Investing Bond Proceeds in Pennsylvania: Permitted Investments and Rules

In Pennsylvania, the governing rule for a bond fund depends on the statute behind the issue: for funds and accounts established by ordinance under the Local Government Unit Debt Act, 53 Pa.C.S. §8224 directs money that is not needed promptly into deposits at interest and, as far as practicable and reasonable, into securities in which the Commonwealth itself may invest.

This page is the Pennsylvania chapter of mGIC's guide to permitted investments by state.

What statute governs Pennsylvania bond-fund investments?

The Local Government Unit Debt Act is the governing statute for funds established by ordinance under it, and 53 Pa.C.S. §8224 is its investment provision.

Section 8224(b) says money in sinking funds and other bond funds that is not needed promptly, and is not deposited at interest, shall be invested, to the extent practicable and reasonable, in any securities in which the Commonwealth may, at the time of investment, invest moneys of the Commonwealth not required for prompt expenditure, subject to any stricter requirements in any contract with the holders of bonds.

The provision points to the Commonwealth's own investment authority rather than reproducing it, so this page does not list the Commonwealth-eligible securities either.

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 in Pennsylvania the bond contract is part of the rule rather than a free-standing grant of authority.

Where an issue has an indenture, the MSRB describes it as a contract between the issuer and a trustee for the bondholders' benefit, and notes that many governmental issues, especially general obligation bonds, may not use one.

The direction of the deference matters: stricter bond contract terms tighten what §8224 allows, and a more permissive bond contract does not widen what §8224(b) allows.

What investments does Pennsylvania law name for bond funds?

Section 8224 names deposits directly and reaches other investments only through the securities the Commonwealth itself may invest in, not through a list of its own.

Under §8224(a), money not needed promptly may be deposited at interest in bank time accounts, certificates of deposit, savings banks or savings and loan associations, while money required for prompt expenditure shall be held in demand deposits.

The section's text still names the Federal Savings and Loan Insurance Corporation, a defunct agency, quoted here as written.

Other subsections of §8224 handle administration: income received from any deposit or investment stays part of the fund or account invested, and accounts for one or more bond series with the same depository may be combined for investment, each receiving a pro rata share.

For boroughs, 8 Pa.C.S. §1316 requires council to invest borough funds consistent with sound business practice, drawn from the closed list in §1316(c) that runs from Treasury bills and short-term U.S. and agency obligations through insured or collateralized deposits, political-subdivision obligations, limited 1940 Act funds and CDs, as the table below sets out in full.

The list's newest item, added by Act 2 of 2024 effective 60 days after March 28, 2024, reaches investments under the 1973 commercial paper act (P.L.217, No.53).

The borough list's certificate-of-deposit line, §1316(c)(6), caps CDs at 20 percent of a bank's capital and surplus, or 20 percent of a savings institution's assets minus liabilities.

Section 1316(d) adds that council may pool collateral, combine funds with separate accounting, and join other subdivisions in a single investment.

Scope is the caveat: §1316 covers boroughs only, and the codes for counties, townships, cities and school districts were not part of the research behind this page, while for Debt Act bond funds §8224 is the specific provision.

Are guaranteed investment contracts and repurchase agreements permitted in Pennsylvania?

Neither §8224 nor §1316 names guaranteed investment contracts or repurchase agreements, and the statutes behind this page do not authorize or bar either by name.

Whether a particular agreement may be purchased with a particular fund's money is a legal conclusion for bond counsel, reading §8224, the bond contract and the federal tax rules together.

Federal law adds its own layer on top of state authority: where proceeds are subject to the arbitrage rules' yield limits, IRS Publication 5005 notes that conduit issuer fees can raise the effective yield on a conduit loan, which is a purpose investment, so a conduit issuer generally must ensure that the yield on the conduit loan does not exceed the yield on the bonds by more than the permitted spread.

mGIC's pages on guaranteed investment contracts, full-flex repurchase agreements and yield restriction describe how those instruments work in general.

