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.
The state ceased imposing mandatory guardrails for parent caregiver payouts nearly a year ago.
The year of potentially runaway spending may have wasted nearly half a billion dollars, a new report from the auditor general revealed.
The audit found that the Arizona Health Care Cost Containment System (AHCCCS) and the Department of Economic Security (DES) had failed to implement cost-control requirements to the Arizona Long Term Care Services (ALTCS) program, within which is one of the biggest program costs: the Parents as Paid Caregivers (PPC) service delivery model.
PPC was established during COVID with substantial funding from the federal government, initially with the intent of being a temporary program. However, stakeholders desired permanence for the program when those pandemic dollars ran out. Gov. Katie Hobbs received approval from the Biden administration to make PPC permanent in 2024, which required Arizona to cover more than a third of the costs.
According to the audit, AHCCCS and DES leadership acted contrary to state law in order to implement laws how and when they saw fit, not how and when it was required of them.
One of the main cost-control requirements the agencies failed to implement was the standardized assessment tool.
AHCCCS suspended the tool in mid-October 2025, 16 days after initiating it according to state law. Those assessments made between Oct. 1 and 16, 2025, were reversed.
As a consequence, the auditor general estimated that the agency failed to realize between $133 million and $493 million in potential cost reduction “risking additional cost increases and shortfalls.”
DES was forced to request $83 million in supplemental appropriation from the state legislature for fiscal year 2026 as a consequence.
The threat of legal action reportedly prompted the agency to buck state law.
“AHCCCS reported that it halted implementation due to the threat of litigation and instead of implementing the policies it created it decided to engage in emergency rulemaking,” reported the audit.
The auditor general did assess that the tool lacked the ability to contain costs in the long term, and suggested legislative changes and federal approval.
The audit also reported that AHCCCS and DES failed to fully implement other cost-control measures, including executing processes to ensure parents reside in the state for at least six months prior to becoming paid caregivers, and prohibiting payments for parent-provided services between 10 p.m. and 6 a.m. and when the child isn’t home.
Further, AHCCCS and DES were found to have not enforced the 40-hour limit on parent-provided care until April of this year. The agencies were required to implement that limit back in July 2025. The audit found this delay caused DES to overpay some parents.
AHCCCS and DES ignored the law by delaying the limit for 10 months to avoid penalizing parents.
“[D]espite lacking the authority to do so, [the agencies] delayed enforcing the requirement because [they] sought to increase compliance through an educational and not punitive approach,” stated the audit.
The audit also found that DES was inconsistent about maintaining member records and ensuring the accuracy of member assessments. The auditor general warned that the former could result in unsupported service authorizations and impair payment oversight, and the latter could result in incorrect payments, waste, and mismatched service authorizations.
The auditor general issued 11 recommendations:
Implement the required standardized assessment tool
Continue developing a formally documented Extraordinary Care Review process
Develop and implement a procedure to seek legal counsel prior to programmatic changes
Develop and implement all required cost controls and oversight processes to ensure functionality
Update monitoring processes to ensure timely oversight of compliance with contractual and statutory obligations related to ALTCS and PPCG
Require provision of timely access to utilization and vendor payment records
Develop and implement regular assessments of the 40-hour limit
Establish corrective action requirements for lack of enforcement concerning 40-hour limit
Conduct an analysis to identify additional cost-control measures to improve ALTCS finances
Implement any additional cost controls for ALTCS as discovered with aid of governor’s office and CMS
Notify the legislature of analysis results and plan of action
Roberta Harrison, AHCCCS interim director, responded that she disagreed with the auditor general’s findings but promised to implement the 11 recommendations. Harrison cited federal Medicaid requirements, legal and procedural considerations, data limitations, and implementation timelines as hindering agency compliance.
DES agreed with one of the findings, that required cost-control measures weren’t fully implemented, and disagreed with the other three. DES agreed to implement all but five of the 20 recommendations.
The auditor general’s office plans to follow up with AHCCCS and DES in six months’ time.
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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 Joint Legislative Audit Committee (JLAC) voted June 1st to direct the Arizona Auditor General to conduct two targeted special audits examining student safety in schools and the administration of federal childcare assistance funds.
One audit will focus on school safety practices statewide, marking the fourth special review of the issue. It will specifically include the Phoenix Union High School District following recent serious incidents of campus violence, including the August 2025 stabbing of a student at Maryvale High School.
The Auditor General will assess whether Arizona schools have properly adopted and implemented emergency response policies, thoroughly investigated student safety allegations, and complied with the state’s mandatory reporting laws.
In a separate action, the JLAC approved a special audit of Arizona’s administration and oversight of the federal Child Care and Development Fund (CCDF). The program, primarily administered by the Arizona Department of Economic Security, provides childcare assistance to qualifying families.
“JLAC took bipartisan action to get answers on two issues that matter to Arizona families,” said Chairman Matt Gress (R-LD4). “Parents deserve to know whether schools are prepared to respond to credible threats and whether serious safety concerns are being handled properly. Taxpayers deserve to know whether hundreds of millions of federal childcare dollars are being managed responsibly. These important audits will establish the facts, identify gaps, and help us determine what needs to change.”
