Investing Bond Proceeds in Colorado: Permitted Investments and Rules

Colorado issuers invest bond proceeds under C.R.S. §24-75-601.1, the statute that lists Colorado's legal investments of public funds, read together with the permitted investments the issue's own bond contract sets out.

This page is Colorado's entry in the mGIC guide to permitted investments by state, and it carries the statutory list, the guaranteed investment contract and repurchase agreement conditions, the rating and collateral requirements, and the procurement rules.

Where the question is what a particular issue's documents allow rather than what the statute lists, the general treatment is on the permitted investments page, and the legal conclusion belongs to the issuer's bond counsel.

What statute governs Colorado bond-proceeds investments?

C.R.S. §24-75-601.1 is the governing statute: it lists the state's legal investments of public funds instrument by instrument, with conditions attached to each.

The MSRB glossary defines permitted investments from the contract's side, as "the instruments in which bond proceeds or other funds may be invested pursuant to the provisions of the bond contract," so the statute and the bond documents are separate layers over the same fund, and what an indenture adds is its own question.

Subsection (3) preserves other law and home-rule charter or ordinance authority, so a home-rule government's charter may reach beyond the list (§24-75-601.1(3), (3)(b)).

Subsection (4) excludes pension and deferred-compensation funds, which the section does not govern.

Which layer controls a particular fund is a legal determination for bond counsel.

What is on Colorado's permitted investment list?

The list in §24-75-601.1(1) runs from U.S. Treasury securities to investment pools and investment agreements, with a condition on each instrument.

The Treasury line carries the statute's clearest time check: the period from the date of settlement to maturity may run no more than five years unless the governing body authorizes investment for a longer period (§24-75-601.1(1)(a)).

The money market fund entry points to the federal fund rulebook, and how money market funds work under Rule 2a-7 is covered separately.

Where does federal tax law sit?

State permission is not the end of the yield question: the federal arbitrage rules add limits of their own on what proceeds may earn, on top of the statute's list, and the arbitrage guides carry that layer, starting with yield restriction.

Conduit issuers carry an added version of the point: section 148 generally limits the yield on a purpose investment to the bond yield plus a spread, and IRS Publication 5005 notes that fees charged by the conduit issuer can raise the effective yield on a conduit loan, which is a purpose investment, so conduit issuers generally must keep the loan yield within the permitted spread.

What rules apply to investment agreements, GICs and repos?

Colorado authorizes guaranteed investment contracts, guaranteed interest contracts, annuity contracts and funding agreements under §24-75-601.1(1)(l), with a general term limit of three years, and treats repurchase agreements as a separate instrument under (1)(j) with a five-year maximum unless the governing body authorizes longer.

The three-year cap has one branch: longer terms are available only when the contract is bought with proceeds of the public entity's securities or certificates of participation, or with revenues pledged to them (§24-75-601.1(1)(l)(III)(A)).

The branch stops at refundings, and the statute says so directly: "no contract or agreement may be purchased pursuant to this subsection (1)(l) with the proceeds of any of the foregoing that are held in an escrow or otherwise for the purpose of refunding bonds" (§24-75-601.1(1)(l)(III)(B)).

That carve-out puts the (1)(l) contracts out for proceeds held to refund bonds, and a refunding escrow generally carries the roles GFOA describes for refundings, in which an escrow agent, typically a commercial bank, holds the escrow investments; a verification agent, typically a CPA firm, confirms the escrow is sufficient and, where yield is limited, that escrow yield does not exceed the permitted yield; and an escrow bidding agent solicits bids for open-market escrow securities.

GFOA adds that a municipal advisor, if engaged, may be able to act as the escrow bidding agent, and the choice between SLGS and open-market securities for an escrow is compared in SLGS or open-market securities.

What a guaranteed investment contract is, and how a full-flex repurchase agreement differs from it, are product questions this page does not take up.

What rating and collateral requirements apply?

Colorado attaches a two-NRSRO rating test to investment agreement providers and collateral, marking and custody mechanics to repurchase agreements.

