Arizona Republicans are accusing Democratic Attorney General Kris Mayes of covering up key details of her investigation into pay-to-play allegations against Gov. Katie Hobbs, citing claims by a former state agency director who says a state contractor and major Democratic donor pressured him for a rate increase after Hobbs won office.
The Attorney General’s Office released a report on Aug. 21 clearing Hobbs of criminal wrongdoing following a two-year investigation into allegations that campaign contributions influenced a decision to award a pay rate increase to Sunshine Residential, a state contractor that houses foster children for the Department of Child Safety.
Mayes began investigating the situation after a 2024 report by The Arizona Republic revealed that Sunshine Residential, founder Simon Kottoor and others connected to the company made hundreds of thousands of dollars in contributions to Democrats and Hobbs’ campaign in 2022 before the company received a pay rate increase.
According to attorneys for Hobbs, Sunshine Residential, founder Simon Kottoor and others connected to the company gave a total of $580,840 to the state Democratic Party, Hobbs’ campaign, inaugural fund and a legal defense fund between September 2022 and May 2024.
Republicans cry foul
In an Aug. 27 letter to Mayes, Arizona House Speaker Steve Montenegro (R-Goodyear) accused Mayes of omitting key details from her report, including testimony from former DCS Director Mike Faust.
The House commissioned an outside law firm with ties to President Donald Trump to conduct its own investigation into the allegations.
“In particular, former DCS Director Michael Faust revealed that, in the fall of 2022, Simon Kottoor told Faust that Kottoor would recommend that Governor-elect Hobbs retain Faust as DCS Director if Faust would approve a rate increase for Sunshine,” Montenegro wrote in the letter, which was first reported by the Arizona Republic.
Faust, who was appointed by former Republican Gov. Doug Ducey, said he declined the offer and reported it to other senior department officials. After taking office, Hobbs replaced Faust with former caseworker Matthew Stewart, who she fired just two months later.
Montenegro said Faust’s allegations should have been included in the report Mayes released to the public.
“Those failures raise the specter that your Memorandum was intended to influence the November election by attempting to inoculate the Governor from a perceived political vulnerability,” he wrote.
In a response, Mayes confirmed her investigators spoke with Faust and were aware of the allegations.
However, Kottoor denied offering to help Faust stay in the job in exchange for the rate increase.
“Kottoor agreed that he talked with Faust after the election sometime around November 20, 2022, but he strongly denied that he told Faust, ‘if you approve a rate increase, I’ll put in a good word for you,’ saying, ‘[n]o Sir. Never happened,’” Mayes told Montenegro.
Sunshine Residential did not respond to a request seeking comment from Kottoor.
But Kottoor told investigators that he expected Hobbs to replace Faust.
“In fact, Kottoor denied any willingness to support Faust, telling investigators, ‘common sense, like politically, he is appointed by Doug Ducey, and he’s not going to be appointed again,’” Mayes wrote.
Mayes said it is unclear when Faust told others about the call but called into question his own motivations, saying he told investigators he didn’t report Kottoor’s alleged offer because “I wanted to keep leading the agency.”
“Faust’s failure to immediately report what he believed was an explicit quid pro quo because he was trying to keep his job severely undermines his credibility,” Mayes wrote. “In other words, if true, he covered up what he believed could be a potential crime because he wanted to remain employed.”
She said the “he said, he said” nature of the allegations did not provide enough evidence to pursue bribery charges.
Faust did not respond to a request for comment.
Contracts
Ultimately, Montenegro argued the rate increases — coupled with Faust’s claims — should have been enough to warrant further investigation.
Former DCS Director David Lujan, who oversaw the agency during the rate increases, told investigators Kottoor complained about financial challenges facing Sunshine Residential and threatened to begin working for the federal government’s Office of Refugee Resettlement instead of the state.
That threat, not a quid pro quo, justified the decision, he told investigations.
