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Issue: Arizona State Treasurer

Law or not, school voucher oversight in the works

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A provision slipped into the budget directs state officials to contract with a private company to help administer Arizona’s school voucher program.

No problem, says Superintendent of Public Instruction Kathy Hoffman – that was already in the works.

In March, the state Treasurer’s Office, which is responsible for banking services for the Empowerment Scholarship Accounts, issued a request for proposals for “alternative banking solutions” for the voucher program.

Essentially, the state is looking for a service that can provide real-time oversight of how parents spend public monies provided to them via scholarship accounts.

Such a program may even be able to prevent parents from illegally spending those ESA dollars in the first place.

Lorraine Jones, deputy state treasurer for operations, said, “We are looking for other processing payment solutions that might allow for better, more timely oversight that would prevent purchases from being made that would then, ultimately, [be] deemed to be inappropriate.”

Stefan Swiat, a spokesman for the Arizona Department of Education, said the idea arose in conversations among Hoffman’s ESA task force.

“As a group, they all said that there’s a couple of places the program is failing. One is that there’s just an administrative burden that needs to be relieved… And then the other piece was being able to monitor fraud, because basically, we’re playing a reactionary game,” Swiat said. “Other than Venmo or cash withdrawals, which we can detect immediately, everything else we’re waiting for an expense report. Who conducts business like that?”

That late detection garnered headlines at the end of the legislative session amid reports that Navajo families in Window Rock were illegally spending their ESA dollars to send their children to school across the state border in New Mexico.

The illegitimate expense was only discovered long after the fact during a routine audit.

“There’s a perfect example where a family is being advised or not understanding the law, so they’re going to spend something, innocently even, on an expense that is illegal. And so we have to catch that retroactively, and now we’re asking a family that’s already spent the money to reconcile that,” Swiat said. “And it’s not an efficient way to run the program.”

Fraud and misuse of ESA funds has been an ongoing problem, with nearly annual reports of parents using the money illegally, including a 2014 case where an ESA was allegedly used for an abortion.

Hoffman’s task force unanimously agreed that a third party vendor could help monitor ESA expenditures in real time, and the Treasurer’s Office issued an RFP for the program more than a month ago.

Now that agreement is enshrined in law.

An amendment to the budget, sponsored by House Speaker Rusty Bowers, directs the Department of Education to contract with a third-party vendor to assist with financial administration and oversight of the ESA program.

Hoffman said she wasn’t fazed by the Legislature’s mandate.

“We were already so far into the process and it didn’t matter to me whether it was in statute,” she said. “The current system is inherently broken and set up for failure. With prepaid debit cards there is a high risk for fraud and misspending whether families mean to or not, so moving to this closed payment system will be more on the preventative side and more proactive to make sure ESA dollars are going where they are allowed to go “

Hoffman said the vendor won’t have access to student data – only account numbers and expense reports. Student data is still under the exclusive purview of the Department of Education.

It’s unclear how the new vendor will be paid. The Department of Education was granted no new funds in the budget. Perhaps there will be savings realized by replacing the current vendor, Bank of America, which provides the debit cards that families use to spend ESA dollars.

Swiat said the vendor may take a cut of the sale of educational materials when parents shop through a vendor’s digital marketplace.

“The way they make their money is, it would be like a walled garden. So any products within there, you can buy. And within that marketplace, the vendor would take a percentage off the product’s price,” Swiat said.

More to the point, this marketplace – kind of like an online shopping portal – will prevent parents from buying items that are unapproved, since all the items available for purchase in the marketplace are pre-approved under state law, Swiat said.

The Treasurer’s Office missed its June 3 deadline to award a new financial services contract. Jones said it took longer than expected to evaluate various bids and proposals, but that a decision could be made in the next week or two.

Dillon Rosenblatt contributed to this report.

Treasurer debate turns personal, testy

From left are Democratic State Treasurer candidate Mark Manoil, debate moderator Ted Simons, and Republican candidate Kimberly Yee. Yee and Manoil met Oct. 9, 2018, in a debate held at the studios of KAET-TV in Phoenix. (Photo by Howard Fischer/Capitol Media Services)
From left are Democratic State Treasurer candidate Mark Manoil, debate moderator Ted Simons, and Republican candidate Kimberly Yee. Yee and Manoil met Oct. 9, 2018, in a debate held at the studios of KAET-TV in Phoenix. (Photo by Howard Fischer/Capitol Media Services)

Republican treasurer candidate Kimberly Yee labeled a plan by Democrat contender Mark Manoil to have the state help rural financial institutions do more lending as “socialized banking.”

