Arizona's ESA Program Faces Scrutiny Over $440M Surplus

In Arizona, a recent report revealed that $440 million in taxpayer dollars allocated for education is sitting untouched in private Empowerment Scholarship Account (ESA) program accounts. This discovery has ignited a fierce debate about how the state manages its education funds. Some view the surplus as evidence of prudent saving by families. Others, however, argue it highlights a lack of oversight in a program that now costs Arizona over $1 billion annually.

The ESA program, designed to give parents flexibility in educating their children, allows families to use state funds for private school tuition, homeschooling materials, or even future college costs. Unused funds roll over each year, accumulating until a child turns 22. With more than 70,000 students enrolled, the program's growth has outpaced expectations, leaving a massive sum idle while public schools grapple with budget shortfalls.

This issue came to light in July 2025, when an investigative report underscored the scale of unspent funds. Governor Katie Hobbs seized on the findings, calling for stronger rules to ensure accountability. The debate centers on balancing parental choice with the public's right to know how their money is used.

While ESA accounts accumulate millions, Arizona's public schools face persistent funding challenges. In June 2025, a $200 million shortfall in the Basic State Aid formula forced the state to cut district payments by 40 percent, threatening classroom resources and teacher salaries. Lawmakers later closed the gap with emergency funds, but the incident exposed vulnerabilities in the state's education budget.

Arizona ranks 49th nationally in per-pupil public school funding, and teacher pay remains below the national average despite recent raises. Critics argue that the ESA program, which diverts roughly $7,500 per student from state coffers, exacerbates these strains. A Grand Canyon Institute report noted that even before 2025, unspent ESA funds had reached $360 million, raising questions about whether the program's design encourages hoarding over immediate educational use.

Supporters of the ESA program, including many parents and education advocates, defend its structure as a lifeline for families seeking tailored education options. With over 70,000 participants, the program has grown from a 2011 pilot for special-needs students to a universal model embraced by diverse households. Surveys show high satisfaction among ESA users, who value the ability to save funds for future needs, like college tuition.

Proponents also point to Arizona's second-place ranking on the national Parent Power Index, which measures school choice opportunities. They argue that unspent funds reflect responsible financial planning, and that competition from ESAs pushes public schools to improve. Some note that public school funding has hit record highs post-COVID, suggesting the $200 million shortfall stemmed from administrative issues, not ESA costs.

Despite its popularity, the ESA program has faced scrutiny over accountability. A 2024 Auditor General report found that 23 percent of COVID-relief school funds went unevaluated, signaling broader oversight challenges. More alarmingly, five individuals were indicted in February 2024 for defrauding the program of $600,000 by falsifying student records, exposing weaknesses in the Arizona Department of Education's vetting process.

With only about 30 ESA specialists overseeing a billion-dollar program, the state struggles to monitor transactions effectively. The School Finance Transparency Portal, managed by the State Treasurer's Office, provides some data but lacks details on private school outcomes or individual spending patterns, leaving taxpayers in the dark about how funds are used.

The debate over ESA funds points to a broader need for solutions that preserve parental choice while ensuring fiscal responsibility. Research from other states shows mixed academic outcomes for voucher programs, but experts agree that transparency strengthens program integrity. Arizona's Joint Legislative Budget Committee projects ESA costs could outstrip corporate tax revenue by 2027, underscoring the urgency of reforms that balance innovation with accountability.

Potential compromises include capping annual rollovers at 150 percent of a student's award, requiring aggregated spending reports, or using AI-driven audits to flag risky transactions. Such measures could curb waste without restricting family options. Linking public school funding increases to ESA growth, as some propose, might also stabilize budgets while respecting diverse educational needs.

Arizona's school choice journey offers context for today's challenges. The ESA program began in 2011 as a modest pilot but faced pushback, including a 2017 voter referendum that blocked expansion. Universal eligibility, enacted in 2022, fueled explosive growth, but costs soared beyond initial projections. By 2023, the program's $900 million price tag became a flashpoint for newly elected Governor Hobbs, who campaigned on accountability.

Historical missteps, like the 2024 fraud indictments, highlight the risks of rapid scaling without robust safeguards. The program's resilience reflects a public appetite for choice. Balancing these priorities requires learning from past oversights while crafting policies that serve all students, whether in public or private settings.

Arizona's $440 million in idle ESA funds reveals a system at a crossroads. The program's success in empowering families is undeniable, but its unchecked growth raises legitimate concerns about fairness and efficiency. Taxpayers deserve clarity on how their dollars are spent, just as parents deserve options to meet their children's needs.

Targeted reforms, like risk-based audits or rollover caps, offer a way to strengthen oversight without dismantling a popular program. Equally important is ensuring public schools, which educate most Arizona students, receive stable funding. By addressing these dual priorities, the state can honor its commitment to education in all its forms.

As Arizona navigates this debate, the focus remains on students. Transparent, balanced policies can bridge divides, ensuring every dollar serves its purpose: equipping the next generation for success.