The Arizona Auditor General found that Apache Elementary School District (AESD) improperly received state funding for out-of-state students and more than $27,500 in excess transportation funding, while raising concerns about employee benefits, technology controls, and the future viability of the eight-student district.
The Auditor General’s Office also reported that one audit finding was omitted from the public report because of its “sensitive nature” and was communicated directly to the district’s governing board and management.
According to the audit highlights, AESD, located on the Arizona-New Mexico state border, served just eight students during fiscal year 2024, with four of those students residing in neighboring New Mexico. Auditors found the district failed to comply with state requirements governing the admission and reporting of out-of-state students and improperly received state funding for those students. The report recommended that the district evaluate operational alternatives given the small number of Arizona students it serves.
The audit found that the district improperly claimed funding for out-of-state students and failed to charge tuition as required by state law. Auditors also concluded that the district improperly reported transportation miles associated with transporting out-of-state students to and from their homes in New Mexico, along with other reporting errors.
The report stated that the district “paid parents to transport students but did not ensure that all reported mileage and transported students were eligible for State funding and reported data was accurate.”
According to the report, those errors resulted in the district receiving more than $27,500 in excess transportation funding during fiscal year 2025 that it will likely be required to repay to the state.
The Auditor General recommended that the district work with the Arizona Department of Education to correct its student enrollment and transportation reporting errors and ensure future compliance with state requirements. Auditors also recommended that if the district continues admitting out-of-state students, it should charge tuition in accordance with state law.
In addition to the funding issues, auditors found that the district may have violated the Arizona Constitution’s Gift Clause by providing unauthorized fringe benefits to two employees. According to the report, the benefits were not included in employee contracts and were not approved by the district’s governing board prior to being provided. Auditors recommended that the district consult legal counsel to determine whether a Gift Clause violation occurred and, if so, report its determination to the Arizona Attorney General’s Office.
The audit also identified deficiencies in the district’s cash-handling procedures. Auditors reported that the district did not consistently prepare receipts when cash was collected and did not always make deposits in accordance with required timelines, increasing the risk of loss or theft.
The report further found weaknesses in the district’s information technology controls. According to auditors, employees and external users had excessive access to sensitive computerized data, while the district lacked comprehensive system monitoring, security awareness training, and an IT contingency plan. The Auditor General concluded that these deficiencies increased the risk of unauthorized access to sensitive information, data loss, errors, and fraud.
Auditors also recommended that the district work with the Cochise County School Superintendent’s Office to evaluate alternative operational structures. Potential options identified in the report include consolidating with another school district, operating as a transportation school district, or dissolving the district and requiring students to attend a nearby district.
The report noted that the majority of the district’s administrative spending was “for superintendent and business manager salaries and benefits.”
According to the Auditor General, the district’s governing board had three filled positions during fiscal year 2024, though one board member later resigned and only two of the three positions were filled when the report was issued in May 2026. The district’s small enrollment prevented the Arizona Department of Education from assigning a school letter grade or publicly reporting student achievement data in order to protect student privacy.
In its formal response to Arizona Auditor General Lindsey Perry, AESD agreed with the audit findings and stated it has already begun implementing corrective actions. Superintendent Loy Ann Guzman wrote, “While some recommendations already have been implemented, the district will continue to work diligently to complete administration of the remaining items and will work to improve the processes and procedures moving forward.”
The district reported that it has instituted procedures requiring proof of residency for enrolled students, worked with the Arizona Department of Education to correct enrollment reporting errors, and does not currently plan to admit out-of-state students. The district also agreed to evaluate operational alternatives with the Cochise County School Superintendent’s Office, review potential Gift Clause issues with legal counsel, improve cash-handling procedures, and implement additional information technology safeguards.
The Goldwater Institute filed a lawsuit against the City of Phoenix seeking to block a proposed sale of downtown city-owned land to Pennrose, LLC. The lawsuit alleges the deal violates the Arizona Constitution’s Gift Clause and a state law governing municipal housing requirements.
