‘Independent’ city watchdog Khan’s secret backer? Right-wing policy group

When former Chicago City Council Inspector General Faisal Khan launched his not-for-profit anti-corruption group close to two years ago, he insisted it was independent and nonpartisan.

At the time, Khan refused to disclose who was funding the organization, which he called Project Six — a reference to the group of civic leaders who led the fight against Al Capone during Prohibition.

Now, records obtained by the Chicago Sun-Times and ProPublica Illinois show almost all of the money used to launch Khan’s Chicago-based watchdog organization came from a right-leaning group that is leading a crusade against government regulations, state spending and labor unions in Illinois.

The most recent federal tax filing for the Illinois Policy Institute shows it gave $623,789 to Project Six in 2016 — 98 percent of the group’s first-year budget. The records don’t reveal — and Project Six officials haven’t said — where the rest of its money comes from.

The Illinois Policy Institute, in turn, has received extensive support from foundations tied to some of the country’s biggest Republican contributors, including the Koch, Mercer and Uihlein families, as well as Gov. Bruce Rauner and first lady Diana Rauner’s charitable foundation.

The tax records offer a glimpse of how money often moves among nonprofit groups focused on politics and public policy. Under federal and state laws, most charitable organizations — unlike political campaigns — are not required to publicly disclose all of their contributors.

The Illinois Policy Institute — which identifies itself as an independent entity committed to free-market reforms — has close ties to conservative lawmakers and worked with Rauner for much of his first term. It has attacked the politics and policies of Michael Madigan, the longtime Illinois House speaker and Democratic Party chairman.

Since Project Six was launched, promising to investigate cases of government waste and fraud across Illinois, its leaders have said it’s necessary to hide the identities of the group’s funding sources. They cite the state’s history of corruption and the potential for retaliation.

Khan said Project Six had “no political or ideological bent,” and he pledged to keep publishing reports of wrongdoing no matter the origin. Reports appear on Project Six’s website.

Tax records for Project Six and the Illinois Policy Institute are not yet available for 2017. In interviews, Khan said the Illinois Policy Institute continued to provide support for Project Six.

Khan said he wasn’t certain how much the institute gave Project Six in 2017 because it hasn’t completed its tax returns but estimated it was in the “hundreds of thousands” of dollars.

In the interviews, Khan offered shifting accounts of Project Six’s financial support. He initially denied the Illinois Policy Institute was among his group’s primary funding sources.

“We’re not getting the money from IPI,” he said. “We get money from all sorts of donors, but we don’t release their names because they fear reprisal from the city of Chicago.”

Later, he acknowledged the support of the institute and said he’d been “overzealous” in trying to protect its identify as a financial backer. In helping Project Six get started, the Illinois Policy Institute also provided office space and helped Khan assemble his board of directors, according to Khan and the board members.

Khan said Project Six’s connections to the institute do not affect its investigations, which have primarily focused on Chicago aldermen and Mayor Rahm Emanuel. The mayor and all but one member of the Chicago City Council are Democrats; the other alderman has described himself as an independent conservative.

Four of the 12 reports Project Six has posted on its site targeted Chicago aldermen with ties to Madigan. One investigation focused on spending by 13th Ward Ald. Marty Quinn, who shares a ward office with Madigan. Another centered on a lobbyist who was also a former staffer and consultant for 42nd Ward Ald. Brendan Reilly, a former Madigan aide.

The institute reported the Project Six findings on its own website and Facebook page without noting that it funds the watchdog organization.

Two other Project Six reports zeroed in on city regulations for Airbnb and ride-sharing companies. The institute has fought to loosen rules for both industries.

Khan said Project Six staffers initiated the investigations and were not influenced by the institute.

“Absolutely not,” he said, asserting that most Chicago elected officials have some link to Madigan.

The real point, Khan said, is what his team has found.

“Where are we wrong in our work?” he said. “Every investigation we have done has been accurate and vetted.”

Some of Khan’s targets dispute that. Reilly said Project Six “mischaracterized” the role of the consultant who was working for his office. Her lobbying work had nothing to do with issues in his ward, he said.

Reilly criticized Project Six for not revealing all of its donors.

“It’s a bit hypocritical for a group dedicated to transparency,” he said.

Last March, Project Six accused Ald. Proco Joe Moreno of abusing his influence over zoning in his First Ward. Moreno said Khan’s group selectively used facts to push a conservative agenda.

“Project Six is coming off as an independent investigative body that gets press,” Moreno said. “But it’s a right-wing, agenda-driven organization with dark money that is anything but independent.”

Project Six also issued a report on questionable spending by the mayor of Markham, a Democrat-led municipality. The organization has not released any investigations of Republican officials or conservative strongholds.

