Arizona’s Attorney General Wages Lawfare on Families

Arizona is one of the nation’s leading states in offering families education choice—and families are loving it.

Three out of four parents support the state’s Empowerment Scholarship Accounts program, which enables families to choose the learning environments that work best for their children. Parents can use these funds to pay for private school tuition, tutoring, textbooks, homeschool curricula, online courses, special needs therapy, and more.

The typical student in this program receives about $7,500 per year, less than half the $15,300 per pupil at Arizona’s district schools.

But Democrat Attorney General Kris Mayes wants to put a stop to even that.

Yet again, Mayes is waging lawfare against the more than 90,000 students using the state’s education choice program.

Earlier this year, Mayes ordered the Arizona Department of Education to adopt an extra-statutory regulation—one she invented from thin air—that undermined the ability of the department to approve education savings account expense requests in a timely manner. Now, she’s using exaggerated concerns over misspending to achieve the same end: throwing sand in the program’s gears.

Late last month, Mayes sent a letter to Arizona Superintendent of Public Instruction Tom Horne ordering him to cease automatically approving account purchases under $2,000, a practice Mayes argued “has led to ESA [Empowerment Scholarship Account] holders purchasing prohibited items […] with taxpayer funds.”

Horne, a former attorney general, responded that Mayes’s issue lies not with him but with the state legislature, which modified the program’s statute last year to require the education department to adopt “risk-based auditing procedures” for the program. The revision was signed into law by Gov. Katie Hobbs, a Democrat.

The risk-based auditing provision seems like a boring, in-the-weeds detail. But such details can make or break a program like the Empowerment Scholarship Accounts—and Mayes knows it.

Before the legislature revised the statute, the Arizona Department of Education was manually approving every single account purchase or reimbursement request. This “review every penny” approach was causing massive backlogs and delays.

There were nearly 11,000 transactions in quarter 3 of this year alone. It’s impossible for the department’s small staff to review each transaction in a timely manner. Instead, families were forced to wait over two months to purchase things like books or curricular materials.

But families can’t wait months just to buy a textbook or pay their child’s tutor or school. Those who couldn’t wait had to pay out of pocket—and it took nearly five months to be reimbursed.

The delays caused families considerable frustration. A survey of families using the accounts found that two-thirds were dissatisfied with how the program was being administered and about eight in 10 were frustrated by long wait times for expense approvals and reimbursements.

It wasn’t supposed to be this way. ClassWallet, the vendor that operates the program, promised in its 2023 contract with the state “to automate the approval of platform transactions and reduce the [department’s] reliance on manual reviews of platform purchases,” claiming that the artificial intelligence it was developing “provides the State a path to a zero-approval queue, minimizing staffing and costs.”

Unfortunately, ClassWallet has thus far failed to deliver on that promise. And while artificial intelligence might one day allow parents to instantly access their funds while reducing fraud to zero, it’s not there yet.

In the meantime, the department needed a practical solution that simultaneously maximized user-friendliness while minimizing fraud.

That’s where risk-based auditing comes in. In response to parental frustration with the manual review process, the legislature modified the statute, ordering the Arizona Department of Education to adopt a risk-based auditing approach.

To comply with legislative intent, the department decided to automatically approve spending requests below $2,000, then audit accounts on the back end.

The new approach has been a stunning success. Parents can get most items immediately, and wait times for purchase requests above $2,000 dropped from two months to just three or four days. And the risk-based auditing system produced a high degree of financial accountability.

Unfortunately, though, the media seized upon the tiny percentage of ESA holders who are taking advantage of the looser rules. Sensationalist “journalists” with a long history of factually challenged attacks on school choice programs breathlessly reported that account holders purchased a variety of ineligible expenses, including diamond rings and necklaces, flights and hotel stays, and even lingerie.

What they neglected to report was the scale of the misspending.

Last month, the Arizona Department of Education revealed that their internal audit of two years’ worth of ESA spending had turned up $622,000 in ESA funds that are “possible fraud or misuse.” That’s less than 0.05% of total ESA spending from 0.4% of account holders.

More than that, anyone engaged in misspending will be forced to pay the money back and could face prosecution. The department reports that it is “in the process of collecting more than $600,000” in improper spending, and it’s already suspended 400 accounts. Some have been referred some to the attorney general for further investigation and prosecution.

One would think that the attorney general would be impressed by this high level of accountability. But instead, she’s demanding that the Education Department abandon risk-based auditing in favor of the failed manual-review process that produced months-long wait times.

Clearly, accountability is not the goal here. Arizona’s attorney general is using misspending as a pretext. If accountability were her real concern, she’d be raising alarms about all the waste, fraud, and abuse in the district school system—such as the $12 billion worth of unused and underutilized buildings that Arizona school districts are sitting on, or the record $7.8 billion they’re holding in cash reserves.

Mayes says she is concerned with stopping the 0.4% of account holders committing fraud. But her demands would make the program unworkable for the over 99% of families who are just trying to do right by their children.

Punishing fraud is necessary. Every government program has some amount of fraud and abuse, and public officials have a duty to implement rules that keep fraud to a bare minimum. But undermining a program’s effectiveness does not serve the public interest, especially when that program is helping kids get access to a better education and a brighter future.

The attorney general’s demands are unreasonable and pretextual. Acceding to her demands would not fix the state’s education choice program—it would break it. Horne was right to tell the attorney general to go pound sand.

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