Investing Bond Proceeds in Illinois: Permitted Investments and Rules

Instruments Sec. 2 of 30 ILCS 235 lists for public funds include these state-law starting points for Illinois bond proceeds: obligations guaranteed by the United States, obligations of federal agencies and instrumentalities, money market funds limited to those obligations, short-term corporate obligations that meet rating, maturity and concentration conditions, repurchase agreements that meet Sec. 2(g) and (h), and the Public Treasurers' Investment Pool.

This page is Illinois's entry in mGIC's guide to permitted investments by state, and it sits beside the general guide to permitted investments.

The MSRB glossary defines permitted investments as the instruments in which bond proceeds or other funds may be invested pursuant to the provisions of the bond contract, and it defines an indenture as a contract between the issuer and a trustee for the benefit of the bondholders, noting that many governmental issues, especially general obligation bonds, may not use one.

So Sec. 2 speaks to public funds under state law while the bond documents set an issue's permitted investments, and how the two fit for a particular issue is a determination for bond counsel.

Which statute governs Illinois bond-proceeds investments?

The starting statute is 30 ILCS 235: Sec. 2 lists what an Illinois public agency may invest public funds in, and Sec. 2.5 requires a written investment policy to govern those investments.

The Sec. 2 list this page reflects is the version amended through Public Act 103-880, effective January 1, 2025.

The statute lists instruments for public funds generally and carries no bond-proceeds-specific carve-out, so how the list applies to a particular issue's proceeds is a bond counsel question.

Other Illinois statutes aimed at particular kinds of debt, the Local Government Debt Reform Act at 30 ILCS 350 among them, sit outside the provisions this page summarizes.

What is on Illinois's permitted investment list?

The provisions of Sec. 2 this page summarizes name U.S.-guaranteed and agency obligations, short-term corporate obligations, money market funds limited to government securities and repurchase agreements on them, and the Public Treasurers' Investment Pool, and Sec. 2(k) opens an ordinance or resolution path for instruments Sec. 2 does not list.

The money market fund entry carries its portfolio condition in the statute: funds registered under the Investment Company Act of 1940 whose portfolio is limited to obligations described in paragraph (1) or (2), with the statute also reaching repurchase agreements on those obligations (30 ILCS 235/2(a)(5)).

mGIC's money market funds guide covers how these funds work for bond proceeds.

How do Illinois rules treat GICs, investment agreements and repurchase agreements?

The statute addresses repurchase agreements directly at Sec. 2(g) and (h), and no GIC authorization appears in it.

Sec. 2(g) covers a public agency's purchase of or investment in repurchase agreements of government securities as the federal Government Securities Act of 1986 defines them (30 ILCS 235/2(g)).

Repurchase agreements outside that government-securities category must meet Sec. 2(h)'s conditions, which include purchase through banks or trust companies authorized in Illinois, use of a custodial bank, and a master repurchase agreement setting out the basic responsibilities and liabilities of buyer and seller (30 ILCS 235/2(h)).

On the open path, Sec. 2(k) is the provision that reaches instruments Sec. 2 does not list, through an ordinance or resolution that respects other applicable law and the agency's investment policy.

mGIC's guides to guaranteed investment contracts and full-flex repurchase agreements describe both structures where an issue's documents provide for them.

What rating and collateral requirements apply in Illinois?

Among the provisions this page summarizes, the explicit rating screen covers short-term corporate obligations at Sec. 2(a)(4), and the repurchase conditions cover custody and process rather than a stated collateral percentage.

The conditions for short-term corporate obligations include ratings in the three highest classes from two rating services, maturities of 270 days or less, and a cap at one-third of funds (30 ILCS 235/2(a)(4)).

For repurchase agreements, the Illinois conditions are structural: an Illinois-authorized bank or trust company on the purchase, a custodial bank, and a master repurchase agreement (30 ILCS 235/2(h)).

Beyond those structural conditions, collateral levels, remargining and shortfall mechanics for a specific repo are matters for its master repurchase agreement and bid specifications, which mGIC's repo collateral guide walks through.

Can Illinois issuers use the state investment pool?

