With a court ruling thatbenefit cuts are barred by the state constitution, Illinois has nochoice but to raise more revenue. (Photo: Shutterstock)

(Bloomberg) –Illinois needs $134 billion and may hold a yardsale to raise it.

Governor J.B. Pritzker, a Democrat who took office last month,is turning to business experts to figure out how to chip away atthe massive debt in the state's employee retirement system that's left thegovernment's credit rating dangling just one step above junk.

Among the options it will weigh: How to use the state's otherassets — like buildings and roads — to pump more money into thepensions.

No state is struggling more with its retirement obligations than Illinois, but thesteps it's exploring aren't unprecedented. New Jersey handed itslottery system over to its pensions, ensuring that politicianswon't shortchange them as badly as they have in the past, andConnecticut has considered following suit.

Arizona sold its capitol to raise cash after the last recession.And former California Governor Arnold Schwarzenegger proposedselling 11 state office buildings, though the plan was scrapped byhis successor.

The creation of a panel of experts to consider such plans marksan early effort by Pritzker to contend with an issue that eludedhis Republican predecessor Bruce Rauner, much of whose term wasmarred by a clash with the Democrat-led legislature over thebudget.

That divide kept Rauner from contending with the retirementsystem, whose debt has grown since the Illinois supreme courtstruck down a 2013 plan to cut benefits.

“It's a very good sign — I think it shows the gravity thatthey're viewing the situation with,” Gabe Diederich, amunicipal-bond fund manager for Wells Fargo Asset Management, whichoversees $39 billion of state and local debt, including some issuedby Illinois.

“Investors would hope for some kind of resolution to minimizefuture drains on the state's finances,” he said. “It's obviouslyencouraging to see that they are moving forward with this.”

Long time

Illinois's $134 billion of pension-fund debt built up over yearsas the state, like many others, failed to set aside enough money tocover all the benefits that have been promised. Using moreconservative investment return assumptions, Illinois pensionshortfall is $250 billion.

With a court ruling that benefit cuts are barred by the stateconstitution, Illinois has no choice but to raise more revenue. NewJersey's lottery transfer promised an additional $1 billionannually for its retirement system.

Connecticut has fielded offers from private equity firms for asmuch as $2 billion for office buildings, health-care facilities andtransit related properties. California's ill-fated real estate salewould have raised $2.3 billion.

'Prime piece of real estate'

Pritzker's task force may consider similar steps, said MichaelBelsky, executive director of the Center for Municipal Finance atthe University of Chicago. The state, for example, owns the JamesR. Thompson Center — a 16-story glass building located in themiddle of downtown Chicago. “That is a prime piece of real estate,”he said.

A call to the governor's office wasn't immediately returned.

But such measures would be no panacea, and privatization effortshave frequently generated a political backlash, including inChicago, where residents were riled by the impact from a sell-offof its parking meters.

All of Illinois's capital assets — like land, buildings, andinfrastructure — were worth about $23 billion in 2017, according toits financial statements. And the state lottery fund's revenue thatyear was far short of its annual pension bills.  ”Thisneeds to be coordinated with other efforts like revenue generationor it will have a marginal impact,” Belsky said.

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