But Montenegro pointed out that DCS had repeatedly denied rate increase requests despite facing similar threats from Sunshine Residential since 2021.
“Despite those recurring threats, DCS had repeatedly rejected Sunshine’s rate increase requests, and Sunshine never followed through by moving substantial bed capacity to ORR,” Montenegro wrote.
What, then, changed in 2023?
Mayes said her office did thoroughly investigate the claims. And she pointed to one possible explanation: two other providers, VisionQuest and Right of Passage, ended their contracts that year.
Deputy Director Alex Ong told investigators that made the remaining contractors, like Sunshine Residential, that much more important.
“Even accepting the idea that Sunshine’s threats may have been hollow — tough business negotiations do not constitute a chargeable crime,” Mayes wrote.
Mayes also rejected Montenegro’s claim that no other providers received pay bumps during that time.
She said a company called Ohana received a 35% increase in September 2022 and Kindred Spirits Group Home received a 28% increase in October 2023.
Political pressure
Despite their disagreements over the facts of the case, both Montenegro and Mayes agreed that DCS officials were aware of Kottoor’s political donations and connections to Hobbs, who appeared in social media posts showing her visiting Sunshine Residential’s headquarters in 2022 and attended an event at Kottoor’s home in 2024.
Ong told House investigators that Sunshine Residential displayed photos at its headquarters of the governor posing with company leaders.
“Something that both Ong and Lujan independently noticed when attending meetings at the facility,” Montenegro wrote.
Montenegro said Mayes gave too much deference to Lujan and his explanation that the fear of losing foster home beds ultimately drove the decision to award the rate increase.
Ong and Navarro told the House they did not support the May 2023 rate increase, which would be consistent with past agency decisions.
He pointed to testimony by Ong, who said “consistently, our recommendation was to deny it.”
But Mayes, again, accused Montenegro of hiding all the facts.
She pointed to a May 24, 2023, email from Assistant Director Robert Navarro that referenced a previous email from Ong.
“My recommendation is to approve the rate increase,” Ong wrote, citing the need to secure group home beds.
However, Ong told House investigators that Lujan supported the increase and staff was “afraid of the Director firing all of us, because we did not support what he wanted to do.”
Lujan told the Attorney General’s Office that he attributed that fear to the culture in the office during Stewart’s short five-month tenure.
Mayes acknowledged that many DCS staffers were concerned about their jobs after Hobbs fired Stewart, the former department director. And both Lujan and Navarro acknowledged that Navarro, specifically, was afraid to lose his job.
“What our investigation failed to find was any evidence that Navarro, or anyone, would be fired for failing to support a rate increase for Sunshine,” she wrote.
Mayes said her office concluded the fact that Ong and Navarro were aware of the relationship between Hobbs and Kottoor did not constitute a crime in itself.
“Their general awareness of Sunshine’s political contributions does nothing to change the fact that there was no evidence of a quid pro quo, or directive from the Governor or her staff to approve this rate increase to support charging,” she wrote.
Montenegro acknowledged that nothing he included in the letter to Mayes includes a smoking gun, but he still contends she should have been more forthright with the public.
“The House will not comment at this time on whether any individual committed a crime. One thing is clear: Attorney General Mayes possessed evidence directly relevant to a potential bribery offense and presented Arizonans with a public account that omitted it,” he said in a statement.
The Attorney General’s Office accused Montenegro of misleading the public, saying the House never even interviewed Kottoor about the alleged bribery scheme.
“Speaker Montenegro is cherry-picking evidence and leaking one-sided accounts of alleged events to push a partisan political narrative,” Richie Taylor, a spokesman for the AG, said. “Doing so ignores the totality of the facts in this case and selectively omits other information that contradicts his assertions. Whether that's deliberate, or simply a byproduct of an unserious sham of an ‘investigation’ being run by a partisan out-of-state law firm, is unclear.
Mayes reiterated her call for new legislation to provide increased transparency, including an outright ban on political giving by state contractors.
