What Can California Issuers Invest Bond Proceeds In?

California issuers invest bond proceeds under two tracks that run side by side: Government Code §53601's list of authorized investments for sinking fund and treasury money a local agency holds itself, and, for proceeds a trustee or fiscal agent holds that are pledged to bonds, lease or installment-sale obligations or certificates of participation, the statute governing the issue and the bond documents.

This page reads the statutes behind both tracks, the repo and rating rules, the state pool routes and the approval mechanics, alongside the wider map of permitted investments by state.

Which statutes govern California bond proceeds investments?

The governing statute for a California city, district or other local agency that does not pool money with agencies having separate governing bodies is Government Code §53601, which lists the investments it may buy with sinking fund money or treasury money not needed immediately, while §53635 governs agencies that do pool.

Section 53601 carries a default maturity ceiling: unless the section says otherwise, a security may not have more than five years remaining to maturity unless the legislative body has granted express authority, and that authority must be granted no less than three months prior to the investment.

Two timing mechanics come with the list: percentage limits apply only at the date of purchase, and a forward settlement may not exceed 45 days.

The current text of §53601 states that it shall remain in effect only until January 1, 2031, and as of that date is repealed, so the section carries its own sunset.

Bond proceeds held by a trustee or fiscal agent follow a different route: §53601(m) says 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 statutory provisions governing the issuance of those bonds and, where there are no specific statutory provisions or to the extent not inconsistent with them, under the ordinance, resolution, indenture or agreement providing for the issue.

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

Government Code §5922(d) works in the same direction from the bond side: proceeds of bonds and money set aside and pledged to secure payment of the bonds or related contracts may be invested in securities or obligations described in the ordinance, resolution, indenture, agreement or other instrument providing for the issuance of the bonds or the contract.

What such a document fixes, from permitted investments to how fund holdings are valued, is covered on the bond indenture and valuation provisions pages.

What is on California's permitted investment list?

Section 53601's list runs from federal obligations through funds and agreements to pooled vehicles, and the table below pulls out six of its entries with the conditions the statute attaches to them.

A security sold in a reverse repurchase agreement or securities lending arrangement must also have been owned and fully paid for at least 30 days before the sale.

The full instrument list across states and products, and how the federal arbitrage rules sit on top of it, is on the permitted investments page.

How are investment agreements and repos treated in California?

Neither §53601 nor §5922 uses the words guaranteed investment contract or investment agreement, so no entry on either statutory list names the instrument, and the operative sources for trustee-held proceeds are the statute governing the issue and the bond documents.

Under §53601(m), trustee-held funds pledged to the bonds may be invested as the statute governing the issue provides and, where that statute is silent or to the extent consistent with it, as the indenture or agreement providing for the issue provides.

Section 5922(d) says the same thing from the bond side: proceeds and pledged money may be invested in the securities or obligations the bond documents describe.

Whether a particular product fits a given issue's documents is a determination for the issuer's bond counsel, not a conclusion the statute makes on its own.

For repurchase agreements made under §53601 itself, subdivision (j)(2) allows terms up to one year, and subdivision (j)(5)(A) defines the instrument as a purchase where the counterparty will repurchase on or before a specified date and for a specified amount, with the securities delivered by book entry, physical delivery or third-party custodial agreement.

These repo limits belong to §53601's own list, while trustee-held bond funds under (m) may follow the indenture instead, and the full-flex structure built on these mechanics is on the flex repo page.

What rating and collateral requirements apply?

The rating and collateral conditions California imposes sit on specific §53601 entries: money market funds carry a quality screen, joint powers authority pools carry an adviser screen, and the repo entries carry collateral, counterparty and prior-approval tests between them.

A money market fund must carry the highest ranking from at least two NRSROs, or be advised by an SEC-registered adviser with at least five years of money market fund experience and more than $500 million under management, and its purchase price may not include a commission.

Mutual funds and money market funds together are capped at 20% of the agency's investable money, with no more than 10% of it in any one mutual fund.

