Investing Bond Proceeds in Kentucky: Permitted Investments and Rules

Kentucky cities, counties, urban-county governments, school districts and other local units invest money subject to their control and jurisdiction under KRS 66.480(1), and the section's instrument list, concentration caps and custody conditions are the state-law layer for bond proceeds those units hold.

The statute contains no bond-proceeds carve-out, so what a particular issue's funds may hold also turns on the bond contract: 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."

This page is Kentucky's entry in mGIC's permitted investments by state series.

Which statute governs Kentucky bond-proceeds investments?

KRS 66.480(1) governs: it lets a Kentucky city, county, urban-county, school district or other local unit "invest and reinvest money subject to its control and jurisdiction" in the instruments the subsection lists.

The text this page uses is the enacted version in Acts of the General Assembly 2022, Chapter 178 (HB 782, signed April 8, 2022), which reprints the full section, and later amendments are possible, so confirming the current consolidated KRS text is part of the legal review.

The list opens with "obligations of the United States and of its agencies and instrumentalities, including obligations subject to repurchase agreements" under KRS 66.480(1)(a).

For a revenue issue the bond contract may be an indenture, which the MSRB glossary defines as a contract between the issuer of municipal securities and a trustee for the benefit of the bondholders, setting out the parties' rights, duties and remedies and the exact nature of the security for the bonds.

The MSRB also notes that many governmental issues, especially general obligation bonds, may not use an indenture, and the permitted investments guide explains how the statutory list and the bond contract work as two layers.

How the two layers combine for a given Kentucky issue is a determination for its bond counsel.

What investments does KRS 66.480 permit?

The 2022 enacted list runs from U.S. Treasury and agency obligations through certificates of deposit, bankers' acceptances, commercial paper, state and local securities, mutual funds and ETFs, with S&P 500 equities and high-quality corporate bonds available only when a professional manager is used.

The mutual fund entry carries the most conditions in the table: KRS 66.480(1)(j) requires an open-end diversified fund registered under the Investment Company Act of 1940, whose management company has been in operation for at least five years and whose securities are all eligible under the section.

The statute phrases the manager test directly: "The management company of the investment company shall have been in operation for at least five (5) years."

Within the 2022 enacted list, equities and corporate bonds enter only through the professional-manager provision, and both sit under the concentration caps described below.

What are the rules for GICs, investment agreements and repurchase agreements?

The provisions quoted on this page name repurchase agreements but contain no guaranteed investment contract or investment agreement language, and the section has no bond-proceeds carve-out.

A repo on U.S. Treasury or agency obligations is therefore described in the statute itself, with custody as a stated condition: delivery taken directly or through an authorized custodian.

A repo whose withdrawal schedule follows a construction draw plan is the structure the full-flex repurchase agreement guide covers.

The guaranteed investment contract guide describes what a GIC is and how one is bid, while whether a GIC can be used for a particular Kentucky issue is a question for bond counsel under that issue's own authorities and documents.

A different structure lends the proceeds onward: in a conduit financing, the proceeds fund a loan to the conduit borrower.

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.

Publication 5005 states the general rule that conduit issuers "generally must ensure that the yield on the conduit loan does not exceed the yield on the bonds by more than the permitted spread to prevent the bonds from becoming arbitrage bonds."

The yield restriction guide covers how those spread limits work.

What rating, collateral and concentration conditions apply?

In the 2022 enacted text, KRS 66.480(2) carries percentage caps, a single-issuer limit and a bar on margin and leverage, with the repo custody rule in (1)(a).

• Subsection (2)(a) caps each of uncollateralized certificates of deposit, bankers' acceptances, commercial paper, equities and corporate bonds at 20% of the total invested.
• Subsection (2)(b) caps mutual funds, equities and corporate bonds at 40% combined, unless the fund holds only government, state and local obligations.
• Subsection (2)(c) bars margin or leverage.
• Subsection (2)(d) imposes a 5% single-issuer limit, with exceptions the statute states.

The custody condition is a repo condition the section states, and it is a delivery rule rather than a collateral percentage: obligations subject to a repurchase agreement must be delivered either directly or through an authorized custodian.

For pooled vehicles, the eligibility conditions in (1)(j), 1940 Act registration, a management company with at least five years of operation and all-eligible holdings, are conditions the statute states.

This page does not summarize the quality or rating terms of each paragraph of KRS 66.480(1), so confirming them against the enacted text is part of bond counsel's review; rating triggers or collateral cushions in a bond contract are separate contract terms, which the GIC credit protection guide explains.

Is there a Kentucky state investment pool?

The 2022 enacted text authorizes the state local debt officer to create a local government investment pool, which the act's text references in subsection (9).

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 public funds of participating governmental units," whose participants buy shares or units, often in a trust.

This guide describes no specific Kentucky pool; the local government investment pool guide explains how pools are structured and what participants compare before using one.

What procurement rules apply to a Kentucky bond-proceeds investment?

Two layers govern the purchase: the local unit's written investment policy under KRS 66.480(3), and the federal bidding rules in Treasury Regulation §1.148-5(d)(6)(iii), a presumption-based safe harbor that treats the price as fair market value only when all of its conditions are met.

On the federal side, Treasury Regulation §1.148-5(d)(6)(iii)(A) makes a solicitation bona fide only if written bid specifications are timely sent to potential providers, the specifications include all material terms, and only commercially reasonable terms are used, with electronic form permitted.

A term is material, the regulation says, if it "may directly or indirectly affect the yield or the cost of the investment."

For yield-restricted defeasance escrows, the hold-firm period must be no longer than reasonably required.

The bid specifications guide itemizes the terms that matter, and the fair market value safe harbor guide carries the full set of conditions.

On the state side, KRS 66.480(3) required every local government investing under the section to adopt a written investment policy by January 1, 1995, covering authorized officers, permitted investments, written-agreement standards, diversification, qualification standards for investment agents and periodic reporting.

Subsection (6) allows delegation to the treasurer or finance officer.

The investment policy guide lists what a bond-proceeds policy adds to a general policy.

When a refunding escrow is funded with open-market securities, GFOA describes an escrow bidding agent that solicits bids for the securities used in the escrow, alongside the escrow agent that holds the investments and the verification agent that confirms the escrow is sufficient and, where yield is limited, that escrow yield does not exceed the permitted yield.

GFOA notes that a municipal advisor, if engaged, may be able to act as the escrow bidding agent, and the refunding escrow guide explains the structure.

Which representative mGIC transactions are in Kentucky?

Two of the representative transactions mGIC names are in Kentucky: the DHL air cargo hub at CVG and Cardinal Stadium in Louisville.

They appear here by name only; the transaction pages are DHL air cargo hub, CVG and Cardinal Stadium, Louisville.

mGIC is Municipal Government Investors Corp., an independent, SEC-registered municipal advisor that sells no investment product and acts as no principal in the investments it evaluates, and it provides reinvestment advisory, Bidding Agent, and documentation and settlement services.

mGIC helps issuers evaluate and competitively bid guaranteed investment contracts, full-flex repurchase agreements and structured portfolios of U.S. Treasury securities, with priorities in order of safety first, then liquidity, then yield.

Its record is 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, 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 disclosed.

For a no-obligation review of how a Kentucky fund's investments line up with KRS 66.480, the bond documents and the draw schedule, mGIC offers Kentucky reinvestment help.

Final determinations about what the statute and an issue's 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.