Better Government Association: Investigating Pritzker's philanthropy

Better Government Association: Investigating Pritzker's philanthropy

By SANDY BERGO and CHUCK NEUBAUER
Better Government Association

Billionaire J.B. Pritzker is the wealthiest candidate ever to run for Illinois governor and likely the most philanthropic, laying claim to at least $152 million in donations in recent years to children's programs, universities, hospitals, a state Holocaust museum and much more.

Some of those donations have gone to causes tied to politicians and social activists now endorsing Pritzker's campaign. In late 2016, he gave $250,000 to the non-profit bankrolling restoration of the governor's mansion in Springfield, the same residence Pritzker soon after began campaigning to occupy.

Pritzker's largesse is a major selling point of his bid for governor. But a Better Government Association examination shows that charity comes at little real cost to the candidate himself but considerable expense to federal and state treasuries.

Records show Pritzker has funded his charitable giving almost exclusively with inherited proceeds, much of it filtered through offshore tax havens and then deposited in a tax-exempt nonprofit he controls, the Pritzker Family Foundation.

The result is Pritzker's philanthropy, and any accolades that go with it, have been bankrolled with what is essentially found money. He did little to earn the proceeds and paid no taxes on the bulk of it before giving it away.

Pritzker's record as a philanthropist is a central element in a campaign that asks Illinois voters to put him in charge of their tax money. In ads and speeches, he stresses how he has used his money to do good and make a difference.

But the complete story is more complex. Most people who make charitable donations do so out of earnings or savings on which they have already paid taxes. Pritzker, on the other hand, did no work for most of the money he has given away nor paid taxes on it.

Unraveling that story requires both an understanding of Pritzker's complicated lineage as an heir to the Hyatt Hotel fortune as well as the intricacies of elite tax breaks long baked into U.S. law.

Pritzker contributed $6 million of his own money to his foundation, records show. Another $52 million came from an uncle as well as separate non-profit foundations tied to relatives.

But most proceeds in his foundation, established in 2002, came from untaxed offshore trusts in the Bahamas set up years ago by his grandfather, Abram N. Pritzker, whose sons founded the hotel chain. Records show that over time the Bahama transfers to Pritzker's non-profit added up to $225 million, including cash and Hyatt stock.

Assets in those Bahama trusts were invested and grew, but the profits were not subject to taxation in the Caribbean island nation, and the trusts were designed to avoid income taxes in the U.S.

Pritzker would have had to pay federal and Illinois taxes had he moved the money out of the Bahamas and into personal accounts in the U.S. whether or not he kept it or gave it away. He avoided that expense by simply shifting money directly from the Bahamas to his foundation.

Campaign spokeswoman Galia Slayen did not answer directly when asked whether Pritzker, his trusts or his foundation paid taxes at any stage on the money doled out to charities after first passing through the Bahamas and his foundation.

She did, however, frame Pritzker's actions as both a personal sacrifice and high-minded altruism. "Rather than take personal distributions from offshore trusts, J.B. made the decision to direct all distributions made from the trusts to be given to charity," she said in an emailed statement.

Pritzker, a venture capital investor with a net worth estimated by Forbes at $3.5 billion, has never served in public office but is running on his record as a philanthropist, entrepreneur and creator of a small business incubator.

His campaign platform calls for amending the state constitution to replace Illinois' current flat rate income tax with one that allows for higher taxes on wealthy people like himself. Pritzker has donated $49 million of his own money to his campaign to date.

Pritzker is one of three wealthy candidates running for governor, including incumbent Republican Bruce Rauner and Democratic developer Chris Kennedy, a son of slain New York Sen. Robert F. Kennedy.

Another thing the three have in common: They all have been stingy with financial disclosures that would shed light on how they make and manage their money as well as breaks they leverage to lower tax bills.

That said, a review of hundreds of pages of public documents filed with the Internal Revenue Service and Securities and Exchange Commission reveals a paper trail of investments Pritzker has tapped to make his showcase donations.

Where the money came from

J.B. Pritzker's philanthropy is largely derived from assets long protected from taxation in two offshore accounts established by his grandfather, A.N. Pritzker. Since 2006, the Moreau Trust and the Cheyenne Trust, which while registered in the Bahamas also have mailing addresses in South Dakota, transferred $97 million in cash to his Pritzker Family Foundation, records show.

In addition, the trusts in 2015 transferred Hyatt stock then worth $90 million to the foundation. By the time the foundation sold that stock in November 2017, its value had grown to $128 million.

Because the stock was held by his nonprofit and not Pritzker personally, no capital gains tax was owed on the sale of the Hyatt shares.

Separately, much of Pritzker's current wealth is held in trusts set up in the U.S. for his benefit and that of his family.

Since 2011, J.B. Pritzker has sold $364 million in Hyatt stock held in those domestic trusts, records show. His campaign said the trusts paid $19.4 million in Illinois income tax on those sales, but Pritzker has declined to release any portion of his trust tax returns. Based on tax rates his campaign did divulge, the BGA calculates the trusts also paid $70 million in federal taxes.

Where the money went

Records of Pritzker's foundation from 2002 through 2016, the latest year available, suggest a distinct overlap between his political aspirations and his charitable giving.

In 2012, Pritzker's foundation gave $250,000 to a charity run by Illinois Secretary of State Jesse White, who was the first statewide office holder to endorse Pritzker's run for governor.

Another campaign ad for Pritzker features Barbara Bowman, who co-founded the Chicago-based Erikson Institute, which has received $1.8 million for early childhood education initiatives from Pritzker's foundation.

Pritzker also has played a major fundraising role for construction of the Illinois Holocaust Museum and Education Center museum in Skokie, and his foundation donated $9.9 million to the effort. Two Holocaust survivors, leaders of the drive to build the museum, appear in another Pritzker campaign ad.

Slayen said the donations and endorsements reflect long standing relationships and shared interests, not political tit-for-tat.

Pritzker's foundation has also donated $314,000 through 2014 to the Better Government Association. Rauner in the past also made sizable donations to the BGA, and Kennedy has donated to the watchdog group as well. None of the three has made donations to the BGA since formally entering politics.

"We are honestly dumbfounded that an organization like the BGA, which again, has received significant contributions from J.B.'s Foundation, would attempt to connect nonexistent dots," Slayen said.

This story was written and reported by the Better Government Association's Sandy Bergo and Chuck Neubauer. They can be reached at 312-427-8330.