The Arizona Attorney General's Office has cleared Gov. Katie Hobbs of criminal wrongdoing in a bribery investigation of Hobbs' ties to a donor who received more lucrative state contracts, but revealed the contractor had donated another $150,000 to a secretive legal defense fund benefiting the governor.
Attorney General Kris Mayes announced the results of her investigation on Aug. 21 after a more than two-year probe of Hobbs' ties to the contractor, Sunshine Residential Homes.
The investigation began at the request of a Republican lawmaker and was prompted by reporting by The Arizona Republic, which first documented how Sunshine Residential got a seven-figure pay bump after it contributed over $400,000 to Hobbs and the Arizona Democratic Party
and got access to Hobbs and her inner circle.
Mayes' deputies declined to prosecute Hobbs on a bribery or related charge, saying the investigation did not find evidence of a quid pro quo and noting that the payments at issue — campaign contributions — are protected expressions of free speech. The findings confirm Hobbs, her office and campaign did not influence the state's contracting decisions.
But the investigation also uncovered significant financial contributions from Sunshine Residential that had not previously been publicly disclosed. Those directly benefited the governor at the same time the company was arguing for better contract terms from the state Department of Child Safety.
The group home operator made three donations, totaling $150,000, to Hobbs' legal defense fund between November 2023 and May 2024, according to attorneys for Hobbs' campaign. The attorneys' letter, which was included as part of Mayes' investigation, said Hobbs' campaign manager solicited those contributions to help defend against lawsuits brought by GOP gubernatorial candidate Kari Lake contesting the validity of Hobbs' 2022 victory.
That funding was not previously known because state law allows legal defense funds to keep their donors secret, and Hobbs' campaign has never disclosed the fund's donors.
While no crime occurred, Mayes said in a statement the issues raised by The Republic call for increased transparency.
"Declining prosecution is a conclusion about the legal standard for charging a case, but this case shows there is a need for legislative reform," Mayes said. "The Legislature and the Governor have the power to ensure greater transparency with regard to political donations made by state contractors. I am urging them to work together and try again to pass legislation that does so."
Mayes declined through a spokesperson to be interviewed for this story.
The findings of Mayes' review are unlikely to end attempts by Hobbs' political opponents to use the situation against her. Rep. Andy Biggs, the Republican hoping to oust Hobbs in November, has made her ties to the contractor and Mayes' investigation central parts of his campaign. Mayes, who, like Hobbs, is a Democrat seeking a second term this year, may also be scrutinized by political opponents as they comb through the details of her investigation.
The attorney general's investigation took hundreds of hours, according to a seven-page summary written by Criminal Division Chief Nick Klingerman and released by Mayes' office on Aug. 21. The investigation included a dozen interviews, including with Sunshine Residential leaders; Hobbs' campaign manager, Nicole DeMont; and state child welfare staff.
Hobbs did not sit for an interview with Mayes' investigators.
Instead, her government and campaign attorneys provided information on her behalf. The investigation reviewed campaign finance records, state contracting records and staff communications. Investigators examined over 1 terabyte of data and 100,000 documents, according to Klingerman's summary.
Those interviewed "denied any quid pro quo, political influence, directives, or any involvement from the Governor or her office in setting Sunshine’s congregate care rates," Klingerman wrote.
What Mayes' investigation found
Sunshine Residential provides group homes, formally called congregate care, for children who have been removed from their families by the state Department of Child Safety after allegations of neglect or abuse.
The Republic's reporting showed Sunshine Residential, which has worked for the state for decades, did not donate politically for at least 10 years before it began supporting Hobbs' 2022 campaign for governor. From September 2022 through August 2023, Sunshine Residential made three contributions to the Arizona Democratic Party of $100,000 each. The company also gave $100,000 to Hobbs' 2023 inauguration fund, a dark-money fund that Hobbs' campaign ultimately disclosed following public pressure to do so.
At the same time, the taxpayer-funded company was pressuring the state Child Welfare Department for a rate increase. Sunshine Residential claimed it had a deficit of millions, though financial records it provided to DCS showed it was operating in the black. Its political support of Hobbs was known inside the state agency, where staffers discussed Sunshine Residential CEO Simon Kottoor's support of Hobbs when recommending Sunshine Residential receive a higher rate while requests from other group homes were being rejected.
DCS officials have said they granted a special rate increase from Sunshine Residential because Kottoor threatened to stop working with the state and instead work with the federal Office of Refugee Resettlement, which paid better. The state said it could not lose Sunshine Residential because it is the largest provider of beds for sibling groups in Maricopa County, an area of high need for DCS.
"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.
Bringing a bribery charge would have required proof of "corrupt intent" and was not possible because the contributions made by Sunshine Residential are political donations that the U.S. Supreme Court has ruled are protected expressions of speech, according to Klingerman's summary. With those legal standards in mind, Klingerman concluded that bringing a bribery charge for political contributions would require proving a quid pro quo.
"Certainly, the timing of Sunshine’s large political contributions, followed by Sunshine's rate increases, including receiving the highest per-day rate, raised serious questions that prompted this investigation," Klingerman wrote. "But in the absence of any evidence to suggest a quid pro quo, it is insufficient to establish a crime occurred, let alone a reasonable likelihood of conviction necessary to seek an indictment under the Criminal Division’s policies."
He wrote that, even if charges had been filed, Hobbs would have had a "viable" defense under Arizona's anti-strategic lawsuits against public participation law. That law allows courts to quickly dismiss cases if someone can prove charges were filed in retaliation against or to chill a First Amendment right, such as giving to political campaigns.
Other investigations remain ongoing
While the report brings a measure of closure to Mayes' high-profile probe, it is unlikely to end attention on what has become a political liability for Hobbs.
Biggs has used the criminal investigation as a primary weapon in his campaign against Hobbs' reelection to a second term. And he's targeted her for twice vetoing a bill introduced by Republican Sen. TJ Shope, who asked for Mayes' investigation, that would have required more transparency for political donations from state contractors.
Hobbs earlier this year proposed legislative reforms to address the appearance of favoritism in state contracting, but those measures died before becoming law.
Other investigations of the governor's connections to Sunshine Residential are continuing. Maricopa County Attorney Rachel Mitchell, a Republican, also launched an investigation alongside the Arizona Auditor General that remains ongoing, as did Republicans in the Arizona House.
(This story was updated to include documents.)
Reach reporter Stacey Barchenger at stacey.barchenger@arizonarepublic.com or 480-416-5669.
This article originally appeared on Arizona Republic: Kris Mayes won't prosecute Katie Hobbs after bribery probe | Exclusive
