Legislator aided charter owners, including himself, with votes
Near the end of the 2018 legislative session, lawmakers were poised to pass a budget that would give educators large raises and require greater financial accountability for both district and charter schools.
House Speaker J.D. Mesnard and Rep. Eddie Farnsworth had other plans.
Well after midnight, Mesnard, with Farnsworth as point man during a testy floor debate with Democrats, added an amendment to the budget. It exempted charter schools from procurement and conflict-of-interest laws and from a requirement to disclose their entire annual spending plans on school websites.
Only district schools would be required to abide by those requirements.
Farnsworth wasn’t just a lawmaker interested in the details of the legislation. He also runs a four-campus East Valley charter chain that — because of the amendment — would remain free of state oversight of its spending.
Farnsworth’s involvement in the lastminute maneuver highlights how the Gilbert Republican’s roles as a state lawmaker and as a charter-school operator have for years mingled at the Arizona Capitol, almost always to the benefit of Farnsworth and the state’s other charter-school operators.
Along with the amendment’s exemptions for charters, the state budget gave those schools another financial plum. For the 18th consecutive year, the state education spending plan raised the perstudent allotment from the “charter additional assistance” program, this time by an additional 2 percent. That’s on top of the basic per-student funding that charter and district schools receive.
It meant an extra $32 or $37 in perpupil funding, depending on the student’s age. Benjamin Franklin, with upward of 3,000 students, would get about another $100,000 in state funding from the budget Farnsworth voted to pass.
Arizona’s lenient conflict-of-interest laws don’t prohibit Farnsworth’s charter-school-related policymaking. Nor does he apologize for his consistent efforts during his 16 years in the Legislature to increase funding for charter schools and limit regulations that could make them less profitable.
On Sept. 10, the Arizona State Board for Charter Schools approved Farnsworth’s request to transfer the charter of his for-profit Benjamin Franklin schools to a newly formed non-profit company with the same name.
The ownership change will allow him to sell the four campuses — built using the charter chain’s state funding — for a profit between $11.8 million and $29.9 million, Charter Board records show. (The figures vary because of conflicting financial audits Benjamin Franklin provided to the Charter Board.)
In an interview, Farnsworth, 57, said he would make a profit closer to the low end of that range, but declined to be more specific.
“Charter schools have been lucrative to me because I’ve done what every other business has done to make money,” he said. “I had an idea. I put the business plan into place. I followed every law and every contract. I provided a product that is a good product that people wanted.”
Mesnard said the Benjamin Franklin sale may look bad because Farnsworth is cashing out his equity. But Farnsworth took the financial risk to start the schools and has followed the law, Mesnard said. Farnsworth is doing what any charter-school owner would be entitled to do, and he has never pushed legislation that would benefit only his schools.
But a public and political backlash has followed The Republic’s reporting on Farnsworth’s expected windfall from the sale of Benjamin Franklin.
A Republican colleague in the Legislature, with the support of Gov. Doug Ducey, has recently proposed several charter-school reforms and a tightening of the Legislature’s conflict-of-interest laws.
The governor on Monday again called for charter-school reform during a meeting with The Republic’s Editorial Board.
Ducey said the Legislature needs to revisit its conflict-of-interest law, calling it “troubling” to see charter operators make millions off their schools. It was a shift since August, when the governor told The Republic he wasn’t concerned about lucrative CEO pay at charter schools.
Democrat David Garcia, who is trying to unseat Ducey, said the “profit motive” must be removed from Arizona’s charter schools so their CEOs can’t “walk away with millions of dollars.”
During his 16 years in the Legislature, Farnsworth has voted for 12 education budgets that increased charter additional assistance funding, which provides up to $1,807 more for K-8 students and $2,106 more per high-school student than traditional public schools.
Since 2000, when the Legislature made additional assistance available, the funding has increased 50 percent. During that time, inflation in Arizona has risen 38 percent.
The reasoning behind the extra funding is to compensate for charter operators’ inability to tap property taxes to build classrooms. The extra cash is intended to help cover building leases or
mortgage payments.
Charter operators contend they also get fewer federal dollars than district schools. However, much of that funding is tied to special education, English-language learners and students from lower-income families — all of whom make up a smaller share of students who attend charter schools, state records show.
