School-funding system flawed

The Arizona Republic
Tuesday, October 20, 2009
Justin Olson

The Arizona Republic's report of a charter school under investigation for inappropriately receiving state funds for educating private-school students highlights a pervasive problem throughout Arizona's school-finance system.

As described by The Republic, the student count of Sequoia Choice Arizona Distance Learning, a charter-school firm, included students who paid tuition to the Joy Christian School. Considering the parents of these students already paid the cost of their students' private-school education -- a payment that was supported in many cases by state tax credits -- it is inappropriate for taxpayers to fund this education again by counting the same students in Sequoia's per-student funding formula. It is fortunate for the taxpayers that the Attorney General's Office is evaluating the legality of this.

Arizona's equalization formula is a model system for equalizing education spending on a per-student basis. But any such system that funds schools based on the number of students educated requires an accurate accounting of students.

Unfortunately, Arizona's system is fraught with double-counting practices that lead to redundant taxpayer funding similar to the Sequoia and Joy situation.

For example, if a student finishes a school year at a district that has declining student counts and enrolls at a growing district or a charter school, then the state counts the same student at the district that the student attended during the previous year and at the school that the student currently attends. By funding this hybrid of current-year and prior-year student counts, the state's taxpayers double pay for the education of these transfer students at an estimated cost of at least $30 million each year.

Students who take courses at both a traditional district as well as a joint technical-education district are also counted twice at a cost of approximately $75 million a year.

Until this year, taxpayers paid twice for every class taught through dual enrollment. Each student taking one dual-enrollment course was funded as a full student in the high-school funding formulas and as a full student in the community-college funding formulas for the same course. The community colleges received full formula funding notwithstanding the fact that the college credit was awarded for a class taught on a high-school campus by a high-school teacher for high-school credit.

Beginning this year, community-college formula funding will be reduced by 50 percent for dual-enrollment courses. With this reform, the state still counts one dual-enrollment student one-and-a-half-times in the funding formulas.

The school transportation formula also provides redundant funding by counting miles that a district no longer drives. If a school district's route miles decline due to dropping student enrollments, the district continues to count the route miles that it used to drive and levies a property tax to pay for the miles not driven. Each year, districts collect approximately $60 million from property taxpayers to fund transportation miles that districts no longer drive.

Regardless of one's views on the amount of funding taxpayers provide districts and charter schools, most can agree that double counting results in an inequitable distribution of available resources and inappropriately favors those who game the system.

The state should shut down the practice used by the Sequoia and Joy schools; but, in the process, eliminate the myriad of well-established double-counting techniques that continue to plague the system.

Justin Olson is senior research analyst for the Arizona Tax Research Association.