What collateral and rating requirements apply to Pennsylvania bond funds?

For Debt Act deposits, §8224(a) ties protection to public-deposit collateral: deposits above FDIC insurance must be secured as public deposits even when title is held by a fiscal agent or trustee for the bondholders.

Money held by the fiscal agent, the trustee or the sinking fund depository itself may instead be secured as trust funds.

On ratings, §8224(b) defers to any stricter requirements in the contract with the holders of bonds, so a particular issue's bond contract may add rating tests, and the Commonwealth investment authority that §8224(b) points to was not part of the research behind this page.

The borough code's list names insured or collateralized deposits rather than rating grades.

Can Pennsylvania bond proceeds go into a state investment pool?

The statutes cited here name no pool, and no verified provision names PLGIT, PSDLAF or any other Pennsylvania pool for Debt Act bond funds.

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.

PSDLAF was created in 1982 for Pennsylvania schools and municipal entities, provides programs under the Pennsylvania Intergovernmental Cooperation Act; because pool ratings change, the fund's own publications are where a present-day rating check belongs.

Its site markets a bond proceeds investment program with third-party arbitrage rebate monitoring at no cost, though the site does not describe the monitoring's scope or provider.

PLGIT was created in 1981 for Pennsylvania local governments, school districts and authorities, is member-owned, and has U.S. Bancorp Asset Management, through its PFM Asset Management division, as investment adviser and administrator.

The nearest statutory hook is §1316(d), which lets a borough join other subdivisions in a single investment, but neither statute names a pool, so the fit for a particular bond fund is again a question for bond counsel.

mGIC's guides to PLGIT and PSDLAF carry each pool's terms in detail, and its state pool versus competitive bid comparison takes up the choice from there.

How are bond-proceeds investments bid in Pennsylvania?

The bidding conditions cited here come from the federal arbitrage regulations rather than from §8224, and they are conditions of a federal safe harbor rather than a general bidding mandate.

One condition is a bona fide solicitation, which under Treasury Regulation §1.148-5(d)(6)(iii)(A) requires written bid specifications sent to potential providers in time to prepare bids, containing all material terms, meaning any term that may directly or indirectly affect the yield or the cost of the investment, and only commercially reasonable terms, with electronic form permitted.

For yield-restricted defeasance escrows, a bona fide solicitation under the same provision also requires that the hold-firm period be no longer than reasonably required.

Those conditions feed the federal fair-market-value safe harbor, whose remaining requirements mGIC's bid specifications page takes up.

Refundings add their own roles: GFOA describes an escrow agent, typically a commercial bank, that holds the escrow investments, a verification agent, typically a CPA firm, that 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 that solicits bids for open-market escrow securities, a role GFOA notes a municipal advisor may be able to fill if one is engaged.

Money already invested has a Pennsylvania-side selling rule: §8224(g) lets the sinking fund depository sell sinking fund investments through any broker or dealer when cash is needed, and §8224(c) limits withdrawal of sinking fund money and investments to that depository.

mGIC's Bidding Agent page describes that role in full, from bid specifications through comparing rate and non-rate terms.

mGIC's representative transactions in Pennsylvania

mGIC's site names no representative transaction in Pennsylvania, so this page lists none.

What the firm's record does support is breadth: 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 since the firm was founded in 2002.

mGIC is an independent, SEC-registered municipal advisor that sells no investment product and acts as no principal in the investments it evaluates, and its Bidding Agent fee is paid by the winning provider rather than the issuer.

If you are weighing what to do with a Pennsylvania construction fund, sinking fund or escrow, mGIC offers Pennsylvania reinvestment help through a free, no-obligation reinvestment review or conversation.

Whether a particular investment is permitted for a particular Pennsylvania issue is a legal conclusion for its bond counsel, and the tax conclusions belong to its 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.