SPRINGFIELD —Fifteen hundred miles away, the Cayman Islands dominated Illinois’ governor’s race for a third straight day Wednesday with Republican Bruce Rauner going on the offensive by calling on Gov. Pat Quinn to “divest his own pension” from state retirement systems that invest in the offshore tax haven.

Quinn shot back, calling Rauner’s new focus a “canard” meant to distract from his refusal to disclose a full set of his tax returns that might show how deeply invested the Winnetka multimillionaire is personally in funds domiciled in a three-island country known as much for its beaches as tax avoidance.

The back-and-forth Wednesday came after a report in Sunday’s Chicago Sun-Times that outlined how Rauner has channeled part of his fortune into at least five investment funds based in the offshore tax haven — an investment strategy Quinn called “unpatriotic.”

Firing back, Rauner demanded an apology and accused Quinn of declaring “war” on government employees whose pensions are partly invested overseas, including in the Cayman Islands, and urged the governor to apologize to them, too.

“The governor’s own pension fund, just like the state pension fund for teachers and all state workers, is heavily invested overseas, including in the Cayman Islands,” Rauner’s campaign said in a prepared statement. “Pat Quinn either needs to apologize to Bruce Rauner for lying about the facts or apologize to Illinois teachers and state workers for calling them unpatriotic.”

Rauner’s campaign said the Teachers Retirement System has invested $433.5 million in Cayman Islands-based funds while the State Board of Investment has $2.3 billion in offshore holdings, which includes some Caymans-related funds though the agency could not specify how much.

Both are tax-exempt entities and, unlike individual investors, derive no direct tax benefit from investing in funds based there, spokesmen for both agencies said.

TRS invests on behalf of current and retired suburban and downstate teachers. The State Board of Investment oversees pension investments for current and retired state workers, university employees, judges, lawmakers and state officials, including the governor.

“If Pat Quinn refuses to apologize and tell the truth, he should immediately move to divest all state investments from companies and funds domiciled overseas, including in the Cayman Islands,” Rauner’s campaign said.

A Quinn spokeswoman declined to say whether the governor believes the state should add the Cayman Islands to the short list of countries in which state pension dollars cannot be invested. Iran and the Sudan are now the only places in which Illinois law bars state pension investments.

“The governor has no authority to direct pension fund investments, and he’s not about to start getting involved,” Quinn spokeswoman Brooke Anderson told the Sun-Times. “That’s really not the issue.”

She mocked Rauner’s emphasis on state pension investments in the Caymans and insisted Quinn’s pension isn’t influenced by the financial ups-or-downs of state pension investments in funds that are based there.

“This is a total canard by a Republican billionaire who has chosen the Cayman Islands as a place to stash his money and is hiding his tax records from voters,” she said.

“The governor’s future pension is fixed, and the payout won’t be impacted by the performance of any individual investments. State pension boards are also completely independent,” she said. “By contrast, Mr. Rauner has personally funneled millions of dollars to funds in the Cayman Islands to avoid taxes.”

Earlier in the day, Quinn’s campaign set up a conference call for reporters with an Ohio State University business professor, who appeared in a video promoted by the governor’s campaign on the implications of investing in the Cayman Islands.

Michael Brandl, an economist at Ohio State’s Fisher College of Business, argued that private equity firms set up offshore investments “in great part to be able to avoid the taxes that are paid by the general partners, by the people who run the private equity firm.”  

Brandl, who said he was not paid by the Quinn campaign, added that it’s a fair to question whether public pension money from funds like the Teachers Retirement System is going to places like the Cayman Islands.

“It really is a legitimate question and it is something that should really be thought about with policy makers in terms of if money is going to places like the Cayman Islands, there is a cost,” he said. “There is an opportunity cost. How could that money be better used by getting it back into the hands of the people in the state of Illinois?”