Arizona’s child welfare agency has for years sought to move vulnerable kids out of group homes and into family-like settings.
To reduce the use of group homes, and combined with budget constraints, the Arizona Department of Child Safety has denied pay increases to home operators and cut loose 16 providers during the contract renewal process.
Yet even as the state cuts back, one group home provider with close ties to Gov. Katie Hobbs has benefited beyond all others.
DCS over the course of the past year approved what amounts to a nearly 60% increase in the rate that Sunshine Residential Homes Inc. charges to care for a child for a day, meaning potentially millions of dollars more going to the company at taxpayers’ expense.
No other standard group home provider — there are dozens — was approved for a rate increase during Hobbs’ tenure. None is paid as much per day per child as Sunshine, according to DCS and state contract records reviewed by The Arizona Republic.
The private company has made the case for more money, citing financial hardships amid the COVID-19 pandemic and inflation.
Meanwhile, it also has undertaken a new six-figure spending campaign benefiting Hobbs and Democratic politics in Arizona.
The company’s CEO, Simon Kottoor, was on Hobbs’ inaugural committee, and the governor praised the organization on the campaign trail. As DCS was redoing its contracts with group homes, Hobbs and her husband attended a private event at what appears to be the Paradise Valley mansion of Sunshine’s CEO. The small gathering was to recognize the organization’s work, according to two news organizations that documented the event last month.
Hobbs’ spokesperson said the Governor’s Office had no role in DCS’ decision-making on Sunshine’s pay.
But the close ties prompted concern for critics of the department.
“It just raises a lot of red flags,” said Robert Pastor, an attorney whose law firm has sued DCS and Sunshine Residential Homes multiple times, including last year after a 9-year-old boy placed at a Sunshine home died.
Sunshine to get highest rate of all providers
The Department of Child Safety’s oversight of third-party home providers has been scrutinized since well before Hobbs took office. But a September 2023 state audit renewed those concerns, finding that DCS’ lethargic investigation and enforcement process “could result in risky or unhealthy environments for children in out-of-home care.”
The department is, by its account, hamstrung. Problems arose in part because of a “department culture of not wanting to take punitive action against its foster homes and group homes, in part because of concerns enforcement would reduce the number of facilities available to place children,” a member of the Arizona Auditor General’s Office told lawmakers earlier this year.
DCS spends more than $100 million a year to provide congregate living options for children when a foster parent or relative isn’t available, according to state budget records. Congregate care includes what are commonly known as group homes and specialized facilities, such as for intensive residential treatment programs.
State law and a 2021 class action lawsuit settlement say congregate care should be one of the state’s last resorts when placing a child who is in state custody.
This year, when the five-year contracts DCS inks with group home operators were set to expire, the department rejected proposals from 16 providers. The department forecast a decreasing need to provide congregate care beds going forward.
DCS awarded 52 contracts, according to the department. Providers already working for DCS won increases in daily compensation when renewing their contracts.
For standard group home services, Sunshine will be paid the highest rate at $234 a day, contract records show.
The average amount paid was $169 a day. Just shy of half of all providers are paid $149 a day.
DCS noted that Sunshine put in proposals to provide up to 320 beds but was only approved for 300. Still, that’s an increase. Sunshine had a 291-bed capacity last year, records show.
It was unclear how Sunshine justified the rate during the contract negotiation process.
Sunshine’s response to the DCS contract solicitation was heavily redacted at the company’s request, which sought to protect trade secrets and financial information that could tip off competitors. The responses are a public record, and under state rules, the redactions had to be approved by DCS’ contracts chief.
None of the other proposals from group home operators were redacted as substantially.
After initial rejection, Sunshine’s rate increase comes after political donation
Sunshine had previously laid a foundation for its highest-in-the-pack rate.
Since July 2022, group home providers have asked the department at least a dozen times to increase the rate for a standard bed.
DCS denied all but two of those increases due to budgetary constraints, according to department spokesperson Darren DaRonco. One provider, Ohana Homes, received an increase to $155 a day in September 2022, before Hobbs took office. Ohana’s contract was not renewed this year.
The only other group home provider to get a special rate increase was Sunshine, but that didn’t happen on the company’s first try.
Sunshine Residential Homes in December 2022 sought a 20% rate increase, to $179 per day. DCS denied it on Feb. 6, 2023, according to records provided by the department.
Three days later, Sunshine donated $100,000 to a dark-money fund Hobbs’ campaign created tied to her inauguration festivities, according to records Hobbs’ attorneys gave to a Republican state lawmaker who was scrutinizing the inauguration funding.
In May 2023, Sunshine again sought a rate increase.
The request was approved. Sunshine jumped from a daily rate of $149 per child to $195, DCS records show.
The department said it changed its mind because Sunshine in May 2023 expressed if it could not get a rate increase, it would prioritize beds for a federal refugee resettlement program instead of children in state custody.
“We could not risk losing the bed capacity, especially since they provide 70 percent of the bed capacity for group home residential sibling facilities in Maricopa County, a high need for the Department,” DaRonco said in an email.
What is Sunshine Residential Homes? Who’s in charge?
A month before she was elected governor in 2022, Hobbs received an award from Sunshine.