Repurchase agreement collateral must be marked at 102 percent or more of the funds borrowed and revalued at least quarterly, with any shortfall restored by the next business day.

Reverse repurchase agreements and securities lending are capped at 20% of the portfolio's base value combined and at 92-day terms unless a written codicil guarantees a minimum earning or spread, with counterparties limited to primary dealers or banks that qualify under the section and the legislative body's approval required before the trade.

How margin calls and shortfall cures work over the life of a repo is on the repo collateral page.

What state pool options can California issuers use?

The statutes this page reads give California issuers two pool routes: the Local Agency Investment Fund under Government Code §16429.1 and shares of joint powers authority pools under §53601(p).

Section 16429.1(d) lets a local agency, with its governing body's approval, deposit proceeds of the issuance of bonds, notes, certificates of participation or other evidences of indebtedness in LAIF pending expenditure, and the Controller keeps a separate account for each deposit of proceeds.

The statute lets LAIF deal directly with the agency's trustee or fiscal agent, and §16429.1(f) leaves how long bond proceeds stay on deposit to the trustee or fiscal agent alone.

The JPA route covers shares of beneficial interest in a joint powers authority organized under §6509.7 that invests in §53601 securities and has retained an investment adviser meeting the statutory criteria.

The MSRB glossary describes the vehicle type: an investment pool established by a state or local governmental entity that serves as a vehicle for investing the public funds of participating governmental units, whose participants buy shares or units, often in a trust.

Current LAIF terms, yield and account mechanics are pool-level questions for the LAIF page, and a California public-agency pool is profiled at CalTRUST.

Whether a pool deposit or a competitively bid agreement fits a fund is the state pool or GIC question, and the local government investment pool page explains the vehicle in general.

What procurement and approval rules apply?

California's procurement mechanics are approval, timing and reporting rules: express authority for maturities beyond five years must be granted no less than three months before the investment, reverse repurchase agreements and securities lending need prior governing-body approval, and LAIF deposits of bond proceeds need the governing body's approval.

The money market fund entry adds a pricing rule of its own: the purchase price may not include a commission.

On reporting, Government Code §53646 says the treasurer or chief fiscal officer may annually render a statement of investment policy to the legislative body and any oversight committee, and may give quarterly reports, with any quarterly report due within 45 days after the quarter ends and stating whether the portfolio complies with the policy.

The verb in §53646 is may, so the policy statement and the reports are permissive for the treasurer, with counties following the (a)(1) procedure, where the board reviews and approves the policy at a public meeting, and other local agencies following (a)(2), where the legislative body considers it at a public meeting.

How a bond-proceeds investment's purchase price can qualify as fair market value for federal tax purposes, including the safe harbor's bidding requirements, is a separate layer, covered on the fair-market-value safe harbor page.

How a bond-proceeds investment policy relates to the §53646 statement is the subject of the investment policy page.

What representative transactions does mGIC have in California?

mGIC's representative transaction list names projects in other states, so this page names none in California.

The firm is an independent, SEC-registered municipal advisor founded in 2002 that has invested more than $60 billion in bond proceeds and executed swap notional in more than 1,000 transactions for issuers in more than 40 states.

Its representative transaction list names projects such as the Pocahontas Parkway in Virginia, the Grand River Dam Authority in Oklahoma and Birmingham Water Works, profiled on the transactions page.

For a California issue, that work takes the shape of mGIC's three services: reinvestment advisory on fund objectives, permitted investments and draw schedules; Bidding Agent services on bid specifications, solicitation and bid comparison; and documentation and settlement ending with certifications delivered to bond counsel.

mGIC evaluates and competitively bids guaranteed investment contracts, full-flex repurchase agreements and structured portfolios of U.S. Treasury securities, sells none of these products, and is paid its fee by the winning provider rather than by the issuer.

California issuers who want an independent read on how their funds line up with §53601, their indenture and their draw schedule can start the conversation through California reinvestment help.

Final conclusions about what a specific California issue may invest in belong to its 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.