THE SHORT ANSWER
Massachusetts treasurers may invest bond proceeds, before they are applied to the authorized purposes, in the instruments listed in MGL c.44 §55: term deposits and certificates of deposit up to three years, deposits at listed banks, U.S. and agency obligations maturing within one year of purchase, 90-day repurchase agreements, registered money market funds with the highest possible rating from at least one NRSRO, and units of the combined investment fund under c.29 §38A.
Massachusetts treasurers of cities, towns, districts and regional school districts may invest bond proceeds, before they are applied to the authorized purposes, in the instruments listed in Massachusetts General Laws Chapter 44, Section 55: term deposits and certificates of deposit, deposits at listed banks, U.S. and agency obligations maturing within one year of purchase, repurchase agreements, registered money market funds, and units of the combined investment fund.
This page carries that list with each clause's conditions, the agreement rules, the rating screens, the state pool option and the bidding rules that reach a Massachusetts solicitation.
The question is answered state by state, and the states cluster entry carries permitted investments by state for the other states.
Which statutes govern bond proceeds investments in Massachusetts?
Massachusetts General Laws Chapter 44, Section 55 lists where a city, town, district or regional school district treasurer may invest funds, and it reaches bond proceeds directly, covering "all or any part of the proceeds from the issue of bonds or notes, prior to their application to the payment of liabilities incurred for the purposes for which the bonds or notes were authorized."
Chapter 44, Section 20 governs the other half of the question, what proceeds may be spent on: the statute says proceeds of a sale of bonds or notes "shall be used only for the purposes specified in the authorization of the loan," with issuance costs also a permitted use.
The statute is one layer, because 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," so the bond contract fixes the list for a particular issue.
Where an issue uses an indenture, which the MSRB glossary describes as a contract between the issuer and a trustee for the bondholders' benefit, the investment terms may sit there, and the MSRB notes that many governmental issues, especially general obligation bonds, may not use an indenture.
What an indenture typically says about investing proceeds is covered at bond indenture.
Section 20 also covers the end of the project: a balance left after the authorized purposes are met may be appropriated for another purpose with an equal or longer borrowing term, a balance of up to $50,000 may be used to pay debt with the chief executive officer's approval, an abandoned project takes a two-thirds vote, and net premium applied to project costs reduces the authorized borrowing.
Those are state use-of-proceeds rules, and the federal tax rules on unspent proceeds are separate; the general question is answered at unspent proceeds.
Federal arbitrage rules under Section 148 of the Internal Revenue Code sit on top of Chapter 44, and how that federal layer works is covered at yield restriction.
What is on the Massachusetts permitted investment list?
Section 55 lists six categories, and each clause carries its own terms.
| §55 clause | Instrument | Terms the clause attaches |
|---|---|---|
| (1) | Term deposits and certificates of deposit | Maturities of up to 3 years |
| (2) | Deposits at listed institutions | Trust companies, national banks, savings, cooperative and other banks the statute lists |
| (3) | Obligations of the United States, or guaranteed by a U.S. agency | Maturities of 1 year or less |
| (4) | Repurchase agreements | U.S. government or agency securities repurchased at not less than the original purchase price on a fixed date not to exceed 90 days |
| (5) | Money market funds | SEC-registered 2a-7 funds, rated the highest possible by at least one NRSRO, bought without commission |
| (6) | Units in the combined investment fund under c.29 §38A | The state pool option |
The maturity line in clause (3) runs from purchase, so an obligation that matures two years after purchase is outside the clause even if it is a Treasury.
One eligibility rule sits outside the instrument clauses: a treasurer may not deposit funds with a bank where they are an officer or employee, or where they were one within the past three years.
How these categories compare with the lists other states write is covered at permitted investments.
Does Massachusetts law cover investment agreements, GICs and repurchase agreements?
Section 55 does not name guaranteed investment contracts, and the one agreement-based instrument on its list is the repurchase agreement in clause (4).
Clause (4) lets a treasurer purchase U.S. government or agency securities "under an agreement with a trust company, national bank or banking company to repurchase at not less than the original purchase price of said securities on a fixed date, not to exceed 90 days."
A fixed date no more than 90 days out makes the statutory repo a short-dated instrument; how a full-flex repo is structured is covered on its own page, and whether one fits a particular Massachusetts issue is a determination for bond counsel.
Whether a guaranteed investment contract, described in detail at GIC, can be bought for a particular Massachusetts issue is a legal determination for bond counsel reading Section 55 and the bond contract together.
What rating and eligibility conditions does Massachusetts attach?
Massachusetts writes its screens into the clauses themselves rather than into one statewide rating table, so the conditions change with the instrument.
The money market fund clause carries the statute's only rating requirement, calling for SEC-registered 2a-7 funds rated the highest possible by at least one NRSRO and bought without commission, while the Treasury and agency clause screens maturity at one year or less and the term deposit clause screens it at three years.
