Small-government think tank yields big bucks for nonprofit’s leaders

Well before John Tillman began running the Illinois Policy Institute a decade ago, the nonprofit think tank was calling for major reforms to state government, especially its finances.

But few in Springfield — or elsewhere in Illinois — paid attention.

That changed when Tillman relaunched the institute in 2007.

The organization steadily expanded its work and influence after the conservative activist took over, while contributions shot up from about $341,000 in 2007 to $6.4 million in 2016 — a nearly 19-fold increase in a decade.

Tillman also ratcheted up the group’s research and advocacy. Its studies and opinion pieces on cutting government spending and boosting transparency became must-read material to many Republicans, some Democrats — and the governor of Illinois.

As the institute attacked political insiders for profiting off the system, Tillman parlayed its small-government message into growing paychecks for himself and other top staff members, tax filings and audits show.

Through an often-dizzying series of transactions, Tillman and his associates have moved millions of dollars around five interconnected nonprofits they run, steering money to for-profit ventures in which they have a stake.

For example, in addition to his role as chief executive officer at the institute, Tillman is the board chairman and former president of Think Freely Media, another small-government nonprofit that once shared office space with the institute and received hundreds of thousands of dollars from it in grant money.

In 2015, Think Freely Media made a $49,400, no-interest loan to a for-profit data and marketing company called Crowdskout. That came a few months after the nonprofit loaned Crowdskout $60,000 plus interest. At the time, Tillman had “majority unit control” of the entity that owned Crowdskout, according to a financial audit of Think Freely Media.

Experts say such transactions raise ethical questions and could violate the federal tax code for nonprofits. A zero-interest loan would benefit the for-profit company at the expense of the nonprofit.

“Whatever the interest should be on that loan would effectively be a gift to a for-profit organization, which you just can’t do,” said Philip Hackney, a law professor at Louisiana State University who served in the office of the general counsel for the Internal Revenue Service overseeing nonprofits.

State law also generally prohibits nonprofits from lending money to any of their officers, said Lloyd Hitoshi Mayer of the University of Notre Dame Law School.

“If this is basically seen as an indirect loan to the officer, that’s a flat-out violation of nonprofit law in Illinois,” Mayer said.

Tillman, in written answers to questions, said the transactions highlighted by ProPublica Illinois and the Chicago Sun-Times were appropriate and transparent.

“Obviously, these are all fully disclosed transactions, all at fair market value as they should be,” Tillman wrote. “And yes, people and companies are paid for providing services. When I have had a role with an organization, that relationship must be properly disclosed to the board and I recused myself regarding any decisions made.”

Tillman said his pay is in line with the leaders of other nonprofits, including ProPublica.

Just like those other leaders, he wrote, “I have been compensated for my hard work.”

‘Everything on the line’

Tillman was already a veteran conservative activist when he joined the Illinois Policy Institute. From 2004 to 2006 he was president of Americans for Limited Government, based in Chicago. In 2006, he helped found the Sam Adams Alliance, another nonprofit committed to government transparency and reform.

The institute was struggling financially when he took over.

“I put everything on the line and covered $100,000 of expenses with my own money for the organization in those early years to keep us afloat,” Tillman wrote. “Ten years later, we’ve become the strongest voice for taxpayers in the state, and I couldn’t be more proud of what we’ve built.”

As the Illinois Policy Institute grew, Tillman also launched a series of nonprofit organizations to complement its work. In 2009, he created Think Freely Media, focused on using new media for education about small government. A year after that, he was one of the founders of the Illinois Opportunity Project, a free-market advocacy organization.

In 2011, Tillman helped launch the Liberty Justice Center, a nonprofit legal clinic connected to the institute that took on cases challenging government regulations and union rights. That same year, he founded the Government Accountability Alliance, another nonprofit that would serve as the institute’s political advocacy partner.

Tax records show that a handful of conservative, wealthy benefactors were key to the growth of the Illinois Policy Institute and its partner organizations.

Among them:

• The Rauner Family Foundation, created and led by Bruce Rauner, then the leader of a private equity firm. The Rauner foundation donated $625,000 to the Illinois Policy Institute between 2009 and 2013.

• A family foundation headed by Richard Uihlein, the leader of a packaging company who lives in Lake Forest. The Uihlein foundation has given $8.6 million to the institute since 2009 and another $2.4 million to the Liberty Justice Center and Think Freely Media.

• The Mercer Family Foundation, which has contributed $1.1 million since 2009. The family has been a major financial backer of President Donald Trump and, until a recent falling out, the far-right Breitbart website.

• Donors Trust, which distributes money to conservative groups around the country, including those led and funded by the industrialist Koch brothers. Donors Trust gave the institute and Think Freely Media $1.4 million from 2009 to 2015.

