School vouchers: A second look at fraud and abuse

By Lindsay Wagner, NC Policy Watch, October 16, 2014.

Since our last look at the rampant fraud and abuse of school voucher programs around the country, North Carolina has implemented its own voucher program that provides low-income students with funds to flee the public school system in exchange for a private education.

At the same time, however, the new “Opportunity Scholarship Program,” as it is formally known, includes virtually no standards of accountability for how the state’s taxpayer dollars are being spent.

North Carolina’s school voucher program is now in the thick of a court battle, having already been found to be unconstitutional by a Superior Court judge. Defendants of the program have appealed that ruling all the way to the state Supreme Court, and while a final ruling on the merits of the program is to come, today we take a second look toward other states that have implemented school voucher programs or similar models of their own to see how they have fared.

Arizona

Arizona implemented a private school tuition tax credit program in 1997. That program was designed to aid low-income families to take advantage of private schools.

A report by the national advocacy group People for the American Way found that over a three-year period, the Arizona scheme has cost the state more than $55 million in funds that have gone largely to subsidize private and religious education for middle- and upper-income families.

How it works: Arizona taxpayers can claim a credit against state income taxes for contributions of up to $500 ($625 if filing jointly) to eligible “School Tuition Organizations” (STO).

These STOs provide scholarships to students, paying for all or part of their tuition at religious and other private schools. Taxpayers claiming this credit cannot use their donations to benefit their own dependents.

The law does not require STOs to provide any scholarships to students based on financial need or previous inability to attend a private school. And even though parents can’t designate their own dependents as beneficiaries, they are able to designate other specific individuals.

As a result, the Arizona Republic has reported that parents can write $500 checks for their friends’ children, and those parents turn around and do the same. Under this loophole, 96 percent of the more than $361,000 donated to the Arizona Scholarship Fund—the seventh-largest STO in 1999—was earmarked for students who were already enrolled in private schools, according to PFAW.

Arizona’s East Valley Tribune told the story of one couple that took advantage of the tax credit program to pay for the $20,000-a-year private school tuition for their two sons:

Only God and the health of loved ones rank higher with Beth and Doug Fitch than an elite education for their two boys.

The $20,000-a-year cost is exorbitant, Beth said, even though the Fitches are both personal injury attorneys and own an Ahwatukee Foothills home valued at a half-million dollars, Maricopa County property records show. But the Fitches haven’t had to worry about the bill.

Arizona has paid the price.

The state’s Private School Tuition Tax Credits program covers the cost of private education, often for children whose parents could afford to pay it themselves – while allowing affluent families to reduce the amount of income tax they pay into the state’s general fund.

The Tribune’s own investigation into Arizona’s long-running tuition tax credit program found that an untold number of STOs, schools and parents are using the tax credits in ways that violate federal tax laws governing charitable donations.

And executives at two of the largest STOs have used tax credit donations to enrich themselves, buying luxury cars, real estate and funding their own outside for-profit businesses.

Private schools also hiked tuition dramatically to take full advantage of the tax credit program.

Wisconsin

An investigation by the Wisconsin State Journal has found that Wisconsin’s taxpayers have lost $139 million dollars over the past ten years to private schools that have received funds from the state’s voucher program but were ultimately excluded from participating, thanks to their failure to meet standards relating to finances, accreditation, student safety and auditing.

More than two-thirds of the 50 schools terminated from the state’s voucher system since 2004 — all in Milwaukee — had stayed open for five years or less, according to the data provided by the state Department of Public Instruction.

Northside High School, for example, received $1.7 million in state vouchers for low-income students attending the private school before being terminated from the program in its first year in 2006 for failing to provide an adequate curriculum.

Recouping money sent to shuttered schools isn’t a feasible option, since the money is gone, Bender and Olsen said. [Bender is president of School Choice Wisconsin and Olsen (R-Ripon) is the Senate Education Committee Chairman]

Wisconsin’s accountability standards for its voucher program are actually a bit more robust than North Carolina’s.

Private schools wishing to participate in Wisconsin’s school voucher program must meet requirements for the training of their staff, obtain academic accreditation, present a complete budget and submit information to DPI about their governing body or policies and contract with a third-party service to handle payroll taxes, according to the State Journal.

North Carolina’s private schools that participate in the school voucher program are free to hire untrained people to teach, are not required to be accredited or meet any curricular requirements and do not have to share details of their budget or governing body with the state or public.

Among the very few requirements they must meet, schools must administer a standardized test annually, comply with health and safety standards and conduct a criminal background check for only the head of the school.

In our 2013 story on voucher fraud, we highlighted several individual instances of abuse of Wisconsin’s voucher program.

At Milwaukee’s Mandella School of Science and Math, Principal David Seppah—who also founded the school—used proceeds from state voucher payments to buy two Mercedes-Benz automobiles at a cost of $65,000.

Seppah also owed the state almost $330,000 for more than 200 checks officials acknowledged they “inappropriately” cashed. Many of those checks, worth about $1,500 apiece, were made out to families whose children never attended Mandella.

Louisiana

Now in its third year, Louisiana’s voucher program is apparently dropping in popularity.

Nonetheless, enrollment continues to expand and the state will spend $40 million this year on funding private and religious school tuition for low-income students.

But already, the program has experienced controversy.

The state approved New Living Word School to accept 300 voucher students, even though its students at the time were receiving most of their instruction via DVD and lacked teachers and facilities to handle an influx of new students.

But what ultimately resulted in New Living Word’s expulsion from the voucher program was not its low academic standards; rather, it was found to be charging voucher students higher tuition rates than students paying their own way – which is prohibited under Louisiana’s law (nothing in the North Carolina statute specifically addresses this potential consequence).

Ultimately, New Living Word School cost the state $375,000.

Standardized test scores for voucher schools in Louisiana have been unimpressive– coming in 30 points below the state average last year, according to the Times-Picayune.

Looking forward in North Carolina

While the courts decide if North Carolina’s voucher program should survive, the state has already disbursed more than a million dollars in taxpayer-funded vouchers to private schools across the state — including $90,300 to Greensboro Islamic Academy, which an N.C. Policy Watch report found to be experiencing significant financial troubles just last year.

The Greensboro school pleaded online for help from the public to help fund its $150,000 shortfall so it could finish out the 2013-14 school year. The N.C. Policy Watch report also found that the school significantly increased its tuition rates around the time the school voucher program was implemented.

It’s impossible to know how many other private schools may have been experiencing financial troubles before being approved to accept school vouchers—they are not required to submit any financial information up front in order to be approved to participate in the program, aside from stating their tuition and fee rates for 2014-15.

As North Carolina’s school voucher program continues to be implemented, N.C. Policy Watch will continue to track similar models around the country to identify what could be in store for the state’s taxpayers and students.

http://www.ncpolicywatch.com/2014/10/16/school-vouchers-a-second-look-at-fraud-and-abuse/