Republican lawmakers say the state program providing care for Arizona foster children living in group homes could go bankrupt by next week, but Democratic Gov. Katie Hobbs’ office says they’re using routine budget adjustments to play politics.
Hobbs sent a letter to Republican lawmakers on March 5, asking them to shift money around in the Department of Child Safety’s budget to provide emergency funding for the department’s congregate care program to avoid insolvency. According to the letter, the program needs $6.5 million by March 24 in order to pay its bills.
“By March 24, 2025, the Department will be unable to pay obligations relating to the daily care of children in group home placements without the requested transfer,” according to the letter sent to Rep. David Livingston (R-Peoria), who chairs the House Appropriations Committee.
That funding would keep the program solvent through April 24, wrote the department’s budget manager.
Republican lawmakers said the emergency request, sent to them just weeks before the program could fall off a fiscal cliff, is the latest example of the governor’s financial mismanagement of state agencies. They pointed to a separate funding crisis facing the state Medicaid program that serves children with disabilities.
“Madam Governor, do you have a phone?” House Speaker Steve Montenegro (R-Goodyear) said. “Who waits until 19 days before bankruptcy to tell anybody about it?”
Previous statements show that both the Hobbs administration and lawmakers knew about the pending DCS shortfall for months, if not longer.
During a Jan. 29 meeting of the House Appropriations Committee, DCS staff told lawmakers the department needed $29.4 million to keep the congregate care program funded through the end of this fiscal year, which ends on June 30.
“If we do not fund the supplemental request, we will have to take some extreme measures. We would not be able to pay our group home providers,” said Alex Ong, the deputy director of administration for the Department of Child Safety.
Ong said the department has needed the additional funding every year since 2020 to cover a shortfall created by a federal law that limits federal funding for children in congregate care to 14 days. Before the law went into effect, the state received grant funding to cover 67% of those costs indefinitely.
“It’s for the children who are not eligible for the reimbursement, so 15 days plus,” Ong told lawmakers.
Ong said the department knew about the need for additional funding since the beginning of the fiscal year and asked for the money to be included in this year’s budget.
But that budget, which Hobbs signed into law last June, didn’t include that extra money to pay for congregate care.
During the meeting, Livingston confirmed the Hobbs administration initially asked for extra congregate care funding last year but blamed the governor’s office for failing to prioritize it during budget negotiations.
“It wasn’t that we were against this particular program and that’s why we didn’t fund it,” Livingston said. “It wasn’t a high enough priority for the governor to be included in the budget.”
In the March 5 letter to lawmakers, the Hobbs administration asked lawmakers to shift $6.5 million in funding from DCS programs that pay to place children with family members or in foster homes, stating caseloads in both of those programs are expected to come in under budget this year.
A spokesman for the governor said that type of request is routine, pointing out that the Legislature has approved similar requests for DCS since 2016 “without, to my knowledge, press conferences being called over them.”
“No, DCS will not be bankrupt next week. They simply requested a shift in line item funding, a standard budgeting process,” Hobbs spokesman Christian Slater said in a statement.
He pushed back at allegations that the administration did not tell lawmakers about the issue until this month, citing the Jan. 29 committee meeting.
“The majority should do their jobs and pay attention in committee hearings rather than weaponize routine budgeting processes to hold Arizonans hostage for their own political gain,” Slater said.
Slater alleged it was Republicans, not Hobbs, who had failed to produce a budget plan to fund DCS and other services Arizonans rely on.
Republican lawmakers blamed the Hobbs administration for awarding congregate care providers higher rates without negotiating extra funding in the budget for those rate increases.
Specifically, they cited higher rates awarded to Sunshine Residential. According to the Arizona Republic, that group home provider donated to Hobbs’ campaign in 2022 and later received substantial rate increases — which led to investigations by Attorney General Kris Mayes and Maricopa County Attorney Rachel Mitchell.
At the time, the Hobbs administration told the Republic the governor had no role in awarding the new rates and that the increases were needed to ensure Sunshine Residential, the state’s largest group home provider, would continue providing beds for Arizona children.
Ong, with the Department of Administration, echoed that sentiment during the Jan. 29 meeting, saying the increased rates resulted in $11 million in new costs.
“We had risked losing capacity if we did not re-solicit this contract,” Ong said, though he did not name Sunshine Residential specifically.
The Arizona Department of Child Safety has long sought to reduce the number of children living in congregate care settings under multiple administrations. In 2023, Hobbs joined former Republican Gov. Doug Ducey at the grand opening of a DCS welcome center to celebrate strides made towards that goal.
According to the department, the number of children living in congregate care in Arizona dropped from 1,995 in 2021 to 1,732 in 2024. But, due to the 2018 law, federal funding to support those placements fell from $45.1 million to just $5.3 million during that time.
The department estimated there would be 1,553 children in congregate care this year.
Montenegro, the Republican Speaker of the House, said he is convening an emergency meeting of the Joint Legislative Budget Committee later this week to prevent the DCS congregate care program from going bankrupt and a separate committee to examine other alleged “budget mismanagement.”
But he indicated lawmakers won’t simply provide new funding to solve the problem, saying he wants Hobbs to cut funding in other areas to cover the shortfall.
“It doesn't seem that her office understands the numbers and then once it's bankrupt once, there's no money, she declares an emergency,” Montenegro said. “So this is a pattern with no explanation, which is why we are stepping in.”
Republicans are not moving as quickly to address the fiscal cliff in the Department of Economic Security program that provides services for children with disabilities in need of long-term care. The program is expected to run out of money by May if it doesn’t receive a $122 million cash infusion.
Livingston, the House appropriations chair, repeated his commitment that closing that shortfall should take place as a part of larger budget negotiations between the governor and lawmakers.
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