At Benjamin Franklin, growth in the student population combined with additional assistance has increased state funding to almost $20 million in fiscal 2017, about 62 percent more than in 2012, records show.
Also in 2012, Farnsworth voted for a GOP-backed bill that removed a requirement that charter schools change auditors every six years. Rotating auditors was seen as a way to provide more financial accountability over schools’ spending.
Farnsworth said he ran for office to “serve the public, not help my schools. In fact, I have voted against charter schools at times during my tenure.”
He helped Mesnard with the amendment to this year’s budget because the legislation would have given the state Board of Education authority to make charter schools comply with procurement and conflict-of-interest laws, as district schools must.
The original education budget called for more financial oversight because of bidding violations at the Scottsdale Unified School District, Mesnard said.
Charter schools already report to the state Charter Board, and the change would have created confusion because they would be regulated by two state boards, Farnsworth said. He said some didn’t understand the impact, and said the legislation essentially contained an error, so it was amended. He didn’t elaborate on who had made the error.
“No one was advocating for less transparency,” Farnsworth said.
He contended charter operators are private contractors and should be treated like the companies that build roads — not like traditional school districts. Many businesses, he noted, profit from building classrooms or selling buses and curriculum to public schools.
But a group that favors more transparency and oversight of charter schools disagrees. Curt Cardine, of the Grand Canyon Institute, said Farnsworth’s argument fails because contractors don’t own the roads they build, but charter owners retain the deeds to schools they build with public funds.
Contractors also can’t enroll in the Arizona State Retirement System, Cardine added, as Farnsworth has for himself and his teachers. State law allows charter operators to participate in the state retirement program, and Farnsworth said he was required to do so in 1995. That no longer is the case, as charter operators can enroll in the ASRS, provide a 401(k) retirement plan or not provide one at all.
“While the road contractor can sell his equipment, he cannot take out loans based on the existing road and the anticipated number of consumers that will use the road in the future,” Cardine said.
Cardine also said Farnsworth differs from most contractors because he votes on state funding decisions.
Because Arizona has part-time, citizen legislators who are paid a $24,000 annual salary, most have other jobs that can be helped or hurt by lawmaking, Farnsworth said.
State Sen. Sylvia Allen, who leads the Senate Education Committee, is another lawmaker with ties to a charter school.
Allen has repeatedly stopped bills by Democrats that would have installed reforms for charter schools.
Farnsworth said his votes benefiting charter schools affected thousands of others and thus don’t constitute a conflict of interest. It’s no different, he said, than legislators who are also teachers voting to raise education funding.
State law narrowly defines a legislative conflict of interest: a lawmaker voting on a bill that would benefit 10 or fewer Arizonans, including that lawmaker.
Farnsworth said on three occasions during his legislative career, he has sought legal advice from the attorney for the Arizona House on whether he had a conflict of interest. Each time, he was told he did not, he said.
Matt Specht, a House spokesman, said attorney-client privilege prevents House rules attorney Tim Fleming from commenting.
But some deem the conflict-of-interest laws too lenient.
Without mentioning Farnsworth, state Sen. Kate Brophy McGee, R-Phoenix, said too many legislators vote on bills that benefit them or their family members. Brophy McGee, who is vice chairwoman of the Senate Education Committee, said that law should be changed as part of a broader effort to increase oversight of charter schools.
“The rule of 10 we have in place is a very low bar,” Brophy McGee told The Republic in a Sept. 18 interview.
The Democratic and Republican candidates for superintendent of public instruction, Kathy Hoffman and Frank Riggs, both said they see Farnsworth’s votes on budgets that increased funding for charter schools as a conflict of interest.
Hoffman, the Democratic candidate, said that when legislators vote on bills that help them, it’s “corruption at its finest.” State conflict-of-interest laws should prohibit it, she said.
Riggs, the Republican, said, “This would have been a lot simpler if Eddie had been a for-profit owner of a small chain, or a legislator. Mixing the two is a problem. We need to take a hard look at our conflict-of-interest laws. … You have to be above reproach.”
Farnsworth opened his first campus in 1995, a year after the Legislature approved the state’s charter-schools law.
A corporate attorney, Farnsworth and his wife, along with a couple of investors, wanted to create a back-to-basics curriculum school that stressed patriotic values. They secured loans to buy supplies and equipment, and personally committed to several personnel contracts.
