Arizona prosecutors will not criminally charge Gov. Katie Hobbs over allegations that her administration engaged in a pay-to-play scheme involving a group home company, Attorney General Kris Mayes announced on Friday.

The investigation centered on Sunshine Residential Homes, which contributed to Hobbs’ inaugural fund and to the Arizona Democratic Party before receiving an increase in its state payment rate. 

Hobbs, a Democrat, has denied wrongdoing and said she was not involved in the decision to approve the increase.

“After two years of investigation, consisting of multiple interviews, reviews of campaign-finance records, procurement records, bank documents, and State emails and chats, totaling over one terabyte of data, including more than 100,000 documents, the investigation has not uncovered any evidence of the necessary quid pro quo to support a bribery charge,” Mayes said.

Mayes added that the investigation nonetheless highlighted the need for greater transparency in political donations and called for legislative reforms.

Hobbs spokesperson Liliana Soto said in a statement that the report “clearly states that there was no wrongdoing by the Governor or her office,” adding that Hobbs “was not involved in, did not direct, and did not instruct” her administration regarding the rate increases.

The investigation began in June 2024 after Republican state Sen. T.J. Shope requested an inquiry following reporting by The Arizona Republic. Sunshine contributed $200,000 to the Arizona Democratic Party ahead of Hobbs’ 2022 election, followed by $100,000 to Hobbs’ inaugural fund and another $100,000 to the party in 2023.

According the the investigation memorandum, Sunshine received a 30% mid-contract rate increase in May 2023, raising its payment from about $150 to $195 per bed. Its rate later increased to $234 per bed during a 2024 contract renewal. The timing of the donations and rate increases prompted allegations of a “pay-to-play” arrangement.

But the memorandum detailing the attorney general’s findings said investigators concluded the increases appeared to stem from Sunshine’s significant leverage within Arizona’s foster care system rather than political influence. Sunshine has been the state’s largest provider of congregate-care beds and has been important in placing siblings together.

Investigators also found that Sunshine had threatened to shift beds to a better-paying federal program serving unaccompanied migrant children. State officials feared losing hundreds of beds as Arizona was already struggling with capacity. David Lujan, former director of the Arizona Department of Child Safety, told investigators that he approved the 2023 increase based on recommendations from agency staff.

The decision comes as Hobbs seeks a second term and faces Republican Rep. Andy Biggs in the November election. Biggs has used the investigation as a campaign issue in attack ads.

A separate investigation led by the Arizona state auditor general remains ongoing, according to the Maricopa County attorney’s office. It declined further comment while the inquiry remains open.

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