COLOTRUST and Bond Proceeds: When a Competitively Bid Investment Earns More

Should a Colorado issuer leave bond proceeds in COLOTRUST from closing to final draw, or bid part of the balance?

COLOTRUST, administered by Public Trust Advisors of Denver, carries FAQ terms with no minimum or maximum investment and no limit on the number of transactions, so the working question is whether the pool's published yield matches what providers would offer for the same balances through a competitively bid guaranteed investment contract, full-flex repurchase agreement or structured Treasury portfolio.

That comparison is issue-specific: it turns on the issuer's bond documents, draw schedule and arbitrage position.

What is COLOTRUST and who can invest in it?

COLOTRUST is a local government investment pool, which the MSRB glossary defines as a pool established by a state or local governmental entity to invest the public funds of participating governmental units, with participants buying shares or units, often in a trust.

The COLOTRUST Board retains Public Trust Advisors, LLC of Denver as administrator and investment advisor, and any Colorado county, city, town, school district, special district or other political subdivision, or a department, agency or instrumentality of one, may join as a participant, per the pool's FAQ.

The statute names categories of investments rather than specific pools, and the pool directs participants to read its Trust Indenture, amended and restated in May 2021, and the applicable Information Statement before joining.

Colorado's legal-investments statute, C.R.S. §24-75-601.1, lists the legal investments of public funds, and they include U.S. Treasury securities with a 5-year maximum maturity unless the governing body authorizes longer (§24-75-601.1(1)(a)), listed federal agency securities (1)(b), local government investment pools organized under part 7 of article 75 of title 24 (1)(i), and 2a-7 money market funds that seek a stable $1.00 net asset value (1)(k).

The full statutory list is walked through in Colorado permitted investments, and subsection (3) of the statute preserves other law and home-rule charter or ordinance authority, so a home-rule government's charter may add to it.

The pool's FAQ lists four options and these ratings for them.

The FAQ does not date these ratings, so they are the pool's published description rather than a live rating; EDGE's investments must comply with the Colorado Legal Investments Act (part 6 of article 75 of title 24, C.R.S.) according to the same FAQ.

COLOTRUST, Texas CLASS and Michigan CLASS each name Public Trust Advisors, LLC as administrator or investment advisor on their own sites.

GFOA's best-practice note on local government investment pools speaks of pools in general, and it is direct: they are not registered with the SEC, investments in them are not insured or guaranteed, and substantial losses have occurred in the past.

Pool mechanics, including NAV types, are covered in the guide to local government investment pools; Colorado issuers weighing a second pool, one CSAFE describes as open to Colorado municipalities, counties, school districts and special districts, can also read the separate CSAFE guide.

How is COLOTRUST's yield set, and how has it moved?

COLOTRUST publishes its yields at colotrust.com/rates/, and that rate history is the place to check for how the pool's yield has moved.

This page quotes no yield: pool rates change daily, so a number copied into a guide would not describe the pool on the day it is read.

The useful exercise is to set the pool's published yield history beside short-term reference rates: mGIC posts today's reinvestment rates, Treasury yields, SOFR and SLGS links each business day.

How do arbitrage and rebate work for proceeds held in a pool?

Placing proceeds in COLOTRUST does not settle the issue's arbitrage questions: the pool's FAQ does not mention bond proceeds or arbitrage, and no pool document mGIC reviewed claims pool earnings are exempt from rebate.

The Treasury regulations supply definitions that matter here: under 26 CFR 1.148-1(b), a commingled fund is a fund holding gross proceeds plus more than $25,000 of other amounts invested collectively, and an open-end regulated investment company, such as a mutual fund, is expressly not a commingled fund.

A state pool holding one issue's gross proceeds alongside other participants' collectively invested amounts above that threshold is the fact pattern that definition describes, while a fund that is an open-end regulated investment company, such as a mutual fund, falls in the regulation's express exclusion.

Where a given pool deposit falls in those definitions is arbitrage analysis that belongs to tax counsel, and the recordkeeping questions rebate tracking raises in a pooled fund are covered in local government investment pools.

Some records sit with the issuer by rule: to use the GIC bidding safe harbor, the issuer retains records with the bond documents until three years after the last outstanding bond is redeemed, including the contract or purchase agreement, the receipt for the amount paid with any administrative costs and the provider certification, and each bid's submitter, time, date and result (Treasury Regulation §1.148-5(d)(6)(iii)(E)).

mGIC's post-issuance compliance guide walks through the recordkeeping side.

What does liquidity look like: unlimited pool transactions or a draw-matched agreement?

COLOTRUST's FAQ terms are written for day-to-day cash management: no minimum or maximum investment, no limit on the number of transactions, and no banking fees on wires or ACH.