“Regardless of who our contributors are, it doesn’t affect our integrity, our work or our investigations,” Khan said. “We’ve only gone after people we’ve received credible information about.”

Khan was the Chicago City Council’s first and last legislative inspector general, serving four years. The office was dissolved in 2015, and Khan lost his position with the city. The inspector general’s office that oversees the executive branch at City Hall took over responsibility for investigating wrongdoing by aldermen or their aides.

A spokeswoman for the Illinois Policy Institute said her group’s leaders “do not have any influence” over which investigations Khan and his organization pursue.

The spokeswoman, Hilary Gowins, said the institute would not provide funding for Project Six in 2018.

“We are very proud to have supported Faisal in his efforts to bring transparency to Chicago and the state of Illinois in an effort to end public corruption,” said John Tillman, the Illinois Policy Institute’s chief executive. “Faisal and Project Six remain an independent organization.”

But the tax return revealing the contributions from the Illinois Policy Institute “clearly shows that Project Six is far from the independent government watchdog that it claims to be and seriously calls into question Khan’s motivation for establishing the group,” said David Armiak, a researcher with the Madison, Wisconsin-based Center for Media and Democracy, which has tracked funding to the institute and similar conservative organizations.

Major contributors to the Illinois Policy Institute have included:

• Foundations funded by Charles and David Koch, the billionaire industrialist brothers who long have been among the largest supporters of conservative causes.

• The Mercer family, who made their money in hedge funds, is a significant political contributor to President Donald Trump and has invested in the right-wing Breitbart news website once led by Steve Bannon — though the family recently broke with Bannon over his criticism of Trump in a new book.

• Richard Uihlein, a Lake Forest businessman who has been a big financial backer of Rauner. Uihlein, who has given money to many other Republicans as well as to conservative causes, gave $100,000 last year to a super-PAC backing Roy Moore’s losing Republican campaign for a U.S. Senate seat from Alabama.

The Rauner Family Foundation contributed to the Illinois Policy Institute before Rauner became governor, and former institute officials briefly held high-level roles in Rauner’s administration last year, among them chief of staff and communications director, before Rauner had a falling-out with the institute.

The institute was instrumental in launching Project Six, according to Khan and his group’s early board members. After leaving City Hall, Khan said, he talked with “a lot of people” about what to do next and wondered whether he should continue the work he started as legislative inspector general. One of the people he met with was Tillman.

According to Khan, Tillman encouraged him to continue investigating fraud and waste in local government. The institute offered Khan space in its office as Khan was setting up his new organization.

“Project Six is still my idea, my organization, but people like John Tillman and other business leaders helped me put it together and create a working model,” Khan said.

Khan hired Illinois Policy Institute staffer Nate Hamilton as Project Six’s director of marketing and communications. Three of the organization’s initial board members also had connections to the institute.

Businessman and former state Republican Party chairman Gary MacDougal, a contributor to the institute, said Tillman recruited him to the Project Six board.

“I got a call one day from John Tillman, who said, ‘I’ve got a really good guy who cares a lot about shining light in the dark corners, and I’d like you to meet him,’ ” MacDougal said. “I had a few strategy sessions with Faisal, and, in fact, I’m still having strategy sessions with Faisal.”

After Project Six was up and running, MacDougal left the board because of other commitments, but he said he continues to speak with Khan and just donated to Project Six. “I believe his heart and his focus are in the right place,” MacDougal said.

He said he’s not worried about the new organization’s independence.

Tillman, MacDougal said, “very much wants Faisal to be independent, and he is nudging Faisal in that direction.”

Project Six Board chair Randy Nornes, an executive with Aon, has given money to the Illinois Policy Institute as well as to the Illinois Liberty political action committee, founded by Tillman and now led by Pat Hughes, external relations adviser for the institute.

Nornes said MacDougal and an official at the Illinois Policy Institute approached him about Project Six. Nornes said that, as a Chicago resident interested in good government, “I thought it would be a way to contribute back.”

He noted that he has contributed to Democrats as well as Republicans and conservative groups and said he has worked to recruit a diverse group of board members and donors for Project Six.

New board members include an expert in accounting fraud and a public policy consultant.

“Our funding base now includes small donors,” Nornes said. “We’re doing a lot of the investigative work that in the old days journalists had the time to do.”

Mick Dumke is a reporter for ProPublica Illinois.

Contributing: Tina Sfondeles

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Illinois Policy Institute’s 2016 tax return / IRS Form 990 by The Watchdogs on Scribd

Project Six’s 2016 tax return / IRS Form 990 by The Watchdogs on Scribd