Investing Bond Proceeds in Maryland: Permitted Investments and Rules

Maryland issuers invest unexpended bond proceeds under Local Government Article §17-101 of the Maryland Code, which authorizes investing in obligations or repurchase agreements in accordance with State Finance and Procurement Article §6-222, depositing the money in banks, or depositing it in the state's Local Government Investment Pool.

This page is Maryland's entry in the mGIC guide to permitted investments by state, and it carries the governing statute, the permitted channels, the state pool option, and the procurement and policy rules.

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

What statute governs Maryland bond-proceeds investments?

Local Government §17-101 is the governing statute: it covers counties, municipalities, school boards and other political subdivisions, and it authorizes them to "invest and reinvest in obligations or repurchase agreements all unexpended money in any fund or account of which the governmental entity or its authorized agent has custody or control" (§17-101(c)).

The authorization runs "in accordance with" State Finance and Procurement §6-222, the State investment statute, rather than against an instrument list written into the local government section itself.

The current §6-222 no longer lists instruments: it directs the State Treasurer to invest according to asset classes and thresholds set in regulations establishing a State investment policy (§6-222(a)(2), (f)).

The earnings rule matters directly to bond funds: under §17-101(g)(2), if money invested under the section comes from a fund containing the proceeds of the issuance of bonds or other obligations, the issuer may use the interest or income to repay principal or interest on the bonds, an exception to the section's general rule that income is credited to the source fund.

How a charter, a bond document or another statute modifies these sections for a particular entity is a question for bond counsel.

What is on Maryland's permitted investment list?

The statute opens three channels rather than listing instruments: obligations or repurchase agreements bought in accordance with SF&P §6-222, deposits in banks, and deposits in the Local Government Investment Pool (Local Government §17-101(c)).

The instrument detail sits one step below the statute, because the current SF&P §6-222 speaks in asset classes and thresholds set in regulations establishing a State investment policy, and this page does not restate an asset list the statute itself no longer carries.

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 state law and the bond documents are separate layers over the same fund.

Where an issue carries that contract side in an indenture, the MSRB glossary defines an indenture as a contract between the issuer and a trustee for the bondholders' benefit that sets out the parties' rights, duties and remedies and the exact nature of the security for the bonds, and the MSRB notes that many governmental issues, especially general obligation bonds, may not use an indenture at all.

What an indenture adds to the investment terms is its own question.

What rules apply to investment agreements, GICs and repos?

Repurchase agreements are named in the statute's authorization, guaranteed investment contracts are not named in Local Government §17-101(c), and whether an investment agreement fits within a particular entity's authority, through the statute or the regulations under SF&P §6-222, is a question for bond counsel.

For a specific issue, what may be bought and on what terms comes from the bond contract's permitted-investment provisions described above.

Federal tax law adds the yield layer: 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 a 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.

The arbitrage side of the question starts at the arbitrage guides and at yield restriction, which carry the federal limits this page does not take up.

What rating and collateral requirements apply?

No minimum provider rating or collateral percentage appears in the statute text this page quotes: Local Government §17-101(c) authorizes obligations, repurchase agreements, bank deposits and the Local Government Investment Pool without naming any, and the current SF&P §6-222 leaves asset classes and thresholds to regulations establishing a State investment policy, which this page does not restate.

The issue's bond contract supplies the permitted-investment list described above, and the Treasurer's guidelines, adopted by regulation under §17-204, specify investment types, and this page does not restate any rating or collateral terms those documents may contain.

When a GIC or repo is bid, credit terms go through the federal bidding rule's materiality test: the specifications must include all material terms, and a term is material if it may directly or indirectly affect the yield or the cost of the investment (Treasury Regulation §1.148-5(d)(6)(iii)(A)).

Where a provider's later downgrade matters, that is the territory of the agreement's own credit terms, and GIC credit protection is covered separately.

Can Maryland bond proceeds go into the Local Government Investment Pool?

Yes for covered entities: Local Government §17-101(c)(2)(ii) lists deposits in "the Local Government Investment Pool established under § 17–302 of this title" among the places unexpended money may go.

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.

This page does not restate the pool's manager, ratings or balances, which the pool's own publications carry.

The general mechanics of local government investment pools are covered separately, and the choice against a bid investment is compared in the state pool or GIC guide.

How are bond-proceeds investments procured in Maryland?

The state-side rule is a filed policy: a covered entity must adopt a local investment policy by resolution, consistent with the State Treasurer's guidelines, and Local Government §17-203 puts the filing directly, "Promptly after the adoption of a local investment policy, the governmental entity shall mail a certified copy to the State Treasurer."

The policy requirement reaches counties, municipalities, most community colleges, WSSC and public corporations authorized to issue debt, along with State debt-issuing authorities (§17-203).

The Treasurer's guidelines are adopted by regulation, they specify investment types, and they "prohibit the borrowing of money for the express purpose of investment" (§17-204), and the Treasurer may require a revised policy (§17-205(c)).

The competitive-purchasing clause sits on the State side: SF&P §6-222(d)(5) requires "competitive purchasing practices except when impractical" of the State Treasurer, and the clause is written for the Treasurer rather than for local entities.

When the investment is a GIC or repo bid to providers, federal tax law supplies the procurement test: a bona fide solicitation requires written bid specifications sent to potential providers on a timely basis, specifications that include all material terms and only commercially reasonable terms (Treasury Regulation §1.148-5(d)(6)(iii)(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, and running the solicitation is defined work a Bidding Agent performs: writing the specifications, soliciting qualified providers, managing questions and comparing bids on rate and non-rate terms.

A refunding escrow carries its own roles, which GFOA describes this way: 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 what a verification agent checks is covered in escrow verification.

What representative transactions does mGIC list in Maryland?

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

What its record supports is broader: mGIC, founded in 2002 and based in Scottsdale, Arizona, 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 Maryland 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.

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

Which investments an entity's statute, bond documents and arbitrage limits permit 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.