Yes: Sec. 2(e) lists a Public Treasurers' Investment Pool, organized under Sec. 17 of the State Treasurer Act, among the investments an Illinois public agency may make (30 ILCS 235/2(e)).

The MSRB glossary describes a local government investment pool as a pool established by a state or local governmental entity as a vehicle for investing the public funds of participating governmental units, with participants buying shares or units, often in a trust.

Sec. 2(e) points to Sec. 17 of the State Treasurer Act, and the Treasurer's FAQs say The Illinois Funds was created in 1975 by that statute (15 ILCS 505/17) and is administered by the Illinois State Treasurer, which is the pool mGIC's The Illinois Funds guide covers in detail.

Pool rates and balances change, so this page states none of them.

Whether a particular issue's documents admit the pool is a bond counsel determination, and mGIC's LGIP guide and pool-versus-GIC comparison cover that choice in general terms.

How must Illinois issuers procure and bid bond-proceeds investments?

Illinois law sets a written investment policy, an officer-level conflict bar and a repo rate-comparison step, and federal tax rules add a separate fair-market-value safe harbor for certain investments.

Sec. 2.5(a) says investment of public funds by a public agency shall be governed by a written investment policy adopted by the public agency; for agencies other than the State or a county the governing body adopts it, the policy must be publicly available, and Sec. 2.5(a-5) adds a statement on considering material sustainability factors (30 ILCS 235/2.5(a), (a-5), (b), (c)).

mGIC's investment policy guide covers what these documents address for bond proceeds.

Sec. 2(d) bars an Illinois treasurer or financial officer from holding an interest in the agency's investments or in their sellers, sponsors or managers, or from receiving compensation of any kind from investments the agency may invest in, subject to narrow statutory exceptions, and the provision reaches the agency's own officers rather than outside advisors (30 ILCS 235/2(d)).

For repurchase agreements, the authorized officer directs the custodial bank to purchase the securities after ascertaining which firm will give the most favorable rate of interest, which is the statute's own comparison step (30 ILCS 235/2(h)).

Federal tax rules add their own layer: Treasury Regulation 1.148-5(d)(6)(iii) treats the purchase price of a GIC, or of an investment bought for a yield-restricted defeasance escrow, as fair market value on the purchase date if all of that safe harbor's requirements are met.

One of those requirements, under 1.148-5(d)(6)(iii)(A), is a bona fide solicitation using written bid specifications sent to potential providers on time, and mGIC's bid specifications and fair-market-value bidding rules guides cover the full requirements.

The specifications must include all material terms, which the regulation defines as terms that may directly or indirectly affect the yield or the cost of the investment, and they must contain only commercially reasonable terms, though they may be electronic.

Fee and cost terms fall in that material category: IRS Publication 5005 notes that fees charged by a conduit issuer can raise the effective yield on a conduit loan, a purpose investment whose yield Section 148 generally limits to the bond yield plus a spread.

For refunding escrows funded with open-market securities, GFOA describes an escrow bidding agent that solicits bids for the escrow securities and notes that a municipal advisor, if engaged, may be able to act in that role.

An issuer that wants the solicitation run by a party that sells no product can engage an independent Bidding Agent, the role mGIC performs for bond-proceeds investments under its Bidding Agent services.

Which representative transactions has mGIC done in Illinois?

This page makes no Illinois deal claim: the representative transactions mGIC publishes, a list that runs from Pocahontas Parkway in Virginia to the Prairie State Energy Campus and OSU Village F student housing, are covered by name only here.

What the firm reports beyond the names is its firm-level record: more than $60 billion in bond proceeds invested and swap notional executed across more than 1,000 transactions for issuers in more than 40 states, with a reinvestment focus dating to its 2002 founding.

The names are published without size, structure, provider, rate, bid count or result for any deal, and the transactions index carries the named set.

For Illinois reinvestment help, mGIC's reinvestment advisory reviews a fund's objectives, permitted investments, draw schedule, credit terms, market conditions and timing, and its Bidding Agent service solicits and compares provider bids, in a free, no-obligation review or conversation.

Final determinations about what a particular Illinois issue may invest in 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.