Jun 7, 2024 - News

AG will investigate allegations surrounding Hobbs and group home company

A woman speaks into a microphone in front of signs that say Katie Hobbs for governor.

Katie Hobbs in November 2022. Photo: Jon Cherry/Getty Images

The Arizona Attorney General's Office will investigate what a state senator described as a "pay-to-play scheme" involving Gov. Katie Hobbs, the Department of Child Safety and a group home company that received a substantial rate increase.

The big picture: The Arizona Republic reported Wednesday that Sunshine Residential Homes received a large rate hike from DCS after making six-figure contributions to Hobbs' inauguration fund and the Arizona Democratic Party.

  • Sunshine applied for a rate hike in December 2022 that DCS denied in February 2023. It again applied for a rate increase in May 2023 that was approved.
  • Meanwhile, the company gave $100,000 to Hobbs' inaugural fund in December 2022, though the inaugural fund's records dated the contribution in February 2023. Sunshine also gave $200,000 to the Arizona Democratic Party shortly before the 2022 election.
  • Sunshine CEO Simon Kottoor was on Hobbs' inaugural committee and contributed to her campaign, and his company gave her an award about a month before her election.

The latest: Democratic Attorney General Kris Mayes' office said in a letter to state Sen. T.J. Shope (R-Coolidge) Thursday afternoon that its criminal division will open an investigation.

  • Shope, chair of the Senate Health and Human Services Committee, sent letters Wednesday to Mayes and Republican Maricopa County Attorney Rachel Mitchell asking them to determine whether civil or criminal investigations are warranted.
  • He said in the letters, which the Senate released publicly, that the Republic story raised questions about possible violations of laws regarding bribery, fraud, procurement, conflicts of interest and illegal expenditures of state money.
  • He also sent a letter to DCS director David Lujan seeking unredacted records pertaining to Sunshine's contract.

Mitchell informed Shope and Rep. Matt Gress (R-Phoenix), who wrote a separate letter to her, that her office will meet with staff from the Arizona auditor general's office, which reached out to her on Wednesday, and will determine what next steps are warranted.

The other side: "Just like past investigations instigated by radical and partisan legislators, the administration will be cleared of wrongdoing," Hobbs spokesperson Christian Slater said in a statement to Axios. "It would be outrageous to suggest her administration would not do what's right for children in foster care."

  • Slater and DCS spokesperson Darren DaRonco said the governor and her office had no involvement in the agency's decisions regarding Sunshine.
  • A spokesperson for Sunshine told the Republic, "We have always been steadfast in our commitment and partnership to the State of Arizona and remain committed to do so going forward while cooperating fully with any inquiry."

How it works: None of the dozens of other group homes that contract with DCS had received a rate hike under the Hobbs administration until June 1, 2024, when 52 providers got them as part of negotiations to renew expiring contracts, according to a Hobbs' spokesperson.

  • Sunshine is the only provider to get a rate hike outside of routine contract negotiations, the spokesperson confirmed.

What's next: Shope told Axios it's a "very real possibility" that he'll hold an investigative hearing and will consult with staff Friday.

Context: Sunshine runs about 30 group homes in Maricopa County for children removed from their homes by DCS. It's the state's largest provider of group home beds by far, the Republic reported.

  • The Republic reported that DCS changed course on the rate hike request because Sunshine said it would otherwise have to prioritize beds for a federal refugee settlement program instead.

Editor's note: This story has been corrected to reflect that, although Sunshine had been the only group home company to receive a rate hike under the Hobbs administration, a Hobbs spokesperson said that 52 others providers got them on June 1.


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