PHOENIX (AP) — State prosecutors declined to file criminal charges against Arizona Gov. Katie Hobbs over allegations that she took part in a pay-to-play scheme with a group home company that received a rate increase from the state after contributing $100,000 to her inaugural celebration, Attorney General Kris Mayes announced Friday.
The Democratic governor has been accused of giving preferential treatment to Sunshine Residential Homes after the Arizona Republic revealed the private company contributed to the inaugural fund and Arizona Democratic Party and later received a 30% payment increase. Only Sunshine and one other company were given increases during the 2022-2023 contracting period.
The investigation has turned into a political millstone for Hobbs as she seeks a second term as governor. Her Republican opponent, U.S. Rep. Andy Biggs, has run an ad underscoring the investigation into Hobbs.
Hobbs denies wrongdoing, saying she wasn’t involved in the decision to grant the increase.
“The investigation has not uncovered any evidence of the necessary quid pro quo to support a bribery charge,” Mayes, a Democrat, said in a statement. Her investigators concluded the rate increase was the result of Sunshine's leverage as the largest provider of beds for children in foster care, not political pressure.
While the situation did not meet the standard for criminal charges, Mayes said her investigation “shows there is a need for legislative reform" around the transparency of political donations made by state contractors. She urged Hobbs and the GOP-controlled Legislature to adopt improvements.
A separate investigation by Republican Maricopa County Attorney Rachel Mitchell and the state auditor general is continuing. It’s unclear when the latter investigation will be completed, or whether its scope differs from the attorney general's focus on bribery-related crimes. A spokesperson for Mitchell, Erin Pellett, said she had no estimate for when the the investigation would conclude. She declined to comment on the attorney general's announcement, citing the open investigation.
“As has been publicly reported multiple times and the Attorney General’s report now confirms: Governor Hobbs was not involved in, did not direct, and did not instruct any member of her administration regarding the rate increases the Department of Child Services approved,” Christian Slater, a spokesperson for Hobbs, said in a statement.
As Democrats in a Republican-leaning state, Hobbs and Mayes both face tough fights for reelection in November. Biggs, who has made the scandal a centerpiece of his campaign for governor, said Mayes was “whitewashing obvious corruption” by clearing her fellow Democrat.
The company gave $200,000 to the state Democratic party in the months leading up Hobbs’ November 2022 showdown against Republican Kari Lake. After her narrow victory, Sunshine gave another $100,000 to Hobbs’ inaugural fund weeks before she took office in 2023 and another $100,000 to the party in August 2023, according to records.
Sunshine also gave $150,000 to a legal defense fund for Hobbs between November 2023 and the following May, according to records released by Mayes. Those contributions had not previously been disclosed.
The company's founder, Simon Kottoor, and his wife, Elizabeth Kottoor, each contributed a total of $10,400 to Hobbs’ two gubernatorial campaigns.
Sunshine sought an increase in 2022, but it was denied about a month after Hobbs took office. The company tried again and was approved in May 2023, raising its rate from $149 to $195 per bed.
The Arizona Department of Child Safety said Sunshine told the state it would reduce its bed capacity if it didn’t get a rate increase and instead would use such beds to house unaccompanied immigrant children for the federal government.
The ultimatum came as the federal government was reimbursing group homes at nearly twice the rate paid by the state, which had already seen some providers moving beds to the federal program that serves unaccompanied immigrant children, the agency said.
Sunshine is the state's largest provider of beds for children without developmental disabilities, with about 290 beds across 28 homes. It also provides 70% of beds for siblings in foster care in metropolitan Phoenix. Losing Sunshine’s beds would significantly affect the state’s ability to place children in homes and would likely lead to siblings in foster care being split up and sent to different homes, the agency said earlier this month.
“The potential loss of approximately 290 beds was a serious capacity concern that required careful consideration of the consequences for children and the broader child welfare system,” the agency said in a statement.
The agency said then-DCS Director David Lujan approved the increase and that the governor and her staff weren’t involved.
All providers that previously had contracts with the agency received rate increases during a new round of contracts in 2024, when Sunshine also saw its rate increase to $234 per bed.
Hobbs declined to be interviewed by investigators but submitted two statements through her attorneys on Monday, according to a memo from Nick Klingerman, chief of the attorney general’s criminal division. Her statements said she did not discuss contract rates with anyone from Sunshine, nor did she “order or authorize” others to do so on her behalf, and didn’t even know there were discussions about rates until after the increase was approved.
“Rather than the result of a bribe, the investigation has found that Sunshine’s rate increases appear as the result of its outsized leverage over DCS’ congregate care program,” Klingerman wrote.
Furthermore, he wrote, political contributions are protected speech, and any charges filed against Hobbs or Sunshine executives would likely be tossed on First Amendment grounds.
In seeking the investigations, Republican state Sen. T.J. Shope pointed out the group-home company was under scrutiny for its care of Jakob Blodgett, a 9-year-old who stayed at a Sunshine home in Glendale in December 2022 after his father was arrested on a drug charge. He died days later at a hospital from complications of Type 1 diabetes, including the serious complication known as ketoacidosis.
A lawsuit alleges poor management of the boy’s diabetes while in the foster care system and that child welfare authorities and Sunshine were negligent in exposing the boy to harm that resulted in his death. While the state has denied the negligence allegations, two Sunshine employees responsible for providing direct care for Blodgett during a crucial stretch of his decline in health testified they didn’t have the necessary training or knowledge to manage a Type 1 diabetic.
The Maricopa County Sheriff’s Office interviewed several Sunshine employees as part of its criminal investigation into Blodgett’s death. No one has been charged. The county agency said the investigation remains open.
Associated Press writer Jonathan J. Cooper contributed to this story.
FILE - Arizona Attorney General Kris Mayes speaks at the Arizona State Prison, March 19, 2025, in Florence, Ariz. (AP Photo/Darryl Webb, File)
FILE - Arizona Democratic Gov. Katie Hobbs gives her State of the State address in the House of Representatives at the Capitol, Jan. 12, 2026, in Phoenix. (AP Photo/Ross D. Franklin, File)