During a televised debate Tuesday on KAET-TV, Yee also accused Manoil of helping to evict families from their homes and his own foreclosure and vehicle repossession proves that voters should not put him in charge of an office that manages nearly $15 billion in assets.

Manoil said Yee, who as a state legislator has supported multiple tax cuts for Arizona corporations, is someone who is only “trusted  by lobbyists.” Those tax cuts, he said, have made the state far too dependent on sales taxes which now fund more than 45 percent of the state budget, compared to just 2.4 percent from corporations.

“He doesn’t want voters to know what he does to earn a living,” Yee said. “He steals people’s property when they fall on hard times.”

“Of course not,” Manoil said.

“I enforce property taxes against people who don’t pay them,” he said. “It’s largely speculators or abandoned properties that are the subject of these things.”

Pushed by moderator Ted Simons on whether he has been involved in forcing families from their homes, Manoil said it has occurred perhaps two or three times in the 26 years he has been in the business.

Yee then pushed deeper into Manoil’s personal life, citing his loss of a home to foreclosure and repossession of a vehicle.

“So you can’t even manage your own personal finances yet you want to manage the $15 billion,”’ she said.

“At the time of the Great Recession I had a foreclosure and I bounced back from it, just like many Arizonans,” Manoil said.

“I came back stronger and I’m strong now,” he continued. “This is a silly attack, a personal attack that you’d expect from a career politician who kind of considers the advancement into this office the next step in her career that she’s entitled to.”

Yee insisted that bringing up Manoil’s financial history is not a “personal attack.”

“Voters need to know if you can’t manage your own personal finances,” she said. “Even back in the time when all of us were in that recession, some of us planned for it.”

Going directly to the role of the treasurer, Manoil said the office should be using at least some of those resources to directly help Arizonans.

What Manoil said he has in mind is having the state partner with banks and credit unions in small communities, something Yee said amounts to a state-run government banking system.

“This is socialized banking,” she said.

“It does not compete with them but rather enhances their credit-granting capabilities,” Manoil said. The result, Manoil said, is greater access to loans by individuals, entrepreneurs and even local governments seeking affordable loans for infrastructure projects.

“I’m actually talking about is banks in towns that have been abandoned by the banks,” he said.

Yee pursued the issue, saying that Manoil would use some of the dollars under the control of the treasurer for “social justice” programs, though she provided no specifics.

“Oh, you don’t think social justice is something we should be concerned about?” he said.

“Not in the treasurer’s office,” she said. “There’s no return on your investment for the taxpayer dollar.”

And Yee said if Manoil wants to help set policy he should instead be running for the Legislature.

“The treasurer’s office is not a policy-making office,” she said. “You manage the office for safe and prudent investments, not on these types of fluffy programs that feel good to people.”

Manoil said every elected leader, including the treasurer, has a duty to serve constituents. And he said the idea of partnership banking is “an explicit choice not to continue entrusting all of our state monies to Wall Street bankers who had a fabulous run with our monies.”

“They are not lending back into Arizona,” he said.

Yee defended lending her campaign $400,000, first to defeat Jo Ann Sabbagh in the GOP primary and now in her general election race.

“This job is a job I know well,” she said, having worked for Dean Martin when he was treasurer. “To manage nearly $15 billion in assets under management takes someone you can trust, someone who understands the office and will uphold the position with honesty and integrity.”

Manoil sniffed at that qualification.

“I don’t have the experience of being the public relations flak for the treasurer’s office,” he said. What experience she does have, Manoil said, is as majority leader in the Republican-controlled Senate, a Legislature “that has left most Arizonans behind.”

The winner of the election will replace Eileen Klein. She was appointed treasurer earlier this year after Jeff DeWit, who worked in 2016 on the national Trump campaign, quit to take a job as NASA’s chief financial officer.

Klein is not seeking to retain the post.