Arizona spent around $573 million in federal CCDF funding during fiscal year 2024. The audit follows previous State Single Audit findings that identified deficiencies in provider oversight, questioned costs, and reporting.
The review arrives amid growing national concerns about fraud and abuse in publicly funded assistance programs. Federal officials have highlighted risks across the country, including recent charges announced by the U.S. Department of Justice in Minnesota against 15 defendants in alleged fraud schemes involving more than $90 million, some tied to childcare assistance programs.
The Auditor General’s examination of the CCDF will cover the approval and monitoring of childcare providers, inter-agency oversight responsibilities, and the accuracy and propriety of program expenditures from fiscal years 2021-25. The review may also extend to participation providers and other areas deemed necessary by the Auditor General, with particular attention to higher-risk periods during and after COVID.
“The fraud scandals unfolding in other states are a warning sign,” added Gress. “Arizona should not wait for a crisis before asking hard questions. When hundreds of millions of dollars flow through a program, strong oversight is not optional. This audit will help determine whether taxpayer dollars are protected, safeguards are working, and childcare assistance is reaching the families it is meant to serve.”
The school safety audit, which received unanimous approval, will begin following completion of the third school safety special audit now underway. It is scheduled to be completed on or before December 31, 2027. The Child Care and Development Fund audit will require cooperation from relevant state agencies and entities involved in federal childcare funding.
Ethan Faverino is a reporter for AZ Free News. You can send him news tips using this link.
On May 12, the Scottsdale Unified School District (SUSD) Governing Board voted 5-0 to place a $375 million capital bond on the November 2026 ballot. Five months earlier, the same body voted 3-2 to close Pima Elementary and Echo Canyon K-8 over declining enrollment and its poor fiscal management.
SUSD has lost roughly 6,250 students since 2010-11, a 24% decline. Applied Economics, the district’s own demographer, projects another 2,400-student loss by 2035-36. Six additional campuses sit on the Phase II repurposing list and are likely the next to close. Yet, the district wants a bond 64% larger than the last one approved by voters to renovate buildings it is in the process of closing.
In 2019, Pima was rebuilt with funds from the last school bond approved in 2016 to boost the school’s enrollment. Seven years later, the Pima renovations are a startling example of hubris that comes at a colossal cost to taxpayers.
State-funded enrollment is down7.19% over four years, which directly reduces the per-pupil dollars the district receives.
The day-to-day operating reserve lost nearly half its value in a single year, falling from $18.86 million to $10.60 million.
SUSD spent more than it took in two years running, by 4.14% in FY25 and 8.52% in FY24.
The General Fund savings account fell 25% in FY25 and 31% in FY24, a combined $28 million drawdown.
SUSD pulled $4.2 million of its state capital aid, money meant for buildings, technology, and buses, and used it to cover payroll and operations instead.
In other words, SUSD is so operationally distressed that it is cannibalizing its capital fund to make payroll. A bond cannot fix that. By law, bond proceeds can only be spent on capital projects, not on salaries or classroom costs.
If this bond is approved, SUSD will still have to make cuts, most likely to staff while throwing away money to maintain spaces it cannot afford to operate.
This pattern is statewide. Chandler Unified has similarly delayed school closures and narrowly forced through a bond in 2025 after a 2024 bond request led to the district’s first school bond rejection in 30 years. Kyrene passed a $161 million bond in 2023 and is still closing six schools. Bonds do not solve enrollment declines, nor do they save jobs. Scottsdale Governing Board member Pittinsky put it plainly in the December 2025 closure vote: “SUSD is nearly 25% smaller than we were 15 years ago, yet we have closed only one program in that timeframe.”
The political machinery behind school bonds runs on the profit motives of vendors and not on the genuine needs of students, families, or the school district. The Arizona Center for Investigative Reporting documented that three architects, three construction firms, and three subcontractors captured more than half of Arizona K-12 contracts from 2013 to 2016, doing so through hundreds of thousands in political contributions to pro-bond PACs statewide.
SUSD voters have seen the worst side of school bonds co-opted by the greed and financial interests of vendors. In 2018, former Superintendent Denise Birdwell steered architectural work to Hunt and Caraway without competitive bidding, accepted $30,000 in payments during contract negotiations, and appointed an unlicensed architect with a prior felony theft conviction on the contractor selection committee. She was later indicted on 18 felony counts. Yet, the same conditions that enabled this malfeasance still remain in place with no real guardrails to protect taxpayers from the too cozy relationship between district leaders and vendors.
Before SUSD asks taxpayers for $375 million, the Governing Board and Superintendent Scott Menzel owe the district three deliverables that address the Auditor General’s findings.
Complete Phase II closures before any new funding request.
Align capital planning to the 2035-36 enrollment projection of 17,340 students.
These actions would constitute rightsizing in earnest through fewer schools, a smaller operational footprint, and a proportionally smaller payroll.
A district carrying five high-risk flags from the Auditor General has not earned the right to ask voters for $375 million. Scottsdale voters would be well-advised to reject the request this fall.
Arman Sidhu is a lifelong Arizonan, a professional educator, and a doctoral candidate at Arizona State University, where his research focuses on school bonds and K-12 education funding. The opinions presented are solely his own.