Provider ratings for investment agreements

Under §24-75-601.1(1)(l)(I), the (1)(l) agreements are authorized if, at the time the contract or agreement is entered into, the provider or its guarantor is rated in one of the two highest categories by two or more nationally recognized statistical rating organizations.

The rating may measure long-term credit, financial obligations, claims-paying ability or financial strength.

The test runs at entry: the statute text reviewed applies the rating test when the contract is entered into and does not itself prescribe a remedy on a later downgrade, which is the territory of the agreement's own credit terms and of GIC credit protection generally.

Repo collateral and custody

Repos on U.S. Treasury or agency securities must be collateralized at no less than 102 percent and marked to market no less frequently than weekly (§24-75-601.1(1)(j)(I) through (VI)).

Title to the collateral or a perfected security interest in it must be transferred, and delivery must run versus payment to a custodian.

The five-year term limit is noted above, and the collateral securities themselves may mature in more than five years.

Reverse repurchase agreements sit in their own subsection: they are limited to 90 days unless otherwise authorized, and the counterparty must meet the section's credit tests in (m) (§24-75-601.1(1)(j.5)).

How collateral and margin are handled through the life of a bond-proceeds repo is the subject of the repo collateral guide.

Can Colorado bond proceeds go into an investment pool?

The statute lists local government investment pools organized pursuant to part 7 of article 75 of title 24 among Colorado's legal investments (§24-75-601.1(1)(i)).

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

The statute names categories rather than pools, and the two Colorado pools profiled on this site are COLOTRUST, whose board retains Public Trust Advisors, LLC of Denver as administrator and investment advisor and which is open to any Colorado county, city, town, school district, special district or other political subdivision, and CSAFE, which describes itself as a statutory trust, not an agency of the State of Colorado, open to Colorado municipalities, counties, school districts and special districts.

Both are profiled against the bid alternative in the COLOTRUST and CSAFE guides, and the general mechanics of local government investment pools are covered separately.

Whether a given pool fits a particular issue's bond documents is a question the statute's category line does not settle, and it belongs to bond counsel.

How are bond-proceeds investments procured in Colorado?

Colorado's procurement rule for securities stops short of bond proceeds: public entities must adopt criteria designating eligible broker-dealers for the purchase of term securities, except for bond proceed investments (§24-75-601.1(2.3)).

The section's backstop runs against the seller: a firm that sells an instrument short of the section's requirements must buy it back on demand within one business day (§24-75-601.1(1.5)).

Subsection (2) requires the prudence standard in C.R.S. §15-1-304.

Federal tax law adds a fair market value safe harbor rather than a required procurement rule: the purchase price of a guaranteed investment contract, or of an investment bought for a yield-restricted defeasance escrow, is treated as fair market value if all of the safe harbor's requirements are met, and one of them is a bona fide solicitation with 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 (Treasury Regulation §1.148-5(d)(6)(iii), with the solicitation terms in (A)(1), (2), (4)).

Electronic specifications are permitted, and for yield-restricted defeasance escrows the hold-firm period must be no longer than reasonably required.

The bid specifications and fair market value safe harbor guides take the requirements apart.

Running the solicitation is defined work, and a Bidding Agent writes the specifications, solicits qualified providers, manages questions and compares bids on rate and non-rate terms.

What representative transactions does mGIC list in Colorado?

None of the representative transactions mGIC names is a Colorado transaction.

What its record supports is broader: mGIC, founded in 2002, 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.

The named deals sit in other states, among them the Pocahontas Parkway in Virginia, the Grand River Dam Authority in Oklahoma, the Prairie State Energy Campus and the Birmingham Water Works, and the individual transactions are on the representative transactions page.

For a Colorado issuer the practical move is a conversation about the fund in front of it: mGIC's work is reinvestment advisory, Bidding Agent services and documentation and settlement, it evaluates and bids guaranteed investment contracts, full-flex repurchase agreements and structured Treasury portfolios without selling any of them, and its fee is paid by the winning provider rather than the issuer, at or below the safe-harbor maximum in the Treasury arbitrage regulations, and is disclosed under those regulations' disclosure requirement.

Colorado issuers who want a read on a fund can ask for Colorado reinvestment help through a free, no-obligation reinvestment review.

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