They scrambled to find a location in time for the start of the school year. After losing their preferred location, they settled in Mesa, he said, securing a lease on modular buildings next to an overgrown field where goats grazed.
The first school started with just 125 kids, serving kindergartners to thirdgraders. There were six teachers and a principal.
Farnsworth said finances were tight early on, and there were times when he didn’t take a salary.
Over the next two decades, Farnsworth’s brand of public education took root in the East Valley, where the Farnsworth name is well-known in Mormon circles.
By 2006, Farnsworth and his charterschool partners entered the construction business, building the first Benjamin Franklin school funded by millions of dollars more in debt, he said.
The Mesa campus closed while another elementary school opened in Gilbert, Farnsworth’s hometown. Two more elementary schools opened in Queen Creek, while increased demand led to the opening in 2013 of the first Benjamin Franklin High School with a focus on college prep.
Farnsworth declined to disclose how much he and his partners borrowed. But the investment helped produce the thriving four-school chain.
Ben Franklin competes for students within the Gilbert and Queen Creek unified school districts.
Farnsworth’s schools have virtually no English-language learners, records show. The special-education population at Benjamin Franklin’s four campuses is between 6 and 11 percent of students, records show.
The Gilbert and Queen Creek districts, meanwhile, have slightly more students with special needs and more non-native English speakers, while their academic performance is on par with or better than Benjamin Franklin’s students.
Three Benjamin Franklin’s schools received “A” letter grades from the State Department of Education for 2017-2018. The grades, released Friday, measure student proficiency, academic readiness, graduation rates and college readiness. The year before, all Benjamin Franklin’s schools received “B” grades.
Benjamin Franklin does not offer the federal free and reduced lunch program because the school does not take federal dollars.
Both the Gilbert and Queen Creek districts offer the free and reduced meal programs.
The lack of subsidized meals can be a barrier to attendance for low-income students, according to charter-school critics.
Farnsworth told The Republic that he pays himself about $170,000 annually to oversee the schools.
He said his salary is comparable to superintendents with similar-sized school districts.
Queen Creek pays its superintendent $148,753 annually to manage a district with 7,939 students — more than double the combined student body of Benjamin Franklin — at six elementary schools, two middle schools and one high school. Another Queen Creek elementary school and high school are slated to open in July.
Queen Creek pays its teachers an average salary of $50,898, nearly 15 percent higher than the $44,267 average salary at Benjamin Franklin, records show.
Gilbert has more than 35,000 students and 40 schools. Its superintendent is paid $189,000, or $19,000 more than Farnsworth, to oversee 10 times more students. Gilbert’s average teacher pay is $48,731, or 10 percent more than Benjamin Franklin’s.
In late May, as he prepared to sell the schools, Farnsworth created a threemember board to oversee the new, nonprofit Benjamin Franklin.
Farnsworth selected for the board James Candland, former chief of staff to Maricopa County Supervisor Don Stapley; Chris Eltiste, a financial consultant and Benjamin Franklin parent; and Kevin O’Malley, a shareholder and lawyer for Gallagher & Kennedy.
The new non-profit plans to buy the schools and hire a management company to operate them. Farnsworth has bid for the management contract. With the Charter Board’s blessing, a sale is expected to close by year’s end.
Farnsworth said all three board members are friends, but that doesn’t constitute a conflict of interest.
Candland and O’Malley are registered lobbyists who have appeared before Farnsworth at the Legislature.
Candland, on Jan. 7, contributed $200 to Farnsworth’s re-election campaign.
Farnsworth, a few weeks later, sponsored a minor bill related to the formation of non-contiguous county island fire districts. It was pushed by Candland, who represented the Arizona Fire District Association. The legislation sailed through the Legislature with bipartisan support and was signed into law.
Candland made another $500 contribution to Farnsworth’s campaign on June 28, about a month after he joined the Benjamin Franklin board, records show.
“My business dealings with Eddie Farnsworth is no different than any other legislator,” said Candland, who added that he has known Farnsworth for 20 years. “I’m doing this first and foremost for the kids and what is in the best interest of the school and to give them a quality education.”
Candland, who lives in Gilbert, said his children have attended charter and district schools, and he’s also a board member for the East Valley Institute of Technology, which teaches publicschool students from the area a variety of skills from nursing to culinary practices.