The complaint, filed May 26 in Maricopa County Superior Court, challenges the city’s proposed sale of public land located at 1016 North 2nd Street for approximately $1.5 million. The lawsuit alleges the sale price is less than one-third of the property’s fair market value and would benefit a private developer in violation of Article 9, Section 7 of the Arizona Constitution.
According to the complaint, Pennrose proposed what the lawsuit describes as “a blend of LGBTQ+ affirming affordable housing and a tuition-free preschool for under-resourced children,” with the preschool component to be offered by Bezos Academy. The Bezos Academy is a nonprofit organization founded by Jeff Bezos, founder of Amazon.com and owner of The Washington Post.
Court filings describe the property as consisting of three parcels totaling approximately 0.4 acres, or about 17,500 square feet. Goldwater attorneys allege the property was appraised at the direction of the city at approximately $4,812,500 in June 2023.
The Arizona Constitution requires government entities to receive a direct and proportionate return when they sell public assets. But Phoenix leaders are attempting to give Pennrose, LLC a massive discount on prime downtown real estate, agreeing to sell property worth at least…
— Goldwater Institute (@GoldwaterInst) June 1, 2026
The complaint states the city issued a Request for Proposals (RFP) in November 2023 seeking proposals for the purchase and development of the property. According to the lawsuit, the RFP set the minimum purchase price at $4,812,500, the property’s appraised value, while allowing proposers to offer a combination of cash payment and other purported public benefits to meet or exceed that amount.
Pennrose submitted a proposal in January 2024 to acquire and develop the property, according to the complaint. Goldwater attorneys allege the developer proposed purchasing the land for approximately $1.5 million and acknowledged, according to the complaint, that the proposed purchase price represented more than a $3.3 million discount below the RFP’s minimum purchase price.
City records show the Phoenix City Council approved Ordinance S-51809 on April 9, 2025, authorizing the sale and redevelopment agreement for the property, and later adopted Ordinance S-52672 on March 4, 2026, approving an amendment to the development agreement with Pennrose modifying the purchase price.
In a statement released June 1, Tony Napolitano, Senior Attorney at the Goldwater Institute, wrote, “Pennrose claims that the development will create public benefits worth more than the massive subsidy. But there’s a major problem: no valuable public benefit is identified, much less required, in the final agreement. In fact, the developer suggests the city should consider Pennrose’s own private gains from the project as public benefits. That theory turns the Arizona Constitution on its head.”
The lawsuit argues the proposed transaction would provide a subsidy to a private developer without the city receiving direct and proportionate consideration in return, as required under the Arizona Constitution’s Gift Clause.
Goldwater also alleges Phoenix imposed an unlawful inclusionary housing requirement on the sale and development of the property. The complaint argues the city violated A.R.S. § 9-461.16, which restricts municipalities from requiring residential units to be designated for sale or lease to particular classes of residents as a condition of development approval.
Napolitano explained, “Pennrose initially proposed building a mixed-use development on the site, which would include low-income housing and a tuition-free preschool provided by a nonprofit. While the inclusion of a private nonprofit would not remedy the Gift Clause deficiency, it’s not even relevant because it was not included in the final terms of the deal.”
“That leaves the sole remaining alleged public benefit Pennrose claims: the residual value of the housing project once the agreement expires,” he continued. “However, the city retains no ownership interest in the property, and taxpayers will never receive any of their money back from the developer. Those assets remain with the private special interest—exactly what the Gift Clause was designed to prevent.”
The lawsuit asks the court to declare that the proposed sale violates the Gift Clause, block the city from completing the transaction or conveying the property, declare the inclusionary housing requirement unlawful, and enjoin the city from enforcing such a requirement as a condition of development approval.
“Simply put, Arizona law does not give way just because city officials find a particular project desirable.
“Public property belongs to the public. When government officials transfer millions of dollars in public value to a private developer, the Arizona Constitution requires a genuine public purpose and a proportionate exchange—not deep discounts justified by speculative or illusory benefits that taxpayers will never see.”
