CHICAGO — Local governments in Michigan would be able to issue municipal bonds to pay off their unfunded pension liabilities if they close their pension plans, under legislation passed by the Senate last week.

It would not likely mean a flood of new debt from municipalities, but it would broaden the purpose of limited-tax general obligation bonds to give qualified issuers the ability to borrow to cover their unfunded obligations and avoid a costly penalty that comes from shifting employees out of a pension plan into a 401(k)-style program.

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