Democrats in Arizona want to make big changes to the state’s school voucher program that fell victim to two costly fraud schemes in recent years but the Republicans who control the Legislature are eyeing more modest moves they say will prevent fraudsters from raiding the program in the future.
Democratic Attorney General Kris Mayes brought two separate fraud cases last year against individuals accused of defrauding the voucher program, which allows families to use tax dollars to pay for private school and homeschooling costs, of hundreds of thousands of dollars.
In one case, three former Department of Education employees were accused of participating in a scheme that defrauded the program of $600,000 by forging documents to fraudulently sign up 17 children for vouchers, including so-called “ghost children” that don’t exist.
A second case, announced by Mayes’ office in December, focuses on two Colorado residents who allegedly fabricated dozens of ghost children to steal over $100,000 from Arizona coffers.
Democrats have long argued the voucher program, also called Empowerment Scholarship Accounts, has accounted for millions of dollars in wasteful spending since Republicans expanded eligibility to all students in 2022. But the two cases brought by Mayes’ office offer evidence that its also a target for fraudsters.
Mayes said the sheer size of the voucher program, with a budget expected to reach over $800 million this year, makes it susceptible to those bad actors.
“The ESA program has proven itself to be a big fat target for fraud,” Mayes said.
Both Mayes and Democratic Gov. Katie Hobbs have long called on the Legislature to roll back the program and limit eligibility to the special needs children and students at underperforming schools covered by the program before the 2022 expansion.
They argued those changes are needed to combat fraud and spending on high-end items critics say shouldn’t be paid for by public dollars.
“While the ESA program is a popular program, nobody wants their taxpayer dollars being spent so that mansions can add a grand piano or kids are, you know, taking ski lessons and things like that,” Hobbs said.
Hobbs introduced a plan this year that would limit eligibility in the ESA program to families earning under $200,000 annually. It would also cut back on the voucher dollars awarded to families earning over $100,000.
But the Republican lawmakers who control the Arizona Legislature already said that plan is dead on arrival
“I'm just telling you no now,” Rep. David Livingston (R-Peoria), chairman of the House Appropriations Committee, told Hobbs’ budget staff.
Instead, Republicans said they’re working with Republican state schools Superintendent Tom Horne to provide more resources to flag fraudulent accounts and purchases more quickly. Horne said the Arizona Department of Education has not received funding to increase the number of staff members who oversee the ESA program as enrollment went from around 11,000 students in 2022 to over 85,000 this year.
“I mean you had a program that was serving 11,000 kids ballooning to over 80,000 kids in a matter of two years, so I do think there is a need for additional staffing,” said Rep. Matt Gress (R-Phoenix), who chairs the House Education Committee.
Horne drew criticism for approving a new policy last month that reduced scrutiny of some voucher purchases. Under the plan, Department of Education staffers automatically approve purchases under $2,000 with the intention of auditing those transactions later.
Horne said the fix was needed to address a monthslong backlog in approving reimbursements for parents caused, in part, by the staffing shortage.
“Last year, we were able to do that within 30 days,” Horne said.
Horne said several factors increased the number of reimbursement requests coming into the office, including changes in state law that allowed private school tuition to be paid through reimbursements. Previously, tuition was paid through ClassWallet, a third-party administrator contracted by the Department of Education.
He said he will be asking lawmakers to repeal that “absolutely disastrous” law.
Horne also blamed Mayes, saying her office’s insistence that parents provide curriculum information justifying certain purchases has slowed down approvals.
“So the various factors that have done that have resulted in the fact that we're now getting 500 requests a day, and with the current staff we have, and them working hard, they can only process 200 requests a day,” Horne said in December.
But Horne admitted exempting those smaller purchases from a front-end review is not a long-term solution.
We used to think we need to check the large amounts and not the small amounts, but turns out there's more cheating on the small amounts and on the large amounts,” he said.
The Arizona Department of Education is now working with lawmakers to secure funding this year to add additional staffers to review purchases.
Gress, the Republican lawmaker, said he wants to include that money in this year’s budget.
“We also are hearing from the department about technological solutions that are helping streamlining processes and leveraging AI to help root out fraud,” Gress said.
John Ward, Horne’s ESA executive director, told the state Board of Education on Jan. 27 that the department is working with ClassWallet to feed purchases through an AI-driven tool to check whether purchases comply with state law and department rules.
“The system will automatically generate for us, through the platform, a confidence score,” Ward said.
Ward said the department is also implementing an annual residency verification for voucher families.
Mayes, the Democratic attorney general, actually supports Horne’s request for more money.
“It's a lot easier to stop the fraud on the front end than to prosecute and investigate on the back end,” she said.
But, absent more significant changes to the program, Mayes also says the Legislature should give her office additional funds to prosecute the fraud that she sees as inevitable.
“I will continue to do these prosecutions for as long as I have to, but it's going to be like playing whack a mole with these fraudsters,” Mayes said.