AZ Free News did not locate a public response from the City of Phoenix regarding the lawsuit prior to publication.
Editor’s Note: Following publication, a representative for Bezos Academy contacted AZ Free News and said that Bezos Academy does not plan to open a location at the proposed Pennrose development in Phoenix.
One of President Trump’s most important campaign promises was to bring accountability and transparency to federal government spending. Under the newly created Department of Government Efficiency (DOGE), his administration didn’t waste any time getting to work.
Within weeks of Trump’s inauguration, DOGE had uncovered billions of dollars in waste and abuse of taxpayer funds under the United States Agency for International Development (USAID). Here are just a few of the ways the Trump administration discovered USAID was spending your tax dollars:
$1.5 million to “advance diversity, equity, and inclusion in Serbia’s workplaces and business communities.”
$2 million for sex changes and “LGBT activism” in Guatemala.
Millions to EcoHealth Alliance — which was involved in research at the Wuhan lab.
$1 million to boost French-speaking LGBTQ groups in West and Central Africa through the State Department.
$15 million for condoms to the Taliban through USAID.
This list barely scratches the surface of the waste and abuse that was discovered. But now, it appears it’s not just the federal government that’s been throwing your money around to outlandish woke initiatives. Arizona may have its very own USAID scandal…
An investigation by Republican Reps. David Marshall, Walt Blackman, and Quang Nguyen found that the City of Phoenix has distributed over $28.5 million of taxpayer funding to more than 100 private organizations with a shocking lack of oversight. Now, the Goldwater Institute is asking Arizona Attorney General Kris Mayes to intervene and stop what it termed an “unlawful spending spree.”
Citing the legislative findings, the Goldwater Institute alleges that “Organizations like the Phoenix Film Foundation, Phoenix Pride Inc, Mexican Baseball Fiesta LLC, the Arizona Science Center’s Galaxy Gala, and many others received subsidies—sometimes simultaneously by multiple departments—under questionable labels like ‘Sponsorships,’ ‘Grants and Subsidies,’ ‘Emerg[ency] Assist[ance],’ or ‘Miscellaneous.’ The city has no lawful authority to spend public money in this way.”
Parker Jackson, a staff attorney at the Goldwater Institute, said in a statement, “This effectively turns large portions of the city’s budget into a patchwork of slush funds that special interests can access in the sole discretion of a single city employee. Amazingly, the city ‘does not track donations by nonprofit status,’ so it does not know exactly how much taxpayer money has been funneled out through this opaque process.”
The reported “Sponsorships,” “Grants and Subsidies,” “Emerg[ency] Assist[ance],” or “Miscellaneous” donations run afoul of the Arizona State Constitution’s Gift Clause according to Jackson in a letter to the Attorney General co-signed by Jon Riches, the Goldwater’s Vice President for Litigation.
Government entities shouldn't–and in AZ legally can't–hand out taxpayer money to subsidize private special interests. But @CityofPhoenixAZ continues to violate the state constitution and other taxpayer protections. So @GoldwaterInst is getting involved once again. #GiftClausehttps://t.co/0g1fw5suTv
Riches wrote, “Most—if not all—of these expenditures appear to violate the Arizona Constitution’s Gift Clause, which strictly prohibits use of public funds to benefit private, special interests. Not only is it doubtful that these allocations serve a legitimate public purpose, but there also appears to be no direct or measurable consideration received in return for this use of public resources.”
The Arizona Constitution under Article 9 Section 7 states, “Neither the state, nor any county, city, town, municipality, or other subdivision of the state shall ever give or loan its credit in the aid of, or make any donation or grant, by subsidy or otherwise, to any individual, association, or corporation, or become a subscriber to, or a shareholder in, any company or corporation, or become a joint owner with any person, company, or corporation, except as to such ownerships as may accrue to the state by operation or provision of law or as authorized by law solely for investment of the monies in the various funds of the state.”
The Goldwater attorneys have called on Mayes to “[e]njoin the illegal payment of public monies” and to “[r]ecover illegally paid public monies,” under A.R.S. § 41-194.01 and A.R.S. § 35-212 respectively.
