By Matthew Holloway |
Arizona Attorney General Kris Mayes declined to prosecute Gov. Katie Hobbs on Friday over allegations of a pay-to-play arrangement involving Sunshine Residential Homes. The decision prompted Senate President Warren Petersen (R-LD14), Mayes’ Republican opponent in the November election, to accuse the attorney general of protecting a political ally.
Mayes announced that her office found no evidence establishing that political contributions from Sunshine were exchanged for rate increases granted by the Arizona Department of Child Safety (DCS).
“The investigation has not uncovered any evidence of the necessary quid pro quo to support a bribery charge,” Mayes said.
The decision followed a two-year criminal investigation that included 12 interviews and reviews of campaign-finance records, procurement records, bank documents, and state communications comprising more than one terabyte of data and more than 100,000 documents.
The investigation began in June 2024 after Republican Sen. T.J. Shope (R-LD16) requested reviews by both Mayes’ office and the Maricopa County Attorney’s Office following reporting about Sunshine’s political contributions and subsequent rate increases.
Sunshine gave $200,000 to the Arizona Democratic Party before Hobbs’ 2022 election, $100,000 to her inaugural fund, and another $100,000 to the party in August 2023. Sunshine founder Simon Kottoor and his wife, Elizabeth, also contributed to Hobbs’ gubernatorial campaigns. Arizona campaign-finance records showed Hobbs was the only Arizona candidate to receive contributions from either Kottoor during the 2022 and 2024 election cycles.
Sunshine received a mid-contract increase in May 2023 that raised its rate to $195 per bed, followed by an increase to $234 per bed during its April 2024 contract renewal. The Attorney General’s memorandum said the company’s rate increased 56% from 2019 to 2024, although two other providers received larger percentage increases over that period while maintaining lower daily rates.
Investigators found that DCS officials were aware of Sunshine’s political contributions while considering its request. According to the memorandum, then-DCS official Robert Navarro told agency officials during a February 2023 meeting that Sunshine was likely to request an increase and added that the company was a donor to the governor. Internal teams messages also included discussions of Sunshine’s contributions.
Navarro told investigators that the donations created perceived pressure, but the Attorney General’s Office concluded that the pressure resulted from his knowledge of the contributions and found no evidence that Hobbs or her office directed DCS to raise Sunshine’s rate.
The investigation instead concluded that Sunshine’s rate increases “appear as the result of its outsized leverage” over the state’s congregate-care system. The company has been one of Arizona’s largest group-home providers and accounted for approximately 20% to 25% of the state’s non-Division of Developmental Disabilities congregate-care beds, according to the AG memorandum.
DCS officials told investigators that Sunshine had indicated it could shift beds to the federal Office of Refugee Resettlement, which was paying substantially higher rates to house unaccompanied migrant children. Officials expressed concern that losing Sunshine’s capacity would make it more difficult to keep siblings in foster care together. Two other providers had already left state contracts in favor of federal work.
Mayes would not say whether Hobbs would ultimately sit for questioning, while saying the investigation was nearing completion. The memorandum released Friday says Hobbs declined to sit for an in-person interview with investigators but submitted two written statements through her attorneys on Aug. 17, one in her capacity as governor and another as a candidate.
Hobbs wrote that she “has never discussed DCS contract rates, Sunshine’s rates, or any DCS procurement decision” with Kottoor or anyone affiliated with Sunshine. She also denied directing anyone else to have such discussions and said neither Sunshine’s contributions nor other financial support influenced state decisions concerning the company.
Petersen criticized Mayes’ decision in a statement released through Arizona Senate Republicans Friday.
“Mayes’ decision was predictable in an election season,” Petersen said. He accused Mayes of having “shamefully shifted accountability and protected her political ally, turning a blind eye to Hobbs’ misconduct” and said she had placed politics ahead of law enforcement.
Petersen’s office said Sunshine made three $100,000 contributions to the Arizona Democratic Party during Mayes’ investigation. However, AZ Free News previously reported that Sunshine gave the party $200,000 in September and October 2022 and another $100,000 in August 2023, before Mayes opened her investigation in June 2024. The Attorney General’s findings released Friday do not identify any additional Sunshine contributions made during the investigation.
Petersen won the Republican nomination for attorney general in July and will face Mayes in the general election.
Mayes called for new state contracting transparency laws while announcing the decision, saying the absence of evidence sufficient for prosecution did not eliminate concerns about disclosure requirements surrounding state contractors and political donations.
The Legislature has previously sent Hobbs two bills sponsored by Shope addressing those issues. SB 1612 in 2025 would have required companies responding to state requests for proposals or seeking grants to disclose items of value provided during the previous five years to the governor, gubernatorial political committees, inaugural funds, and related entities. It also included procurement-record retention requirements and removed an Arizona Health Care Cost Containment System (AHCCCS) exemption from state procurement laws. Hobbs vetoed the measure.
Shope returned this year with SB 1186, which retained the political-contribution disclosures and record-retention provisions without the AHCCCS provision. Hobbs vetoed the bill in June after lawmakers sent it to her amid the continuing Sunshine investigation.
Hobbs separately proposed her own procurement and campaign-finance changes earlier this year, including limits on political giving while companies were bidding for state contracts and a searchable database of state contractors. The competing proposals did not produce legislation acceptable to both the governor and Legislature before lawmakers adjourned.
Mayes’ criminal division recommended closing its investigation into the alleged pay-to-play arrangement involving Hobbs and Sunshine. The memorandum said the office would keep its investigation open for the limited purpose of assisting the Arizona Auditor General if requested. A separate investigation involving Maricopa County Attorney Rachel Mitchell and the Arizona Auditor General also remains ongoing.
Matthew Holloway is a senior reporter for AZ Free News. Follow him on X for his latest stories, or email tips to Matthew@azfreenews.com.
