There’s an ongoing set of investigations into Democratic Gov. Katie Hobbs of Arizona. It involves an Arizona state contractor which provides beds to foster kids which are paid for by the state’s Department of Child Safety. The story really kicked off last summer after some newspaper reports highlighted how the contractor, called Sunshine Residential Homes, managed to get a big increase in payments from the state after being previously turned down.
According to reports by the Arizona Republic, Sunshine Residential was denied a rate increase in December 2022, but donated $100,000 to the Hobbs inaugural campaign three days later.
The next year, the increase was approved: $234 per day. It was higher than the average $169 for other group homes…
Sunshine also donated $200,000 to the Arizona Democratic Party, and the firm’s CEO was on the Hobbs inauguration committee.
State Sen. Shope says it’s either a crazy coincidence, or pay-to-play.
Two separate investigations were launched as a result of those reports last year. But this week the same newspaper the broke the story, The Arizona Republic, has published some follow up stories that add to the overall picture. First, Sunshine Residential came to DCS demanding a 30% raise or they would offer their services to the feds who were then paying more per bed to host migrant children. Second, the person who served as the DCS director at the time said he and others were aware that the company demanding a raise was one of Hobbs biggest supporters.
There was no good choice, said David Lujan, then-director of the Department of Child Safety who approved that special rate hike for Sunshine Residential Homes in 2023.
The decision was difficult in part because of Sunshine Residential’s political support of Hobbs — Lujan’s boss — and the shadow it cast on the department’s decision-making.
“It puts, I think, state agency directors, state employees in an uncomfortable position,” Lujan said. “I really tried to make the decision based on what was best for our agency and the children, but of course you’re going to get second-guessed when you have campaign contributions involved…
Public records, including internal DCS emails and chat messages, show the company’s ties to Hobbs were common knowledge within the child welfare agency and a topic of discussion among employees conducting the state’s business.
The next day, the Arizona Republic had another scoop. The company seeking the raise had apparently lied about being in financial straits.
Sunshine Residential Homes repeatedly made the case that it was facing financial hardship, and that’s why Arizona’s child welfare agency should increase how much it paid the company to shelter vulnerable children…
…in the same year Sunshine Residential Chief Executive Officer Simon Kottoor told DCS officials his business had a deficit of $4.5 million, the company’s records showed an operating income of about $440,000.
Multiple accounting experts reviewed the records at The Republic’s request and said they did not see a deficit of $4.5 million.
Indeed, one of the reasons the company’s operating income was so low was the big donations to Hobbs and the Democratic Party.
…the company could have reported even more income — over $1 million — were it not for more than $550,000 in “charitable contributions” in 2022. A company spokesperson confirmed that line item included political donations in the year, when Sunshine Residential contributed $300,000 to Gov. Katie Hobbs’ inauguration and to the Arizona Democratic Party.
So it sort of looks like the company turned that $300,000 donation into a $4 million windfall. It was the only such provider which got a raise, which seems awfully suspicious. Now the Arizona House GOP has said it will launch its own investigation.
Arizona House Republicans will investigate what they described as a “potential case of pay-to-play” involving Gov. Katie Hobbs and a state contractor.
The inquiry was prompted by reporting in The Arizona Republic, which detailed the Democratic governor’s ties to group home operator Sunshine Residential Homes. Sunshine Residential contributed $400,000 to Hobbs’ 2023 inaugural fund and the Arizona Democratic Party as it asked the state Department of Child Safety for a higher rate of pay.
DCS workers discussed the company’s ties to Hobbs before approving a 30% hike for Sunshine Residential worth about $4 million a year, the latest reporting showed.
That was despite warnings of an existing budget shortfall and a mandate to reduce the use of group homes.
They will now join two other investigations by the Arizona Attorney General’s Office and the Maricopa County Attorney’s Office. For her part, Hobbs spokesperson issued a statement denouncing all of it as motivated by politics. “As the Republic reporting makes clear, the Governor’s Office had no communication with DCS regarding Sunshine’s requested rate increase,” the spokesperson said.
That really does seem to be the best case for Hobbs here. She didn’t personally direct this to happen. It just happened because everyone at DCS was afraid to deny the bosses big donors the raise they were asking for.
In any case, voters don’t seem so fond of Hobbs at this point. A poll released this week suggested her chances of reelection are looking shaky.
An Emerson College survey released Friday shows Hobbs polling in a statistical tie with two of the three Republican contenders running in Arizona’s 2026 gubernatorial race. In addition, Republican Rep. Andy Biggs, a former chair of the conservative House Freedom Caucus, is the clear GOP favorite to advance to the general election against Hobbs, according to the poll.
In a hypothetical matchup between Biggs and Hobbs, the incumbent took 44% support while Biggs received 43%, a difference well within the poll’s margin of error. Thirteen percent of participants said they are undecided, according to the survey.
Something to keep an eye on as these three investigations move forward.
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