors and other providers of goods and services for the ESA program, but the bill was held in the House Rules Committee.

The Arizona Department of Education under Supt. Hoffman’s administration sent Empowerment Scholarship Account approval letters after the 45-day deadline  to 559 applicants for the 2019 school year, while under former Supt. Diane Douglas’ administration it sent out 513 letters after 45 days in 2018 and 130 letters after the deadline in 2017, according to an AZ Mirror article.

In response, Supt. Hoffman said her administration intends to effectively run the ESA program, and that “parents could rightfully be upset by long hold times.”

“The number of students in the program has grown by 52 percent over the last three years, but funding has not kept pace,” Supt. Hoffman said.

As of July 19, 2019, there were 6,500 students in the ESA program and 1,300 new ESA applications waiting to be processed.

“More students on the program means communication with more parents, more expense reports, more contracts, and more applications. This equates to a caseload of roughly 650 ESA students to one specialist, which is unacceptable for workload realities,” Supt. Hoffman said.

Legislature has never allocated full 4% to ADE

Supt. Hoffman asked the Arizona Legislature to release the full 4 percent of ESA administrative funding allowed by law to the Arizona Department of Education, instead of the 1.62 percent currently allocated.

“There is nearly $3.3 million in accumulated funds sitting in an account dedicated to administering the ESA program. Despite many lawmakers’ desire to see this program expand and succeed, ADE has never received the full 4 percent allowable under statute,” Supt. Hoffman said.

The Arizona Legislature allocated 3.84 percent of ESA administration funding to the Arizona Department of Education in Fiscal Year 2013, 1.96 percent in FY 2014, 0.88 percent in FY 2015, 1.4 percent in FY 2016, 1.79 percent in FY 2017, 2.04 percent in FY 2018 and 1.62 percent in FY 2019, according to the Arizona Department of Education.

“Funds will continue to accumulate in this account every year, unavailable for use by ADE, unless the legislature allocates that money,” Supt. Hoffman said.

Video by Mary Irish/AZEdNews: Chuck Essigs discusses ESA administrative funding

Large, complex program needs more funding

The ESA program is large and complex, said Chuck Essigs, director of governmental relations for Arizona Association of School Business Officials.

“There’s nine different levels of funding. Anywhere from over $6,000 per pupil to over $34,000 per pupil. Each student could fall in one of those nine categories. The parents may have different questions about how they can use the money,” Essigs said.

The Department of Education is tasked with managing the ESA program with just 1.62 percent of funds received, yet School Tuition Organizations, which fund scholarships for students to attend private schools, are allowed by law to use up to 10 percent of annual tax credit contributions to manage their programs, Essigs said.

“It’s just not very sensible to take a program that is as important as the ESA program, with as many options as are in the ESA program and vastly underfund the Arizona Department of Education, who as I’ve said many times, are doing a really good job with the limited resources that they have,” Essigs said.

But the department can only do so much with limited resources, Essigs said.

“The legislature needs to free up the additional dollars that are already in the state budget, but just have not been appropriated to the Arizona Department of Education,” Essigs said.

Infographic by Lisa Irish/AZEdNews
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Improvements made to ESA program

Despite the ESA administration funding amount, Supt. Hoffman said the Arizona Department of Education has made improvements to better serve families and students, including hiring an experienced ESA director, creating a new comprehensive handbook for parents, establishing a parent advisory group to provide suggestions and feedback to the department and establishing an online application process.

The ESA Task Force recommended finding a new banking vendor, so the Arizona Department of Education worked with Arizona Treasurer Kimberly Yee’s office to request proposals from interested vendors.

“We have also worked with the Treasurer’s Office to move to a new payment system, Class Wallet, which will streamline and simplify the spending and management of funds by ESA parents,” Supt. Hoffman said.

Class Wallet, which has experience providing financial and purchase services to ESA programs in other states, will replace the Bank of America prepaid debit cards the ESA program has used for years. The new platform will be phased in over the next several months.

