Reagan's Money Machine

By Burton Y. Pines

It keeps humming so that he can keep running

When Ronald Reagan arrived in Hollywood in 1937, he had only a few dollars in his pocket and a $200-a-week contract with Warner Bros. In the course of making more than 50 films, Reagan earned and spent a lot of money, but ended up with relatively little saved. Yet today the presumptive G.O.P. presidential nominee is a millionaire, with a net worth of at least $2 million and possibly as much as $4 million.

The figure is imprecise because Reagan has shrouded his personal finances in considerable secrecy. Attempts to force him to disclose the details of his holdings have encountered such tough resistance that he has been sued by the Federal Election Commission and a similar California agency. Reagan is by no means unique in his desire to keep his personal finances confidential, and it may simply reflect his strong feelings about privacy. More important, there has been no hint of any dishonesty or illegality in his financial dealings. But his adamant refusal to disclose his finances has inevitably bred curiosity about how rich he really is and how he got that way.

Reagan has fairly simple tastes, but his affluence provides handsome rewards for his wife Nancy. She wears $5,000 designer dresses, collects fine jewelry, paintings and antiques and keeps her hairdresser and an interior decorator on call. Reagan, by contrast, has to be prodded into buying a new suit, prefers outdoor barbecues to haute cuisine and drives a worn 1969 red Ford station wagon, a 1976 Monarch sedan and a decade-old Jeep. He carries little cash, usually only a few bills carefully folded into a money clip in his pocket. In fact, he once flew to Paris with only $5 and was annoyed when he had to use that to tip someone.

Reagan's residences, while very comfortable, are not lavish by Southern California standards. He and Nancy live in a spacious nine-room house in Pacific Palisades, an exclusive Los Angeles enclave. For weekends they have Rancho del Cielo, their 667-acre spread near Santa Barbara, complete with four horses and 50 grazing cattle.

Reagan enjoyed no such amenities in his early days in Hollywood. He appeared in about 20 minor movies before he won his big break in 1940 as the Notre Dame football hero George Gipp in the hit Knute Rockne--All American. That brought Reagan stardom, and the following year, when he played in King's Row, Warner's tripled his salary to $600 a week, a substantial sum in those Depression-ridden days. He celebrated by moving into a large apartment and buying a Cadillac convertible. He also fell behind in paying his income taxes. Pearl Harbor cut off Reagan's fat paychecks. As an Army Air Corps officer, he remained in Hollywood narrating training films for the Air Corps, earning only $2,400 a year as a first lieutenant and then $2,760 as a captain. When the war ended, the IRS began dunning him for his unpaid taxes. Reagan maintains, however, that he thought these taxes would be forgiven for soldiers as they had been in World War I.

Reagan was soon back in the big money, earning about $150,000 a year from Warners. That catapulted him into the 95% income tax bracket. It was partly his irritation about these taxes, says one friend, that began changing him from a New Deal liberal into a conservative. After 1949 a string of box office flops sharply cut his earnings, and his film career virtually ended three years later.

Savings and occasional TV appearances got the Reagans through 14 relatively lean months until he was hired by General Electric. In addition to supervising, acting as host and at times starring in the television program General Electric Theater, he made speeches to the firm's employees and various civic groups. Though the terms of Reagan's employment with GE have not been disclosed, it is estimated that by 1962 he was making between $125,000 and $150,000 annually. In that year, however, his contract was not renewed. Not only was General Electric Theater dropping in the viewer ratings, but Reagan's increasingly conservative speeches were offending some of the firm's customers. After GE, Reagan took a cut in salary and became the popular host of Death Valley Days, a weekly TV drama of the frontier era.

Though Reagan's earnings were substantial throughout most of his show business career, his finances were often in a mess. He apparently saved little, made few investments and seemed constantly to be battling the IRS. According to a report made public during the Watergate investigation, Richard Nixon obtained confidential tax data on his political rivals in 1971. The information showed that Reagan owed $13,101 in taxes for 1962 through 1965. This did not mean that Reagan was cheating on his taxes, only that he was disputing the IRS view of his tax liability.

Reagan had made one extremely good investment, however. In 1951, with the money from his last films, he made the down payment on a $65,000, 290-acre ranch in Malibu Canyon. Fancying himself a rancher and being very fond of horses, he was charmed by the rugged land (some parts slope 50DEG) and by a meandering creek that could be dammed to form a pond from which his horses could drink. The Reagans eventually created the pond, built a barn and corral and dubbed it Yearling Row.

