Hobbs cancels $210M contracts signed by Ducey

Gov. Katie Hobbs is cancelling more than $210 million in state contracts signed in the final days of former Gov. Doug Ducey’s administration as officials in the new administration argue the deals were “illegal.”

The money came from federal pandemic relief funds, and it had been promised to groups like the Phoenix Center for the Arts and the Arizona Chamber Foundation. But now Hobbs’ team says some contracts to distribute the American Rescue Plan Act money were executed improperly, and on Feb. 14 they notified 16 groups that held 19 separate contracts that the state is terminating the deals.

“We sent notices that these 19 agreements were invalid because they are illegal,” Sean Berens, an attorney for the governor, said on Feb. 15. “We didn’t have a choice in the matter. In the Hobbs administration, we follow the law.”

It means that a number of groups that were scheduled to receive millions of federal taxpayer dollars for projects from homeless shelter operations to summer camp funding won’t get all the money they were expecting. Officials said they’ll offer grantees reimbursement for funds that have already been spent under the deals.

Hobbs administration officials said that the contracts were handed out without a competitive bidding process that’s required by state law. The Arizona Department of Administration had granted permission for some non-competitive grantmaking with pandemic-related money, but the 19 contracts were signed after the window for that non-competitive grantmaking had expired, officials told reporters in a briefing on Feb. 15.

They added that nearly $1 billion worth of ARPA grants were inked in the final quarter of 2022 and the Hobbs administration is eyeing review of more deals beyond the 19 they’ve already decided to revoke.

Daniel Scarpinato, a representative for Ducey and one-time chief of staff to the former governor, discarded the Hobbs administration’s allegations that the ARPA contracts were improper.

“They’re just wrong,” he said.

“The ninth floor and ADOA were very buttoned up and cautious with these, and then all of it was reviewed by attorneys… I think they’re (the Hobbs administration) making some very sweeping statements without really backing it up,” he added later, referring to the top floor of the Arizona Executive Tower, where the governor’s team has its offices.

(Scarpinato was not working in the Ducey administration at the time the contracts were signed. Daniel Ruiz, who was Ducey’s chief of staff at the time, directed questions to Scarpinato.)

Hobbs, a Democrat, has promised to change the direction of the state after taking over from her Republican predecessor last month. But the current and former governor maintained a respectful relationship during the transition – at least publicly – in spite of their differences on policy issues. The accusation of “illegal” activity represented an unusually strong criticism coming from Hobbs’ team.

Among the contracts cancelled are a $75 million deal with A for Arizona, an organization founded by former Republican Superintendent of Public Instruction Lisa Graham Keegan, to administer a summer camp grant program, per contract records provided by the Governor’s Office. Another deal on the chopping block set aside $10 million for Central Arizona Shelter Services to operate an adult homeless shelter and open a new senior shelter.

Another $7 million was for the Texas-based Today Foundation to develop a history curriculum that would be “anti-critical race theory,” according to a Hobbs administration official.

Hobbs administration officials said ADOA initially allowed pandemic money to be allocated through non-competitive grants while the Covid emergency was in effect. But after Ducey ended the emergency in March 2022, ADOA Director Andy Tobin extended the timeframe for non-competitive grants two separate times.

The first extension ran to Sept. 30, 2022, and then, on Oct. 4, someone emailed Tobin asking for another 90-day extension, apparently from the Sept. 30 end date, Hobbs administration officials said. Tobin granted that extension, the officials said, but counting 90 days from Sept. 30 only gets to Dec. 29.

That, Hobbs’ team argues, means that contracts signed by Ducey’s team between Dec. 30 and the end of his term on Jan. 2 are invalid. The 19 contracts Hobbs is cancelling were all executed in that short timeframe.

The state of Arizona received about $30 billion in federal pandemic relief money in 2020 and 2021, as a result of spending packages signed by former President Donald Trump and current President Joe Biden. Ducey allocated all the state funds before he left office last month. Now, Hobbs plans to reopen a grantmaking process to dole out the money connected to deals they’re terminating.

The Ducey administration – fearing that Hobbs would try to modify Covid funding deals signed by the outgoing governor – apparently tried to tie the Hobbs administration’s hands by modifying dozens of contracts to remove the state’s right to cancel the deals. Berens said on Feb. 14 that even with the changes, the state retained a right in the contracts’ terms to kill the deals.

Intentionally violating state law regarding contract awards is a felony, but Berens declined to say if he thinks anyone committed a crime in connection to the contracts.

“Right now, we’re focused on good stewardship of taxpayer funds,” he said, adding that the issue could be reviewed later.

Scarpinato, for his part, complained of politics coming from the new governor’s administration.

“Even if that were the case (that the contracts were awarded improperly), rather than threaten good organizations and try to stop summer school, you’d think you would just work with (the Arizona Department of Administration) to get it resolved,” he said. “So this feels less about anything ‘process’ and more of an ideological, political tactic.”