A competitively bid agreement runs the other way: for a GIC purchase, the solicitation terms must take into account the issuer's reasonably expected deposit and drawdown schedule (Treasury Regulation §1.148-5(d)(6)(iii)(A)(5)), so term, rate and withdrawal provisions are set against the draws.

Money market funds, the third option on Colorado's list, run under a federal rulebook rather than a contract: Rule 2a-7 bars a fund from buying a non-daily-liquid asset if that would leave it with less than 25% of total assets in daily liquid assets, or a non-weekly-liquid asset if that would leave it with less than 50% in weekly liquid assets (17 CFR 270.2a-7(d)(4)(ii)–(iii)).

The rule also bars instruments with remaining maturity over 397 calendar days and caps WAM at 60 days and WAL at 120 days, and the daily minimum does not apply to tax-exempt funds.

Those 25% and 50% levels are the figures in effect after the rule's post-2023 amendments.

The three structures set three different liquidity terms: per-transaction pool access with no stated limit on the number of transactions, portfolio-wide fund rules at a money market fund, and withdrawals negotiated in a bid agreement.

Transaction access with no stated limit is a feature in its own right, and what providers bid for committed balances is what a competitive solicitation reveals.

When does a GIC, flex repo or Treasury portfolio earn more than COLOTRUST?

No rule says a bid earns more: whether a competitively bid investment out-earns the pool is an empirical question answered solicitation by solicitation.

The federal rules set the yield limits a bid works within: Internal Revenue Code §148(c)(1) says a bond is not an arbitrage bond solely because its proceeds are invested in higher yielding investments for a reasonable temporary period, and Treasury Regulation §1.148-2(e)(2)(i) gives capital-project proceeds a 3-year temporary period from the issue date when the issuer reasonably expects to meet the expenditure, time and due diligence tests, a period that does not apply to refunding issues.

A temporary period addresses yield restriction, not rebate: IRS Publication 5271 notes that even when the yield restriction rules allow an issuer to invest above the bond yield, the rebate rules may require it to pay those arbitrage earnings to the U.S. Treasury.

Colorado law then supplies the authorization a bid needs: C.R.S. §24-75-601.1(1)(l)(I) expressly authorizes guaranteed investment contracts, guaranteed interest contracts, annuity contracts and funding agreements if, at the time the contract is entered into, the provider or its guarantor is rated in one of the two highest categories by two or more NRSROs, whether the rating measures long-term credit, financial obligations, claims-paying ability or financial strength.

The statute text reviewed sets that rating test at entry and does not state a downgrade remedy.

Procurement runs through the same statute: public entities shall adopt criteria designating eligible broker-dealers for the purchase of term securities, "except for bond proceed investments" (§24-75-601.1(2.3)), and under §24-75-601.1(1.5) a firm that sells a non-compliant instrument must buy it back on demand within one business day.

Valuation is what turns bidding into a federal question: an investment not traded on an established securities market is rebuttably presumed not to have been bought or sold at fair market value, under Treasury Regulation §1.148-5(d)(6)(i).

That presumption is why the safe harbor exists: under §1.148-5(d)(6)(iii), the purchase price of a GIC is treated as fair market value on the purchase date if all of the safe harbor's requirements are met, among them a bona fide solicitation, qualifying bids, winning-bid rules, a provider certification and record retention.

Missing the safe harbor costs the presumption, not automatically the price.

The three structures mGIC evaluates and bids as a Bidding Agent are guaranteed investment contracts, full-flex repurchase agreements and structured Treasury portfolios, the last matched to anticipated cash needs, with a money-market allocation for faster spend-down.

None of this makes a bid the answer for every fund: where proceeds spend down in weeks, the pool's no-limit transaction terms are the feature doing the work.

The general comparison is developed in LGIP vs GIC.

Can an issuer use COLOTRUST and a bid investment together?

The two structures are not mutually exclusive: a fund can hold near-term draws in the pool while the issuer bids the balances not expected to be spent for a year or more.

mGIC is an independent, SEC-registered municipal advisor and Bidding Agent: it sells no investment product, does not act as principal, and its fee is paid by the winning provider at or below the safe-harbor maximum in the Treasury arbitrage regulations and is disclosed.

A no-obligation review can compare your pool yield with real bids on the same rate and non-rate terms a provider would see, or start a conversation through mGIC's contact page.

Which investments an issue's own bond documents permit, and how the arbitrage rules treat its proceeds, are determinations for bond counsel and tax counsel.

Last updated 2026-10-06.

This page is general educational information about municipal finance and federal and state rules as of the date shown. It is not legal, tax or investment advice, and it is not a recommendation about any particular investment. Product availability, legality and suitability depend on the issuer, jurisdiction, governing documents and transaction-specific facts. Final legal and tax determinations remain with the issuer's bond counsel, tax counsel and other advisors.