The repurchase clause conditions the transaction instead: the counterparty must be a trust company, national bank or banking company, the repurchase price must be not less than the original purchase price, and the repurchase date must be no more than 90 days out.
Collateral posting, margin and shortfall mechanics for bond-proceeds repurchase agreements generally are covered at repo collateral, and registered government money market funds for bond proceeds generally at money market funds.
Can Massachusetts bond proceeds go into the state pool?
Clause (6) puts units in the combined investment fund created under Massachusetts General Laws Chapter 29, Section 38A on the Section 55 list, alongside the money market funds of clause (5).
That fund is commonly called the MMDT, a name that does not appear in the Section 55 text itself.
It is the kind of vehicle the MSRB glossary has in mind when it 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."
Pool rates change daily, so this page states no current MMDT rate, balance or rating; how pools take bond proceeds and what arbitrage recordkeeping the pool's documents may leave with the issuer is covered at local government investment pools.
The pool-versus-bid comparison is at state pool or GIC.
How are Massachusetts bond-proceeds investments bid and procured?
Section 55's instrument list names instruments and their terms, not bid procedures, and for the bidding step Treasury Regulation §1.148-5(d)(6)(iii)(A) sets what a bona fide solicitation requires.
A bona fide solicitation requires written bid specifications sent timely to potential providers, containing all material terms and only commercially reasonable terms, and the regulation permits electronic form.
A term is material, in the regulation's words, if it "may directly or indirectly affect the yield or the cost of the investment."
These requirements are part of a presumption-based safe harbor with several conditions, and whether an issue relies on the safe harbor is a determination for its tax counsel; the full conditions are at fair-market-value safe harbor and the specification mechanics at bid specifications.
For yield-restricted defeasance escrows, the regulation adds one more condition: the hold-firm period on the bid must be no longer than reasonably required.
Refunding escrows bring three named roles, as GFOA describes them: 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 the escrow yield does not exceed the permitted yield; and an escrow bidding agent solicits bids for open-market escrow securities.
GFOA notes that a municipal advisor, if the issuer engages one, may be able to act as the escrow bidding agent; what a verification agent checks is at escrow verification.
For the investment itself, mGIC's Bidding Agent work covers bid specifications, soliciting qualified providers, managing questions, and receiving bids and comparing rate and non-rate terms.
What representative transactions has mGIC done in Massachusetts?
The representative transactions mGIC names publicly are deals in other states, and none of the names on its transaction pages is a Massachusetts issue.
Across its record, mGIC 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 named representative deals include the Pocahontas Parkway in Virginia, the Grand River Dam Authority in Oklahoma and Cardinal Stadium in Louisville.
mGIC is an independent, SEC-registered municipal advisor: it does not sell a proprietary investment product and does not act as principal in the investments it evaluates.
Its fee for Bidding Agent work is paid by the winning provider rather than the issuer, is equal to or below the safe-harbor maximum in the Treasury arbitrage regulations, and is disclosed.
For a Massachusetts construction fund, reserve fund or refunding escrow, mGIC offers Massachusetts reinvestment help through a free, no-obligation review of the fund's permitted investments, draw schedule and bid terms.
Final legal and tax determinations for a Massachusetts issue, including which instruments its bond contract permits, belong to its bond counsel and tax counsel.
Frequently asked questions
Does the Massachusetts statute name guaranteed investment contracts?
The list in MGL c.44 §55 does not name them; its one agreement-based entry is the clause (4) repurchase agreement, which must repurchase U.S. government or agency securities at not less than the original purchase price on a fixed date no more than 90 days out. Whether a GIC fits a particular issue is a bond-contract and bond counsel question.
Can a Massachusetts treasurer deposit bond funds at a bank where they serve as an officer or employee?
No. Section 55 bars a treasurer from depositing with a bank where they are an officer or employee, or where they were one within the past three years.
How long can Massachusetts bond proceeds stay in Treasury obligations?
Clause (3) of §55 covers obligations of the United States, or guaranteed by a U.S. agency, that mature in one year or less, measured from purchase. Term deposits and certificates of deposit under clause (1) may run to three years.
What happens to bond premium under Massachusetts law?
Chapter 44, Section 20 addresses net premium: applying it to project costs reduces the authorized borrowing. The section also governs leftover balances, letting a balance be appropriated for another purpose with an equal or longer borrowing term and balances of up to $50,000 pay debt with the chief executive officer's approval.
Does the state pool entry mean Massachusetts issuers must use the MMDT?
No. Section 55 is written as authority a treasurer may use, and the instruments on its list sit alongside the bond contract's own requirements for the issue. Which option a fund uses is a decision for the issuer with its bond counsel.
Sources
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.