Reagan's finances might have remained perpetually chaotic if it were not for the intervention of a small group of wealthy, conservative businessmen. They were attracted to Reagan after his famous televised speech on behalf of Barry Goldwater in 1964. That speech reaped $8 million in small contributions for Goldwater's presidential campaign and persuaded the business group that Reagan could become an important force on the political right. They became his financial managers and in some cases close personal friends. This group today consists of Harvard-educated William French Smith, who is one of the West Coast's most influential attorneys and serves as Reagan's personal lawyer; Justin Dart, the founder of Dart Industries, which last month merged with the giant Kraft, Inc.; Holmes Tuttle, a Los Angeles Ford dealer; and William A. Wilson, a California rancher and land developer. All but Tuttle are also the trustees in what became the Ronald Reagan Trust.

The funds that this financial group could invest on Reagan's behalf jumped dramatically in 1966. Just after he was elected Governor of California in that year, he sold most of his Malibu Canyon ranch to Twentieth Century-Fox Studios, which owned 2,500 acres of adjacent land, for $1.9 million. Staggering profits in the California land boom have since become commonplace, but even by California standards Reagan's return on his original $65,000 investment in Yearling Row was astounding. A Los Angeles County assessment appeals board eventually set a market value of $1,459,000 on the 236 acres that Reagan had sold the film studio.

Why Twentieth Century-Fox paid about $450,000 above market value for Yearling Row remains a mystery. While the timing of the purchase may have seemed suspicious, coming just after Reagan's election as Governor, there is no evidence that he ever granted the studio any favors. He did, however, name Harry Sokolov, a Twentieth Century-Fox executive, chairman of the California state parks and recreation board.

Eight years later, Twentieth Century-Fox sold its entire Malibu Canyon ranch, including both its own 2,500 acres plus the 236 acres bought from Reagan, to the State of California for $4.5 million as park land. In this deal, Twentieth Century-Fox received much less than it had paid Reagan on a per acre basis--about $1,800 vs. $8,000. However, it leased back the land from the state as a filming site for a mere $500 a month. The charges gradually climbed, and Fox now has to pay $700 a day whenever it uses the site. Reagan was not directly involved in the leasing deal.

Reagan's new financial counselors advised him to put most of the funds from the sale of the ranch into the Ronald Reagan Trust, a blind trust. Such a device has been used by many officials to avoid possible conflicts of interest (among them: Dwight Eisenhower, Lyndon Johnson, Jimmy Carter and Edward Kennedy). A blind trust's exact holdings are known only to the trustees, while the person who creates the trust merely receives reports about how much it is making or losing. Reagan's trust ceased being "blind" when he left office, but reverted to that original status when he became a candidate for national office in 1975 and again in 1979.

According to Trustee William French Smith, part of Reagan's money was parked in such safe havens as tax exempt bonds and U.S. Treasury notes. Greater risk was taken with the sums that went into real estate investment trusts, commonly known as REITs, and tax shelters such as cattle breeding operations. In general, REITs had a roller coaster performance during most of the 1970s and lost quite a bit of money for many investors, as did a large number of cattle breeding tax shelters.

How much Reagan made or lost on his REITs and tax shelters is unknown. Typical of his determination to keep his finances private were his comments after a 1971 disclosure that he had invested in Oppenheimer Industries, Inc., a cattle breeding tax shelter that had been investigated by Congress. Insisting that his interest in the company was small, the then Governor Reagan said that the investment had been made "mainly to give me an excuse to continue reading the cattlemen's association magazine." When reporters pressed for details about the size of his holdings in cattle breeding operations, he dodged by saying: "One thing a cattleman never says, even to other cattlemen, is how many head of cattle he has in his herd."

It is certain, however, that Reagan's investments enabled him, as allowed by law, to reduce his tax liability substantially. In 1971 his California income tax return was leaked to the press and it revealed that the Governor had paid no state taxes in 1970. Reagan eventually confirmed this and added that he had also managed to avoid paying state taxes for one other year. Some experts estimate that even in the years when he had a tax obligation, the amount was small because of the shelters. These investments probably also allowed him to trim his federal tax obligations, and the old tax debts seem to have been settled.

