Investing Bond Proceeds in New York: Permitted Investments and Rules

New York issuers invest bond proceeds under two statutes that work together: Local Finance Law §165.00 puts the proceeds of bonds and notes into a special account, and General Municipal Law §11 lists what those proceeds may be temporarily invested in.

GML §11 attaches a term condition to purchases with those proceeds: obligations bought with the proceeds of bonds or notes must be payable or redeemable in any event, at the option of the owner, within two years of the date of purchase.

This page walks through the New York statutes in detail as one entry in mGIC's guide to permitted investments by state.

Which statutes govern bond proceeds investments in New York?

Two statutes control: General Municipal Law §11 governs the temporary investment of local government moneys, and Local Finance Law §165.00 routes the proceeds of bonds and notes into a special account and points their investment to GML §11.

GML §11 lets a local government's governing board, or a delegated chief fiscal officer, temporarily invest moneys not required for immediate expenditure, and the section excludes moneys whose investment is otherwise provided for by law.

Local Finance Law §165.00(a) requires proceeds of bonds, bond anticipation notes, capital notes and urban renewal notes to go into a special account secured under GML §10, bars commingling them with other funds, and allows spending only for the proceeds' purpose.

Under §165.00(b), the proceeds may be invested as GML §11 provides, by the finance board or a delegated chief fiscal officer, and the separate identity of each issue's proceeds must be kept at all times, whether held as cash or investments.

Section §165.00(a)(2) lets a finance board resolution place several issues in one special account, provided each issue is accounted for separately.

GML §11(6) states a commingling rule for the moneys the section covers: except as a contract with bond or noteholders may otherwise provide, moneys of a political subdivision authorized to be invested under the section may be commingled for investment purposes, provided the separate identity of each source is kept.

For bond and note proceeds, Local Finance Law §165.00 adds its own terms (a special account, no commingling with other funds, and a separate identity for each issue at all times, whether cash or investments), and how those terms interact with GML §11(6) for a given issue is a question for bond counsel.

Earnings have their own destination: Local Finance Law §165.00(b) sends interest and capital gains on invested proceeds to principal and interest or to the authorized purpose, and requires them to be paid to the U.S. Treasury Department or another U.S. agency to the extent necessary to maintain the exemption from federal income taxation of interest on the obligations.

Where BAN proceeds were invested and the BANs were retired from bond proceeds, §165.00(b) allows the earnings to be applied only to principal and interest on the bonds.

The state statute recognizes the federal requirement but does not compute it: the amount and timing of arbitrage rebate follow the Internal Revenue Code and the Treasury regulations, which bond counsel and tax counsel apply to each issue.

What investments does New York permit for bond proceeds?

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." In New York, Local Finance Law §165.00 points bond and note proceeds to the list GML §11 provides.

GML §11(2)(a) permits special time deposits and certificates of deposit in in-state banks, along with certain reciprocal-deposit arrangements, each secured under GML §10.

GML §11(3)(a)(1) permits U.S. obligations, obligations guaranteed by U.S. agencies where the United States guarantees principal and interest, New York State obligations and, with the comptroller's approval, obligations of other New York municipalities issued under Local Finance Law §24.00 or §25.00.

Under §11(3)(a)(2) in the version of the section effective until July 1, 2029, a second list applies: a city of one million or more and any county may also buy no-load Rule 2a-7 government money market funds limited to U.S. and U.S.-guaranteed agency obligations, including contracts for the sale and repurchase of those obligations, plus general obligations of other states, agency obligations, commercial paper carrying a top rating and maturing within 270 days, and bankers' acceptances, with a $250 million cap on any single name.

The §11(3) text effective July 1, 2029 appears to drop those city and county extras, so the version in force on the investment date matters.

How do investment agreements and repurchase agreements fit New York bond proceeds?

For repurchase agreements the statute is explicit: GML §11 deems obligations purchased under a repurchase agreement payable or redeemable on the date the purchased obligations are scheduled to be repurchased by the seller.

