Hobbs blocks $210M in COVID grants given by Ducey; new administration says former governor broke law

Top members of Arizona Gov. Katie Hobbs' administration accused her Republican predecessor of illegally awarding about $210 million in federal COVID-19 response grants in his last days in office, and said Wednesday those grants were invalid as a result.

According to Hobbs' aides, 19 grants to 16 organizations between Dec. 30 to Jan. 1 — the last three days of Republican Gov. Doug Ducey's term — were given in violation of a state law that requires a competitive process before money is awarded. In a briefing with reporters, they alleged that Ducey and his top staffers intentionally amended grant paperwork in a rush job to prevent Hobbs from having a say over how the money is spent.

“It’s clear when you look at the amendments that were made by the Ducey administration at the 11^th hour, that they were trying to bind the hands of the Hobbs administration, and prevent them from exercising responsible stewardship of taxpayer funds here," said Sean Berens, senior counsel in Hobbs' office.

Berens pledged a more broad review of grants awarded during Ducey's tenure that drew on American Rescue Plan Act funds, to ensure they comply with state law and federal strings attached to the money.

He said the Hobbs administration would soon begin a competitive process to award the approximately $210 million, which included $75 million to continue Ducey's much-touted summer school program for a second year, $6.4 million for an emergency shelter, and other projects. By notifying those organizations this week that their grant agreements were invalid, Hobbs can now direct the dollars to her own priorities, though her administration said they were forced to take action.

"We didn’t have a choice in the matter," Berens said. "In the Hobbs administration we follow the law. We did this in part to protect the organizations in question, because they could be subject to claw back action by the Treasury Department if they were party to an illegal grant agreement."

But Daniel Scarpinato, former chief of staff to Ducey who spoke on behalf of the former administration, said Hobbs was "playing politics" and trying to undo Ducey's work, acknowledging that many of the grants went to organizations that reflected the former governor's priorities. Scarpinato left the Ducey administration in August 2021 but continued to serve as an adviser to the governor.

"Gov. Ducey and our team played this by the book, they were very careful and deliberate and attorneys reviewed and provided guidance," Scarpinato said. "It's very disappointing the new governor has decided to use some very good causes and organizations, including summer school, as a political football and now hold these folks basically hostage."

Did actions violate state law?

Ducey awarded all of the state's American Rescue Plan Act dollars before leaving office, including $950 million in the final quarter, leaving none to Hobbs' discretion, according to the Hobbs administration.

In the briefing with reporters, Hobbs officials questioned why Ducey's director of the Arizona Department of Administration waived competitive grant application requirements through Dec. 29.

Such requirements, which are meant to help the state get the best deal when it spends taxpayer dollars, were waived during the COVID-19 pandemic, but were extended months beyond that by Andy Tobin, the former director of the department, according to the Hobbs administration. Tobin did not return a call seeking comment Wednesday, and Hobbs' office did not provide documentation of Tobin's actions.

Hobbs' staff is reviewing the waiver, which is allowed under Arizona law in certain circumstances, to see if it complies with law. State law also says that anyone who violates competitive grantmaking requirements could face a felony charge, but on that issue, Berens didn't take a stand on whether Hobbs would pursue such punishment.

“Right now, we’re focused on good stewardship of taxpayer funds," Berens said. "I imagine a review will take place in the future.”

Ducey's use of the ARPA money has drawn previous critique, namely from U.S. Treasury that threatened to claw back money that the former governor earmarked for schools that did not impose public health protocols. Treasury had not followed through on those threats, but Hobbs earlier this month said she would end that program to avoid the federal government trying to recoup money that was already spent by districts.

Grants in question for host of projects

Ducey's administration amended over 40 grants drawing on ARPA dollars in his final two weeks in office, according to documentation obtained by The Arizona Republic through a public records request. Those grants awarded a collective $430 million and are under review, but the Hobbs administration has rejected fewer than half at this point in the review.

Seven of the invalid grants do not include specifics about how the organizations can spend the money, other than a broad statement that it must mitigate the impacts of COVID-19, which is required under ARPA rules. Those seven agreements say the recipients should submit project proposals within 30 days. Most of the grant agreements are signed by former Ducey chief of staff Daniel Ruiz and Ducey's budget director, Matthew Gress, who is now a state representative. Scarpinato said because the grants reimburse organizations for money spent, that process would allow the state to ensure the projects were in line with ARPA provisions.

One grant recipient, Amira Learning, was awarded up to $2.45 million with a formal proposal to come, according to the records. Mark Angel, the company's chief executive officer, said in an email the organization planned to use the money to continue offering reading tutor software to students in 100 school districts.

"We haven't had any communication from the Governor's Office and we therefore have no comment," Angel wrote. "We've only read about this in the media."

The Hobbs administration said letters notifying recipients the grants were invalid were sent Tuesday, but officials did not provide a copy of one such letter when requested by The Republic on Wednesday.

Because most of the grants are on a reimbursement basis, money was not yet distributed to the organizations. The Hobbs administration would honor any reimbursement requests received so far, according to officials. Other grant recipients that Hobbs' office has said are invalid include:

• A for Arizona, up to $75 million, for the education nonprofit to offer another year of Ducey's AZ OnTrack Summer Camp, the former governor's signature program to help combat learning loss.

• San Juan Diego Institute, up to $46.65 million for the Phoenix community development group to fund "academic, social and emotional services" and a school performance program.

• Today Foundation, up to $7 million: Purpose of grant unclear.

• Arizona Chamber Foundation, up to $2 million, to offer Arizona civics education, Junior Fellow, and Industry Fellows programs.

• Educators for Academic Excellence, up to $1.1 million, for consulting on a project to improve school performance.

• Arizona Science Center, up to $27.8 million: Purpose of grant unclear.

• Read Better Be Better, up to $500,000 to provide employment services.

• Translational Genomics Research Institute (or TGen), up to $1 million to establish a genomic pathogen surveillance system.

• Valleywise Health, up to $10 million. The purpose of the grant is unclear in paperwork, but the company said in a statement the money would help fill over 440 vacant nursing positions.

• Central Arizona Shelter Services, up to $10 million total, to provide adult shelter services and help pay for a new 170-bed emergency shelter.

• Assistance League of Phoenix, up to $750,000 to provide wardrobe packages to Phoenix students who qualify for free and reduced lunches and meet other qualifications.

• Phoenix Center for the Arts, up to $1.24 million for an "Arts in Mind" program.

• Love Your School, up to $1.5 million: Purpose of grant unclear.

• Barrow Neurological Institute, up to $10 million: Purpose of grant unclear.

• Legacy Cares, Inc., up to $5 million: Purpose of grant unclear.

Organizations with grant agreements that did not include details of the spending did not respond to requests for information.

Reach reporter Stacey Barchenger at stacey.barchenger@arizonarepublic.com or 480-416-5669. Follow her on Twitter @sbarchenger.

This article originally appeared on Arizona Republic: Arizona Gov. Hobbs invalidates $210M in COVID-19 grants from Ducey