Investing Bond Proceeds in South Carolina: Permitted Investments and Rules

South Carolina municipalities, counties, school districts, other political subdivisions and county treasurers invest bond proceeds under Section 6-5-10 of the South Carolina Code, which lists instruments and attaches rating, collateral and maturity conditions to several.

This page is South Carolina's entry in the mGIC guide to permitted investments by state, and it takes the statute layer by layer.

Where the question is what a particular issue's own bond contract allows, the general treatment is on the permitted investments page, and the legal conclusion belongs to the issuer's bond counsel.

Which statute governs bond-proceeds investments in South Carolina?

Section 6-5-10 of the South Carolina Code is the governing statute, and its coverage runs to municipalities, counties, school districts, other political subdivisions and county treasurers.

The governing body can delegate the work: Section 6-5-20 lets it delegate that authority to the treasurer or other financial officer or to any fiscal agent or corporate trustee charged with custody of the funds.

Section 6-5-10(d) adds one reading rule for defeased obligations: a defeased obligation is treated as an obligation of the issuer of the escrowed securities.

The statute is one of two layers over the same fund: 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."

An indenture is, in the MSRB's definition, a contract between an issuer and a trustee for the bondholders' benefit, and many governmental issues, especially general obligation bonds, may not use one.

Which layer controls a particular fund is a legal determination for bond counsel.

What is on South Carolina's permitted investment list?

The list in Section 6-5-10(a) runs from federal obligations to repurchase agreements, with a condition where the statute puts one.

The money market fund entry is written for bond issues: subsection (a)(7) covers no-load government money market funds where the investment is made by a bank, trust company, savings and loan association or other financial institution acting as trustee or agent for a bond or other debt issue.

The same subsection requires a portfolio limited to the instruments in (a)(1), (2), (3) and (6), a constant $1 net asset value objective, and amortized-cost valuation.

The money market fund guide covers the product side.

Where does federal tax law sit?

State permission is one layer and the federal arbitrage rules are another: they limit what proceeds may earn on top of the statute's list, starting with yield restriction.

Conduit issuers carry a specific version of the point: Section 148 generally limits purpose-investment yield to the bond yield plus a spread, and 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, so conduit issuers generally must keep the loan yield within the permitted spread.

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

Section 6-5-10 names guaranteed investment contracts once: subsection (a)(8), which addresses political subdivisions investing Medicaid appropriations and hospital-generated funds in principal-protected investments in the form of notes, bonds, guaranteed investment contracts, debentures or other contracts.

The provision carries its own conditions: terms may run up to 12 years, the issuer must be rated in the top three categories by two NRSROs, and no more than 40 percent of those funds may be invested this way.

That subsection is the only express GIC reference in the section, and its stated scope is Medicaid appropriations and hospital-generated funds; whether a particular issue's bond documents allow such a contract for construction funds, reserve funds or other proceeds is a question for bond counsel.

Repurchase agreements sit on the general list with a collateral condition, and the text summarized here specifies the collateral requirement and nothing further about repo terms.

Product mechanics are for the guaranteed investment contract and full-flex repurchase agreement guides.

What rating and collateral requirements attach to the list?

Two categories carry a rating test: listed government-sponsored enterprise obligations and South Carolina revenue obligations, each conditioned on the obligor holding a top-two unenhanced long-term rating from at least two nationally recognized statistical rating organizations (NRSROs).

Certificates of deposit must be insured or collateralized, and repurchase agreements must be collateralized by securities the section lists.

The (a)(8) contract provision carries its own rating test, a rating in the top three categories by two NRSROs, and the 40 percent cap bounds how much of those funds can sit in such contracts.

How collateral and margin are handled through the life of a bond-proceeds repo is the subject of the repo collateral guide, and GIC credit protection covers how investment agreements handle provider credit.

Can South Carolina issuers use the state investment pool?

Yes with governing-body consent: Section 6-5-10 treats participation units in the South Carolina Pooled Investment Fund as legal investments when the governing body consents, and Sections 6-6-10 through 6-6-30 carry the pool's statutory framework.

The MSRB glossary describes the pool model: 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.

The mechanics of a local government investment pool are covered separately, as is the state pool or bid a GIC comparison.

What procurement rules apply to a bid investment?

Federal tax law adds a fair market value safe harbor rather than a required procurement rule: under Treasury Regulation §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 of those requirements is a bona fide solicitation: written bid specifications sent to potential providers on a timely basis, specifications that include all material terms, and only commercially reasonable terms (§1.148-5(d)(6)(iii)(A)(1), (2), (4)).

The regulation defines the stakes of a term: "A term is material if it may directly or indirectly affect the yield or the cost of the investment."

Electronic specifications are permitted, and for yield-restricted defeasance escrows the hold-firm period must be no longer than reasonably required, a constraint on a refunding escrow.

The bid specifications and fair market value safe harbor guides take those requirements apart.

Refunding escrows carry 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 securities used in the escrow.

GFOA notes that a municipal advisor, if engaged, may be able to act as the escrow bidding agent, and the escrow verification guide covers what the verification agent checks.

Running the solicitation is defined work: a Bidding Agent writes the bid specifications, solicits qualified providers, manages questions and compares bids on rate and non-rate terms.

Which representative transactions does mGIC list in South Carolina?

None of the representative transactions mGIC names is identified as a South Carolina transaction.

What the record supports is broader: mGIC, founded in 2002, 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 list identifies Pocahontas Parkway as a Virginia transaction and the Grand River Dam Authority as an Oklahoma transaction, and it also names the Birmingham Water Works and the Prairie State Energy Campus, with the individual transactions on the representative transactions page.

For a South Carolina 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 it is disclosed.

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

Which investments a particular issue may hold, and how the arbitrage rules treat its proceeds, 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.