While Governor, Reagan once again was involved in a sizable real estate deal. At the suggestion of Adviser Wilson, the Ronald Reagan Trust bought in 1968 a 771-acre parcel in a development called Rancho California, situated between Los Angeles and San Diego. This cost about $346,950, of which $181,950 was paid in cash and the balance in land that Reagan still owned in Malibu Canyon. Wilson also bought Rancho California acreage, as did William French Smith and other Reagan advisers. Although the purchases clearly seemed speculative, Reagan and his associates have gone to some trouble to deny it. Reagan said he was going to use Rancho California as a holiday retreat and would retire there to raise horses and cattle. Smith told TIME that he and his friends bought their property "so that [Reagan] wouldn't be alone. That was remote country and there wouldn't have been any neighbors whom he would have known."

The land scarcely seemed inviting. It was far from major water sources and accessible only by a dirt road. But it did have promise: a feeder canal of the Southern California water project was heading in its direction and there were plans for a freeway to the area. Knowing that these projects were on the boards might have been a factor in the trustees' decision to purchase the property for Reagan. Such information was not secret and would have been known to real estate developers and indeed to almost anyone following the proceedings of the department of water resources and the department of highways. The canal to Rancho California was completed while Reagan was Governor and probably increased the area's value.

Despite his talk of a retirement ranch, Reagan never improved Rancho California. After holding on to the property for eight years, he sold it for $856,000--a handsome return on his original investment. Yet this apparently was not as handsome as it might have been. The developer who bought the land from Reagan later sold two-thirds of it for $1.6 million.

In the five years since Reagan left the governorship, his finances have become increasingly difficult to track. The public record contains only fragments of data. He reported a 1975 income of $282,253 and a net worth of $1,455,000. He owns two major pieces of property: the Pacific Palisades residence, built in 1956 for an undisclosed sum, and the 667-acre ranch near Santa Barbara, costing $527,000. Today they are estimated to be worth at least $750,000 and $1 million respectively.

Although the Ronald Reagan Trust was supposed to be strictly blind, it seems that the Governor took an active interest during his final months in office in the purchase of the Santa Barbara ranch. It was opposed by the financial experts. But, as Dart explains, "he just had to have this one. It was love at first sight." Adds Wilson: "He told us that he always had made money on his real estate and challenged us as trustees to prove that we always had made profitable investments for him. That we couldn't do." At the ranch, Reagan's 50 steers are about all that the land can support. Wilson notes that, though the cattle are not profitable, they trim the grass and reduce the fire hazard.

What has most complicated analysis of Reagan's recent finances has been the huge funds that he has been raising, with more than $1 million usually passing through his hands annually. Has this money gone into his own pocket, to his presidential campaign fund or to the conservative political groups that he has organized? At times it is unclear. On the same trip, for example, he has made speeches and raised money for his personal account and for his political fund.

When Reagan withdrew from the 1976 race he still had about $1 million remaining in his campaign fund. Instead of returning the money to the donors, he used it to organize and underwrite the Citizens for the Republic Political Action Committee. This group's stated purpose: "To promote conservative Republican candidates and promote conservative views." In the 1978 election campaign, Reagan used the C.F.T.R. as the primary source for the $615,000 that he handed out to 25 candidates for the U.S. Senate, 234 for the House, 19 for governorships and 122 others seeking offices ranging from Lieutenant Governor to county clerk.

Keeping income and outgo in their correct ledgers during Reagan's fund-raising tours may give his accountants ulcers and has prompted an almost continuous IRS audit. But there is no indication that Reagan has been doing anything improper, and dual-purpose trips are not unique in U.S. politics.

Reagan's main personal money-making venture is his famous Speaking Bureau, which has operated at full blast since he left Sacramento, shutting down only when he became a declared candidate. The bureau has churned out Reagan columns syndicated in hundreds of newspapers and made radio spots carried by hundreds of stations. In addition, Reagan has been delivering speeches every other day, on the average, for the past couple of years. His usual fee: $5,000 a speech; at times, triple that. The Speaking Bureau's revenues from December 1978 through October 1979 (the latest figures) were $462,886, of which $166,694 went for expenses (mainly staff salaries), leaving Reagan with a pretax profit of $296,192.

Whatever its size, Reagan's private income enables him to pursue his goals. And as is often the case with candidates for major office or the heads of major corporations or labor unions, there always seem to be a battalion of aides to fetch a car for him, pay a restaurant bill or see that his suit is pressed. Often these outlays are covered by an expense account. Reagan's close friends insist that he would prefer a simpler, even rustic living standard. Yet he has grown to accept the perquisites he receives. Above all, they allow him to concentrate on what he believes is his main task--some say his "mission"--winning the presidency.

--By Burton Y. Pines

Reported by Jonathan Beaty/Los Angeles

With reporting by Jonathan Beaty

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