“Social Work is a work of Heart,” reads the wood plaque with string art forming the shape of Arizona — with a heart in the center. Hobbs posted pictures of the award on her campaign social media account.
“As a social worker, I’ve seen first-hand the incredible impact your organization has in providing shelter, safety, & health care to Arizona children and I’m proud to be a member of this giving community,” her post reads.
Sunshine Residential Homes was founded nearly 30 years ago and employs more than 200 people, according to contract documents. It is a for-profit company currently funded 99.9% by DCS, according to documents it provided to the state.
As the state’s largest provider of group home beds by far, it operates about 30 homes licensed by DCS in Maricopa County. Sunshine was founded by its chief executive officer, Kottoor, and has had state contracts since at least 2011.
Records show political contributions started recently
Only recently did the company begin contributing to political campaigns in Arizona. Neither Kottoor nor Sunshine made any other political donations in Arizona in the past decade, state records show.
Two six-figure donations from Sunshine to the Arizona Democratic Party were reported when Hobbs was running for governor, totaling $200,000 in September and October 2022.
Private companies can donate unlimited sums to political parties, but nothing directly to candidates under Arizona campaign finance law.
Kottoor and his wife personally donated nearly the maximum amount, $5,000 each, to Hobbs’ campaign.
That’s not all the company would kick in. Another $200,000 was donated after Hobbs’ election, with half of that going directly to Hobbs’ inauguration fund through her dark money group.
Sunshine was one of Hobbs’ largest inaugural donors, second only to the power company Arizona Public Service Co.
Read:Letter sent to Rep. Livingston on Katie Hobbs Inaugural Fund request for information
Critic calls donations, boosted reimbursement rate ‘shocking and disgusting’
The Arizona Republic requested an interview with Kottoor and Sunshine’s director of programs, Abi Saifi, for this story. Saifi worked for DCS for a decade before joining Sunshine in 2022, according to his resume. Saifi donated $5,000 to Hobbs’ gubernatorial campaign the same day his boss did, state records show.
The company replied with a statement. It did not respond to follow-up questions via email.
“Our passion for social work drives us to support leaders who share our commitment to the most vulnerable members of our community,” the statement reads.
“We proudly supported Governor Hobbs because, as the first social worker elected governor, she embodies our values of compassion, dedication, and advocacy. We trust that her leadership will continue to stand up for Arizona’s foster children, ensuring they receive the care and support they need to thrive.”
The statement said that the company’s “unwavering commitment” to more than 200,000 children it has cared for “has been recognized by the State of Arizona, which was consistently provided rate increases in contracts over the decades, underscoring the value of our work.”
Christian Slater, a spokesperson for Hobbs, did not directly answer a question about the appearance of Hobbs’ administration benefiting an ally, nor that a taxpayer-funded private entity was in turn supporting her political apparatus.
“Governor Hobbs always has and always will make decisions based on the best interest of Arizona, and will always remain focused on taking on the tough issues that our state faces,” he said in an email.
Slater included an attachment: a May 2023 letter signed by Kottoor and sent to DCS arguing that Sunshine would need more money to continue providing beds for the state’s children.
Sunshine said in the letter it was operating in the red, to the tune of $4.5 million in 2022, citing staffing issues and increased service costs.
That a private company earning money off the state could donate $400,000 to political campaigns inflamed one of Hobbs’ most outspoken critics in the Legislature.
It was “shocking and disgusting,” said Rep. David Livingston, R-Peoria. He said he would dig deeper into The Republic’s findings, which he said raised potential pay-to-play concerns.
“This is one of the worst things possibly that I’ve seen in my 12 years,” he said, calculating Sunshine could make more than $4 million off the state because of rate increases if all beds are full. “I mean, it looks that bad.”
Investigators probe death of boy formerly in Sunshine’s care
Sunshine’s score when DCS evaluated all contract proposals from group home operators this year — which takes into account things like experience, cost and method — isn’t top of the pack, it’s about average. DCS said Sunshine scored high in areas of experience and methodology.
It is unclear if the evaluation took into account the death of 9-year-old Jakob Blodgett.
Jakob was taken into state custody in December 2022 after his single father, Richard Blodgett, was arrested on charges he possessed thousands of fentanyl pills. Jakob, who had type 1 diabetes, was quickly hospitalized and discharged to a group home operated by Sunshine.
According to a lawsuit filed against DCS and Sunshine by Richard Blodgett, Jakob refused insulin and the Sunshine staff had a policy not to force medications. Jakob was hospitalized again and died 14 days after being taken into state custody.
The boy died at a hospital two days before Christmas.
His death was being investigated by the Maricopa County Sheriff’s Office. DCS said that a licensing violation occurred, and it sent Sunshine a letter “detailing the measures they must take to be in compliance.”
Jakob’s father is represented by Pastor, the attorney with a track record of suing the department and Sunshine Residential Homes.
Pastor decried that Sunshine was benefiting from Arizona’s child welfare system.
“While it is sort of falling under its own weight, you have a group home who is coming in and saying, we can do this, give us more money,” he said. “And because DCS is so desperate for beds, they are willing to look the other way when one of its biggest providers kills a child.”
Reach reporter Stacey Barchenger at stacey.barchenger@arizonarepublic.com or 480-416-5669.