That deeming rule is how repo terms line up with the two-year limit, which sits in §11(3)(b)(1) in the version of the section effective until July 1, 2029 and in §11(3)(a) in the version effective on and after that date, with the same language in each version: obligations purchased with the proceeds of bonds or notes must be payable or redeemable in any event, at the option of the owner, within two years of the date of purchase.

Guaranteed investment contracts are a different case: GML §11 does not name them, and Local Finance Law §165.00 points to GML §11 rather than to the indenture, so whether an investment agreement fits a particular New York issue is a legal determination for bond counsel, reading the issuer's own enabling authority and bond documents.

mGIC's guides cover the guaranteed investment contract product and the full-flex repurchase agreement structure in detail.

What collateral, custody and rating conditions apply in New York?

The GML §11 subdivisions this page cites work through security and custody rather than provider ratings: deposits must be secured under GML §10, and securities must be held by a bank or trust company under a written custodial agreement unless they are registered in the local government's own name.

Where quality does enter the list, it enters through the instrument: the United States guarantee of principal and interest on agency obligations, the top rating attached to the commercial paper option, and the no-load, government-only limits on the money market fund option for cities of one million or more and counties.

The subdivisions this page cites attach no rating test to an investment provider; their conditions concern the security given for deposits and who holds the securities.

Repo margin and remargining mechanics are covered in mGIC's guide to repo collateral.

Is there a state investment pool for New York bond proceeds?

Neither statute this page covers names a state pool in the subdivisions it cites: Local Finance Law §165.00 sends bond and note proceeds to GML §11, and the GML §11 items cited above are deposits and securities, not a state-run fund.

State pools exist as a vehicle elsewhere: the MSRB glossary defines a local government investment pool as a pool established by a state or local governmental entity to invest the public funds of participating governmental units, in which participants buy shares or units, often in a trust.

Whether a pool may take a particular issuer's bond proceeds turns on the pool's documents and the issuer's governing law, which bond counsel reads for each issue.

mGIC's guide to local government investment pools covers how pools take deposits and handle withdrawals, and its state pool versus GIC comparison covers how issuers weigh the two.

How are bond-proceeds investments bid in New York?

The statutes say what may be bought; neither sets a bidding process.

Treasury Regulation §1.148-5(d)(6)(i) rebuttably presumes that an investment not traded on an established securities market is not bought or sold at fair market value, which is why guaranteed investment contracts and escrow portfolios rely on the bidding safe harbor.

Under §1.148-5(d)(6)(iii), 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 on the purchase date if all of the safe harbor's requirements are met.

One requirement is a bona fide solicitation: written bid specifications timely sent to potential providers, covering all material terms (any term that may directly or indirectly affect the yield or the cost of the investment) and only commercially reasonable terms; electronic form is permitted.

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

GFOA's refunding guidance names three roles around a refunding escrow: 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, a role GFOA notes a municipal advisor may be able to fill if one is engaged.

mGIC provides Bidding Agent services for bond-proceeds investments as an independent, SEC-registered municipal advisor that does not sell a proprietary investment product or act as principal in the reinvestment alternatives it evaluates: it prepares bid specifications, solicits qualified investment providers, manages questions, receives bids and compares rate and non-rate terms.

At the end of a transaction it coordinates documentation and delivers Bidding Agent and provider certifications to bond counsel, and its fee is paid by the winning provider rather than the issuer.

mGIC's guides to bid specifications and Bidding Agent work carry the mechanics.

Which representative transactions sit in New York?

Three of mGIC's named representative transactions are New York projects: the JFK International Air Cargo Center, Delta Cargo at JFK and aircraft FBOs at Westchester County Airport.

mGIC's record totals 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 since 2002.

For a New York issue, the firm offers New York reinvestment help through a free, no-obligation review covering a fund's objectives, permitted investments, projected draw schedule, credit parameters, market conditions and timing.

The final word on what a specific New York issue may hold belongs to bond counsel and tax counsel, reading these statutes against the issuer's own bond documents.

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.