What Can Bond Proceeds Be Invested In, State by State?

What an issuer may invest bond proceeds in is set state by state, and the states route the question through different kinds of statutes: some close the list to named securities, some write rules aimed straight at bond funds, and some send trustee-held funds back to the bond documents.

This page is the entry to the states cluster of the broader guide on investing bond proceeds, and each state page under it carries one state's statutes in detail.

The instrument-level question, meaning which categories appear on statutory lists and what rating or maturity screens attach to them, is answered on the sibling page about permitted investments.

State law here means the statutes that reach public funds and bond funds, and the federal arbitrage and bidding rules are a separate layer covered by the arbitrage guides.

The table below covers a selection of states whose statutes illustrate each pattern, and the other state pages in the cluster carry their own statutes.

Summary table: what each state's statute does with bond proceeds

Each row in the table makes a different structural move, and knowing which move a state makes is the fastest way to frame the investment question there.

New Jersey adds a gate ahead of its list: the list opens only when the local unit's cash management plan, approved under N.J.S.A. 40A:5-14, authorizes the security type, so the plan sits in front of the statute rather than behind it.

Massachusetts' express coverage of proceeds comes with a narrow list: guaranteed investment contracts are not named in c.44 §55, and its line for U.S. and U.S.-agency-guaranteed obligations runs to maturities of one year or less from purchase.

Where a statute points at a state pool, the MSRB glossary describes a local government investment pool as a pool established by a state or local governmental entity or instrumentality to invest the public funds of participating governmental units.

Read as a set, the rows show closed statutory lists (North Carolina, New Jersey, Georgia), bond-specific conditions on guaranteed investment contracts (Texas), carve-outs that route the question back to the bond documents (California, Florida), and express coverage of unspent proceeds inside a general list (Massachusetts).

Washington is the narrow row on purpose, because the Refunding Bond Act speaks to refunding escrows and the state pages note where a statute's reach stops.

How does state law interact with the indenture?

State law and the bond contract are separate layers, and which layer controls a given fund depends on the state and on who holds the money.

The MSRB glossary describes permitted investments from the contract's side, as the instruments in which bond proceeds or other funds may be invested under the provisions of the bond contract.

The bond contract may take the form of an indenture, which the same glossary describes as a contract between the issuer and a trustee for the bondholders' benefit, and it notes that many governmental issues, especially general obligation bonds, may not use one.

Where there is no indenture, the GFOA best practice on the investment and management of bond proceeds says the investment policy should list the permitted investments for proceeds, which may be a subset of the operating-fund list, and should ensure legal and regulatory requirements are met, that fair market value bids are received when required by tax law and state or local laws, and that issuer objectives are attained.

California makes the holder of the money the pivot: under Government Code §53601(m), money held by a trustee or fiscal agent and pledged to bonds, lease or installment-sale obligations or certificates of participation may be invested under the statute governing that issue, or where that statute is silent, or to the extent not inconsistent with it, under the ordinance, resolution, indenture or agreement providing for the issue.

The carve-out covers money held by a trustee or fiscal agent, not every dollar of proceeds an agency's own treasurer holds, so the same issue can have dollars under the general list and dollars under the indenture at the same time.

Florida reaches a comparable place differently: §218.415(1) provides that its required investment policy does not apply to pension funds, or to funds related to the issuance of debt where other existing policies or indentures are in effect for them.

Georgia writes a covenant check straight into its pool statute: O.C.G.A. §36-83-8 lets a local government remit funds that are not required by law, or by any covenant or agreement with bondholders or others, to be segregated and invested in a different manner.

Not every statute answers the indenture question: the New Jersey section summarized above carries no bond-proceeds carve-out, does not mention investment agreements or guaranteed investment contracts, and the research file records that its treatment of funds held under an indenture was not verified.

The North Carolina review carries a similar boundary note: other statutes, such as the revenue bond acts and any trust agreements, may also bear on bond funds and sat outside the G.S. 159-30 review.

Federal tax law adds a third layer that neither the state list nor the contract settles.

For a guaranteed investment contract or an investment bought for a yield-restricted defeasance escrow, Treasury Regulation §1.148-5(d)(6)(iii) treats the purchase price as fair market value only if all of its safe harbor requirements are met, and the first of them, in (iii)(A), is a bona fide solicitation: written bid specifications sent to potential providers on a timely basis, specifications that include all material terms, meaning any term that may directly or indirectly affect the yield or the cost of the investment, and only commercially reasonable terms, with electronic specifications permitted.

For yield-restricted defeasance escrows, the same regulation adds a timing condition: the hold-firm period stated in the specifications must be no longer than reasonably required.

Where do you check each state's statute?

Start from the state page for the question, then read the statute itself at the official source it links, because summaries age faster than codes.

The vintages behind this guide's table show why the habit matters.

The North Carolina text is the codified section as it appeared on the legislature's site on October 6, 2026, and its history note shows 2022-53 as the last amendment.

The New Jersey text is the 2018 session law, P.L.2017, c.310, approved January 16, 2018, because the state's codified statute database was not reachable when the research was done, so later amendments were not checked.

The Georgia text is a mirror of the code current as of March 28, 2024, which is why it is presented with a mirror date rather than as the live code.

Two checks travel well across the state codes: read the history or amendment note at the end of a section before relying on its text, and prefer the legislature's own site over a commercial mirror when the two could differ.

Where a state page says a question was not verified, that is a statement about the research records, not a conclusion that the law is silent.

Whether a later amendment, a revenue bond act or a trust agreement also reaches a particular fund is a legal determination, and it belongs to the issuer's bond counsel.

Where does the state list leave off and the bid begin?

Once the statute and the bond documents both reach an instrument, the purchase itself carries requirements of its own, and that is where the bidding guides pick up.

The federal side of that requirement, including the safe harbor the Treasury regulations provide for a solicitation that meets their conditions, is the fair market value safe harbor guide.

GFOA's policy recommendation puts both layers in one line: fair market value bids are to be received when required by tax law and by state or local laws.

Refunding escrows show the role structure in practice: GFOA describes an escrow bidding agent that solicits bids for open-market escrow securities, working alongside the escrow agent that holds the investments and the verification agent that confirms sufficiency, and it notes that a municipal advisor, if engaged, may be able to act as the escrow bidding agent.

The bidding guides take that process apart, from bid specifications through comparing bids and what happens with fewer than three qualifying bids.

Which instrument sits inside a permitted list once the list is settled, whether a guaranteed investment contract, a full-flex repurchase agreement or a structured Treasury portfolio, is the separate question the reinvestment products guides cover.

What arrives after the award, from provider certifications to the closing compliance file, is the territory of the certifications and compliance file guides.

If you want a second read on how your state's statute, your indenture and the bidding requirements line up for a specific fund, mGIC offers a no-obligation reinvestment review.

As an independent municipal advisor and Bidding Agent, mGIC solicits and compares bids on rate and non-rate terms without selling any investment product, and its fee is paid by the winning provider rather than the issuer.

Final determinations about what a state's statutes and an issue's bond documents permit belong to the issuer's 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.