Pritzker’s Storied Charity Costs Him Little But Taxpayers A Lot

The wealthy governor candidate campaigns on his philanthropy, but records show most of his donated proceeds have first been filtered through offshore tax havens and a tax-exempt foundation.

Investigation
Photo: Scott Olson/Getty Images

This story was published with Crain's Chicago Business and The State Journal-Register.

Billionaire JB 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. Also 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 that 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 central element in his campaign asking 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 or pay 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 setup 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.

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Assets in those Bahama trusts were invested and grew over decades. 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.

“All disbursements have followed all applicable tax laws,” Slayen said in an emailed statement.

Slayen, however, did frame Pritzker’s actions as both a personal sacrifice and high-minded altruism. “Rather than take personal distributions from offshore trusts, JB made the decision to direct all distributions made from the trusts to be given to charity,” she said.

“Additionally, JB believes philanthropy means more than writing checks, and he has shown that throughout his life,” Slayen continued. “JB has committed a great deal of his life to working with non-profit leaders and causes, lifting up organizations to do the most good in our communities.”

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.

All lay claim to prodigious philanthropy.

Rauner, a private equity investor before his 2014 election, stresses the millions of dollars he has contributed to schools, youth programs and the Red Cross. Kennedy touts his support of hunger relief programs for the needy.

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

Pritzker, whose full name is Jay Robert but goes by the initials J.B., comes from one of Chicago’s most influential and financially successful family dynasties. The family name adorns a wide array of the city’s cultural and educational institutions. One of J.B. Pritzker’s siblings, Penny, served as U.S. Commerce Secretary under former President Barack Obama.

Family lore often focuses on the rags to riches experience of Nicholas Pritzker, the great-grandfather of Penny and J.B., who arrived in Chicago from the Ukraine at the age of 10 unable to speak English and penniless. Yet he worked hard to become a successful lawyer.

But it was Nicholas’ son, Abram, who began building the family fortune, which really took off in the 1950s with the launch of the Hyatt chain that now operates 700 hotels.

Abram Pritzker, known as A.N., wanted to preserve and pass on his wealth to his family and aggressively sought out legal methods of avoiding or minimizing taxes. Even before grandson J.B. was born in 1965, A.N. Pritzker had set up a series of trusts for the benefit of his heirs. Some were set up in Illinois and others in the Bahamas.

J.B. Pritzker’s philanthropy is largely derived from assets long protected from taxation in two of those offshore accounts, the Moreau Trust and the Cheyenne Trust. Since 2006, those trusts, 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, records show. 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. Pritzker declines to disclose the identities of those trusts, but SEC records reveal several named after elements of the periodic table. There is Gallium, DGC Germanium, LGC Tin and R.A.G.C. Iridium.

Another Pritzker held-trust is named Durham, apparently after the North Carolina city that is home to his alma mater, Duke University. And still another trust is named PG Alma, which could be a reference to the Alma River in great-grandfather Nicholas’ native Ukraine.

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.

Pritzker has said that as a teen he spent one summer employed changing linen at a Hyatt hotel. That, however, was the only time he worked at Hyatt, a considerable source of his wealth and, by extension, much of his philanthropy.

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.

Pritzker has been a major donor to the two presidential campaigns of Democrat Hillary Clinton and served as national co-chair of her failed effort in 2008. In 2016, he was a Clinton delegate to the Democratic national nominating convention.

Meanwhile, Pritzker’s foundation has donated at least $17 million to the Clinton Foundation, the global charity run by Hillary Clinton, former president Bill Clinton and their daughter, Chelsea.

In 2012, Pritzker’s foundation gave $250,000 to a charity run by Illinois Secretary of State Jesse White which provides scholarships and tutors for at-risk youth.

White was the the first statewide office holder to endorse Pritzker’s run for governor and starred in a Pritzker campaign ad in which the secretary declared “JB’s the one I trust for governor.”

Illinois Secretary of State Jesse White appears in an ad for the Pritzker campaign. Pritzker's foundation gave White's charity $250,000 in 2012.

Another campaign ad for Pritzker that is airing on radio and the Internet features Barbara Bowman, the mother of Valerie Jarrett, a senior advisor in the Obama White House. Bowman was a co-founder of the Chicago-based Erikson Institute, which has received $1.8 million for early childhood education initiatives from Pritzker’s foundation.

Pritzker 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 titled “Standing Up to Hate.”

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

“To be clear, the implication you’re making is both ridiculous and offensive,” Pritzker’s spokeswoman said. “And if you are seriously asking if Holocaust survivors, a champion for early childhood education, and a decades long public servant are trading their endorsements for charitable contributions then the answer is unequivocally no.”

Education advocate Barbara Bowman appears in an ad for the Pritzker campaign. Pritzker's foundation has given Bowman's charity $1.8 million.

One priority of Pritzker’s philanthropy has been early childhood education for low income families and his foundation has given to several groups that promote that cause.

In an ironic twist, those recipients include the Chicago-based Ounce of Prevention Fund and a sister organization which have received $15.3 million in Pritzker donations. Both groups are run by Rauner’s wife, Diana.

Pritzker foundation donations also include millions of dollars distributed to schools with which the candidate and relatives have ties.

The foundation gave $8.3 million to Milton Academy, the exclusive Massachusetts boarding school he attended in his youth and which now has a science center that bears the Pritzker name. Another $2.5 million went to Duke University, where Pritzker earned his bachelor’s degree.

The University of South Dakota Foundation received $5 million, to help build a new student center named for Pritzker’s in-laws.

Closer to home, Pritzker’s foundation donated $17,000 to the Gold Coast Neighbors, which serves the upscale Near North neighborhood where he lives in Chicago. The foundation has also given $130,000 to the Geneva Lake Water Safety Committee, for boat safety patrols on Lake Geneva, where Pritzker has a weekend home, and $12,000 for the Bristol Volunteer Firemen, serving a Wisconsin town where Pritzker owns a horse farm.

Pritzker’s campaign said he also makes charitable contributions from personal assets separate from those held by his foundation. Between 2014 and 2016, the campaign said, donations from Pritzker’s personal accounts totaled $15.3 million, a fraction of the amount he gave away through his non-profit foundation.

The campaign did not detail the recipients of those gifts or the individual amounts, information that would be itemized in the full version of Pritzker’s personal tax returns that he has refused to make public.

In October 2015, Northwestern University announced that Pritzker had pledged $100 million to the law school, which was then renamed the Northwestern Pritzker School of Law. Pritzker is an alumnus.

The source of the NU donation is unclear. His foundation’s records from the date of the pledge through 2016, the last year available, show slightly over $1 million in donations to Northwestern. Pritzker did not answer BGA’s inquiries as to whether the law school gift will come out of foundation or personal funds, or whether it is to be fulfilled in future years.

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 JB’s Foundation, would attempt to connect nonexistent dots,” Slayen said.

About the Authors
  • Chuck Neubauer

    Chuck Neubauer is a special contributor for the Better Government Association.
  • Sandy Bergo

    Sandy Bergo is a special contributor for the Better Government Association.