When Rauner, a Republican, was elected governor in 2014, Tillman and the institute had an ally and former supporter running the state’s executive branch. Many of the pro-business, anti-union proposals that made up the governor’s “Turnaround Agenda” had been advocated for years by the institute. Rauner even appeared to borrow the name of his agenda from the institute’s “Illinois Turnaround Plan” and accompanying tour in 2010.

The governor also joined the institute in accusing Michael Madigan, the longtime state House speaker and Democratic Party chairman, of being corrupt and an obstacle to reform.

Last summer, Rauner hired a number of staffers from the institute and put them in top positions in his administration. But most of them were ousted within weeks, signaling a political falling-out.

In September, after Rauner signed a bill expanding public funding of abortion, that divide widened. Tillman, in a post on his personal Facebook page, called the governor “Benedict Rauner.”

The divide also spawned a primary challenger for Rauner in state Rep. Jeanne Ives, a fiscal and social conservative whose campaign has received $2.5 million from Uihlein — a former Rauner backer.

The flow of money

As Tillman was growing the institute and its partner organizations, those groups channeled money to for-profit businesses led by him and other institute leaders, tax returns and audits show.

• In 2014 and 2015, Think Freely Media gave $109,400 in loans to Crowdskout, including the $49,400 zero-interest loan. All of the loans were repaid, according to audits.

• On top of the loans, Think Freely Media paid more than $99,000 to Crowdskout from 2014 to 2016 for work done through a “labor sharing agreement,” the audits state. The nonprofit also paid Tillman’s for-profit company for office space they were sharing in Chicago and later in Washington, D.C.

• On four occasions from 2013 to 2015, Think Freely Media gave grants to nonprofits that then hired for-profit marketing firms controlled by Tillman, records show.

“We’ve had the good fortune of being able to assist others in getting off the ground along the way — all of which is publicly reported,” Tillman wrote.

Tillman pitched Crowdskout to many Republicans, and Rauner hired the firm in 2016, paying it $200,000 to do market research for his campaign, according to state records.

In the fall of 2016, the Illinois Republican Party paid Crowdskout $37,307 for direct mail.

The Rauner campaign did not respond to requests for comment.

Over the last several years, some Tillman associates also led or owned for-profit companies that were paid by the institute or its nonprofit partners.

• In 2015, the Illinois Opportunity Project paid $102,000 to AKJ Consulting of Hinsdale —- an entity whose agent and manager is Pat Hughes, one of the co-founders and leaders of the Illinois Opportunity Project. Hughes also holds positions at the Liberty Justice Center and Illinois Policy Institute.

• In 2014, Think Freely Media reported paying $64,000 to Dan Proft as a consultant. Proft, another founder of the Illinois Opportunity Project, was a senior fellow at the institute until taking a leave to focus on political work, which includes running the political action committee Liberty Principles. During 2015 and 2016, Think Freely also paid $211,500 to Starfish Consulting LLC, which lists Proft as its president in its state registration.

Experts say nonprofits should avoid transactions that benefit their leaders because they risk violating their tax-exempt status or, at least, that such deals be made after a bid process or other formal steps to ensure the charity gets the most for its money and sticks to its mission.

Tim Boyle/Sun-Times file

“It is not per se illegal for charitable organizations to engage in transactions with people I will call insiders, but it can be a problem if the charity is not getting fair-market value,” said John Colombo, an emeritus professor at the University of Illinois College of Law. “It is the kind of thing any good tax lawyer would advise, ‘Don’t do this.’ ”

Hughes did not respond to multiple requests for comment, and Proft didn’t answer questions about the consulting payments.

In his response, Tillman said the payments were fair and properly disclosed. He wouldn’t answer questions about how these firms were chosen or whether the nonprofits’ boards signed off on them.

75-hour work week

In 2013, Tillman held leadership positions at all five nonprofits, which reported to the IRS that he worked a total of 51 hours a week for $485,411 in total pay. The following year, he reported working 75 hours a week at the organizations, though his pay fell to $398,414.

The reported numbers show that Tillman collected pay that was often well above what comparable organizations in other states paid their leaders.

His reported compensation dropped again in 2015, to $366,631. But that still exceeded the pay of top executives at other, similar organizations, including the Michigan-based Mackinac Center and the Texas Public Policy Foundation, tax records show.

Those pay figures don’t include money that Tillman received from Crowdskout or other for-profit entities.

Tillman said his pay was fair.

“We compare my compensation to a variety of organizations of similar size, impact and growth, state-based and national, including ProPublica,” Tillman wrote.

Mick Dumke is a reporter for ProPublica Illinois. Tina Sfondeles is a reporter for the Chicago Sun-Times.