I think that there is a fine line to be drawn here. By definition the observers are pax, but the fine job they do is a specialisation in itself. Although it would most often be pointless for the aircraft flying without them, they do not often actually take an essential part in the pure aviation aspect of the flight (and therefore good CRM technique is vital where the police requirements conflict with the aviation / safety concern). I don't mean to be demeaning over this. My previous background flying as a team of pilot / crewman meant that a minor brain adjustment was required to operate as the CAA require. The CAA base check (sorry,OPC)requirement for the pilot to do it all by himself (i.e. observers not normally on board) reflects this.
I don't think the cost is the main reason for this "pax" status, rather the piecemeal and experimental way in which police aviation was introduced, at least to the UK. It would perhaps have been better in many respects if a policy decision had been made early on and an "air wing" or similar been formed at national level. This would have allowed economies of scale and better co-ordination etc etc. This could have included crew status for all concerned. I continue to be surprised how forces seems to insist on doing things their own individual way in many respects....not just in aviation. Take the "10" codes for a start!
As it stands, tenure has a part to play when considering costs, training, status etc. Look at the minimum experience and background requirements for a police pilot, set by the forces themselves in PAOM part 2. If a decision were made to increase the qualification requirement for observers to similar levels, it could be done but yes, the cost would be horrendous, it would require a change in policy for many forces and it may not achieve any great benefit as far as the job is concerned.
In my own case (and many others?) a police observer injured in the line of duty would probably come out of it financially better off than I would as a pilot...
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May the Force be with you - and may Gravity treat you gently..