“We have a fiduciary duty to the schools and kids, not Eddie Farnsworth,” Candland said of the new Benjamin Franklin board.
O’Malley said he’s known Farnsworth for a decade, and as a lifelong Democrat, he usually disagrees with the lawmaker’s politics. He said he agreed to serve on the board because he, too, wanted to help the families of the 3,000 students at Benjamin Franklin.
O’Malley’s firm made a $200 contribution to Farnsworth’s campaign in January.
During the 2018 session, Farnsworth supported legislation backed by the Home Builders Association of Central Arizona, which O’Malley represented.
Asked about the board members also being campaign donors, Farnsworth said, “You can’t buy my vote for any amount of money.”
O’Malley noted the non-profit will purchase the schools from Farnsworth at an independently appraised, fair market value. Having a non-profit company own the schools will save money because they will no longer pay income or property taxes, he said.
“The focus at the end of the day should be: How is the (charter) experiment working? With Benjamin Franklin, it’s working great, with academic performance, high graduation rates and test scores that are very good,” O’Malley said.
The Charter Board voted on the Ben Franklin sale last month.
Chairwoman Kathy Senseman repeatedly defended Farnsworth amid tough questions from other board members.
Charter Board member Erik Twist, who runs Great Hearts charter schools, grilled Farnsworth over how much the sale would personally benefit the lawmaker but received no specific answers.
He voted to approve the sale but later expressed concern on Twitter.
“Well, it was legal,” Twist said in an interview. “But there are a lot of things that are legal, but when we watch it happen there is something in our stomach that doesn’t turn the right direction.”
He said making money should not be the motivation for running a charter school. Operators should be fairly compensated but motivated by educating children, he said.
“The question worthy of discussion is whether the public K-12 system should allow an individual to go and get wealthy,” Twist said. “Mr. Farnsworth will say there are plenty of companies doing just that.”
Once the deal closes, taxpayers will twice have made payments on the same Benjamin Franklin school property.
Farnsworth used state funds to make payments on classrooms built and owned by LBE Investments, another company he owns. Both companies are headquartered at the same Gilbert address.
That reduced the balance on the debt. But when the schools are sold to the non-profit, the school will pay off the balance and assume a larger mortgage.
The new non-profit will be obligated to use future tax dollars to pay the new, higher building debt, projected at $65.8 million.
“I’ve never hidden the fact I have run two for-profit companies,” Farnsworth said. “‘For-profit’ is not a dirty word.”
Farnsworth argues taxpayers have never paid a dime for his schools. Once the state pays him as a contractor to educate children, the money becomes his, he said.
Arizona law prohibits the state from guaranteeing loans for charter schools, leaving the risk to Farnsworth, his wife and their partners.
Benjamin Franklin’s real estate has increased in value. Further enhancing the sales price: Benjamin Franklin’s enrollment and the expectation of continued state funding for the school, which Farnsworth votes on at the Legislature.
Besides making millions from the sale, Farnsworth will cash out $3.7 million in equity at Benjamin Franklin. In 2017, he used $2.2 million in Benjamin Franklin funds to buy out two other shareholders, making him the sole owner.
“I have done everything in the American dream that everyone else wants to do,” Farnsworth said.
Farnsworth, because of term limits, is running for the state Senate in District 12 — one of the state’s reddest districts.
He’s lost only one election, when he lost the GOP state Senate primary in 2008, causing him to sit out of the Legislature for two years.
Elizabeth Brown, Farnsworth’s Democratic challenger, thinks she can pull off an upset.
She said voters in her district are upset about Farnsworth’s huge charterschool payday and recognize that the Legislature needs to pass laws that provide more transparency and accountability for charter schools.
“We all helped pay for these charter schools, and for him (Farnsworth) to be able to write legislation that helps benefit him and for him to vote on legislative bills that benefit him is self-serving. I don’t agree with that at all,” Brown said.
But Farnsworth, who has lived in the district 21 years, said he doesn’t believe recent attention on the sale of his schools will hurt him in his district, where Republicans outnumber Democrats by a 2-1 ratio.
He’s already talking about working on charter-school reform in 2019.
“I’m willing to serve, and willing to serve ethically,” Farnsworth said.