Jackson wrote in a Goldwater Institute press release that the finding by the Arizona legislature may seem familiar to keen observers: “If treating taxpayers as financiers for private entities—even controversial and ideological ones—sounds familiar, that’s because it mirrors what has been exposed throughout the federal government this year. For example, the U.S. Agency for International Development (USAID) was aptly described as ‘a slush fund for leftist priorities’ after the White House exposed decades of waste and abuse in that agency.”
"At the end of the day, public dollars should be used for public purposes… not to enrich special interests at a bureaucrat’s whim."
— Goldwater Institute (@GoldwaterInst) May 22, 2025
In a video posted to X, Jackson said, “At the end of the day, public dollars should be used for public purposes… not to enrich special interests at a bureaucrat’s whim.”
Arizona lawmakers are advancing a series of bills aimed at increasing transparency, accountability, and taxpayer protection. These measures tackle issues ranging from government spending on elections to school board meetings and travel, with a focus on ensuring that public funds are used responsibly and efficiently. With strong support from various groups, these bills reflect ongoing concerns about how taxpayer money is spent and how local government actions are conducted.
One of the most significant pieces of proposed legislation, HB2722, is backed by the Arizona Free Enterprise Club and sponored by Rep. Neal Carter (R-LD15). The bill seeks to prevent taxpayers from indirectly subsidizing private businesses through government gifts. Specifically, it targets “gift clauses” in state and local government contracts, which some argue allow for inappropriate use of taxpayer funds to benefit private entities.
The Arizona Free Enterprise Club has been vocal about the need for stronger protections against such expenditures. The organization has stated that this bill is necessary to curb the growing trend of government spending on private corporations without clear public benefit.
“Taxpayers should not be used as a backdoor financing mechanism for private companies,” said Arizona Free Enterprise Club officials. “This bill is about ensuring that public dollars are spent in a way that directly benefits the public, not private interests.” If passed, this bill would create stricter guidelines on how public funds can be spent and would allow taxpayers to hold officials accountable when misused funds are discovered.
Another bill making its way through the Arizona legislature is SB1036, supported by the Goldwater Institute and sponosred by Sen. John Kavanagh (R-LD3). This bill targets government spending on influencing elections, a topic that has sparked considerable debate in recent years. SB1036 would create a private right of action for taxpayers, allowing individuals to sue if they believe government funds are being spent on efforts that influence an election. This would make it easier for citizens to challenge the use of taxpayer money in elections, particularly when the spending appears to be partisan or otherwise improper.
The Goldwater Institute has argued that taxpayers have a right to ensure their money isn’t used to sway political outcomes. According to a recent report by the organization, there have been multiple instances of local governments spending taxpayer funds to advocate for policies that align with political interests, which has raised concerns about government overreach.
“Governments should not be using taxpayer money to influence the political process,” said Goldwater Institute officials. “This bill provides taxpayers with the ability to stand up for their rights and ensure public resources are not misused.”
Another bill, HB2169, which was introduced by Representative Matthew Gress (R-LD4), seeks to address transparency within Arizona’s public school districts. The bill would require school board meetings to be held in public facilities within the district, ensuring that they are easily accessible to the communities they serve. Additionally, the bill mandates that school boards must receive public approval before engaging in out-of-state travel, making it more difficult for administrators to make costly decisions without community oversight.
This legislation gained near-unanimous support, with proponents arguing that it ensures greater accountability for how public schools operate and how funds are spent. Critics of the current system have pointed to examples of school board members using taxpayer money for luxury travel without clear, public approval or benefit. A notable incident involved a local school district that faced backlash after spending taxpayer funds on extravagant trips while simultaneously requesting additional funding from voters for educational needs.
“Public education is about serving the community,” said Representative Gress in a statement. “We need to make sure that the actions of school boards are always in the public interest. This bill strengthens public trust in our school systems.”
Jonathan Eberle is a reporter for AZ Free News. You can send him news tips using this link.