“We will continue to advocate for the full amount of funding at the legislature, so ADE can improve the way we serve students and families relying on this program” Supt. Hoffman said.

What ADE would do with full 4% funding

Full ESA administration funding would allow the Arizona Department of Education to hire more staff to administer the program.

Currently, 10 full-time ESA specialists take calls, process applications and contracts, review expense accounts, and investigate misspent funds and more. In a report released Oct. 25, 2018, the Auditor General of Arizona found that parents misspent more than $700,000 using their state-issued ESA debit cards.

“If the legislature released these funds, we would immediately authorize the hiring of up to 15 additional ESA staff members to provide more robust customer service, process new applications and contract renewals in a timelier manner, as well as review and audit expenditures at regular intervals to provide assurances to parents and accountability to taxpayers,” Supt. Hoffman said.

The Arizona Legislature’s decision to consistently fund less ESA administration funding than the amount allowed by statute “impacts the Department of Education because they’re asked to administer the program with a very small amount of money to look at operating that program efficiently and effectively, and it also impacts parents, because the Department of Ed has limited staff to answer questions and process all their paperwork,” Essigs said.

Bill would have moved ESA program control to Treasurer’s Office

In February 2019, Sen. David Livingston, R-Peoria, sponsored Senate Bill 1320, which would have moved the administration of the ESA program to the Arizona Treasurer’s Office and allow the treasurer to retain 5 percent of basic state aid for administration of the ESA program, but the bill was held in the Senate Rules Committee. The Treasurer’s Office currently retains up to 1 percent for ESA administration.

“It would make no sense to have the Treasurer’s Office be in charge of education programs, so we argued along with other organizations that that responsibility for ESAs should remain with the Department of Education,” Essigs said

The Arizona Treasurer’s Office work closely with the Arizona Department of Education with “the Treasurer’s Office handling the accounting parts of it and the financial parts of it and the Department of Ed handling the education portions of it.

During the Feb. 13, 2019 Senate Finance Committee meeting, Supt. Hoffman said she opposed Senate Bill 1320, noting that “similar proposals were rejected overwhelmingly by voters in November, and I believe their voices should guide our work regarding ESA work and the ESA program.”

At the committee meeting, Supt. Hoffman announced the formation of an ESA Task Force made up of education stakeholders, including the Governor’s Office, the Treasurer’s Office, American Federation for Children, Save Our Schools and the Arizona Chamber of Commerce “to work together to find the best solutions so that this program can best serve the children and families who rely on it.”

Then, Hoffman requested the full 4 percent in ESA administration funding the Department of Ed is statutorily authorized to retain, noting “as more families utilize this program, we must be fully funded to appropriately manage it.”

At the time, Sen. Sean Bowie, D-Ahwatukee, said he was concerned that “considering how understaffed the Treasurer’s Office is, if they would be willing and able to take up this administrative function.”

Minority Whip Sen. Martín Quezada, D-South Glendale, asked which office is better prepared to handle ESAs for the 58 percent of recipients who are special education students.

“Our department is the best to determine eligibility because we already receive the IEPs and 504s and we already have that documentation,” Supt. Hoffman said.

Whether the ESA program is based in the Dept. of Education or Treasurer’s Office, “all of that eligibility would still need to go through our office, because we are the ones that hold that data, that information and the program would not work without us being part of that process,” Supt. Hoffman said.

Sen. Bowie asked how the Treasurer’s Office would manage the ESA program if that responsibility was transferred to them through SB 1320.

“If SB 1320 were to pass, we would implement the program, and we would need additional space and staff resources to do so,” said Mark Swenson, deputy treasurer for the State of Arizona at the committee meeting.  

“We have not done an analysis of what that would require. Obviously at the minimum we would take the same number of full-time equivalents that the Dept. of Ed is doing as a starting point, but we would have to do some due diligence to determine if that is what we would need in order to administer the program,”  Swenson said.

Then, Sen. Quezada asked, “Does the Treasurer’s Office even want this? Did you ask for this extra duty?”

“We are monitoring these two bills. We did not ask anyone to introduce these bills,” Swenson said.