Investing Bond Proceeds in Texas: Permitted Investments and Rules

Texas local governments may invest bond proceeds and pledged revenue only in what Chapter 2256 of the Texas Government Code, the Public Funds Investment Act, permits, on the conditions that chapter attaches to each instrument.

Texas is one jurisdiction among many, and the permitted investments by state overview maps how other states route the same question.

What statute governs bond-proceeds investments in Texas?

Texas Government Code Chapter 2256, the Public Funds Investment Act, governs how state agencies, local governments and investment pools in Texas invest their funds, and its bond-proceeds provision is §2256.0208.

Under §2256.0208(a), a local government's investment officer may invest bond proceeds or pledged revenue only to the extent the chapter permits, in accordance with the statute governing the debt issue and the local government's investment policy for that issue.

The section defines pledged revenue as money pledged to pay or secure bonds or other debt of a local government, lease, installment-sale or similar obligations, and certificates of participation in either.

Unlike California, where Gov't Code §53601(m) lets money held by a trustee or fiscal agent and pledged to bonds follow the statute governing the bonds or, where no such statute exists, the indenture or resolution, §2256.0208 confines bond proceeds to what the Public Funds Investment Act itself permits, a contrast the permitted investments guide draws across the states.

Chapter 2256 is additive rather than exclusive: §2256.024(a) provides that the subchapter does not prohibit an investment other law specifically authorizes and does not authorize one other law specifically prohibits.

Coverage also varies by entity, because §2256.004 excludes some funds, among them public retirement systems, state funds the comptroller invests, and higher education institutions with endowments of at least $150 million, while §§2256.020 to 2256.0208 give some entities additional authority of their own.

What may Texas bond proceeds be invested in?

For bond proceeds, the chapter's instruments run from U.S. Treasury and agency obligations, money market funds and pools to repurchase agreements and guaranteed investment contracts, which §2256.015 expressly authorizes for bond proceeds.

Instruments beyond the table can enter through §§2256.020 to 2256.0208 for the entities those sections cover.

What rules apply to GICs and repurchase agreements on Texas bond proceeds?

Texas expressly authorizes a guaranteed investment contract for bond proceeds under §2256.015 and repurchase agreements under §2256.011, each with its own statutory conditions.

Under §2256.015(a), a guaranteed investment contract is an authorized investment for bond proceeds if it:

• has a defined termination date,
• is secured by obligations described in §2256.009(a)(1), excluding the mortgage-backed instruments listed in §2256.009(b), in an amount at least equal to the amount of bond proceeds invested under the contract, and
• is pledged to the entity and deposited with the entity or a third party the entity selects and approves.

Section 2256.015(d) brings §1371.059(c) into GIC execution, and the authorization covers bond proceeds, not general operating funds.

Term carries its own limit: §2256.015(b) bars bond proceeds from a GIC with a term of longer than five years from the date of issuance of the bonds, except proceeds that are reserves or funds maintained for debt service purposes.

Repurchase agreements carry parallel conditions under §2256.011(a): a defined termination date, security by cash and U.S. government or agency obligations or other obligations the section lists, a pledge held in the entity's name with the entity or an approved third party, and placement through a primary government securities dealer, as defined by the Federal Reserve, or a financial institution doing business in Texas.

Section 2256.011(b)(2) requires the underlying obligations to have a market value, when the funds are disbursed, of not less than the principal amount disbursed, and §2256.011(c) caps reverse repos at 90 days.

Subsection (a-1), added in 2023, lets repos clear through a covered clearing agency under 17 CFR 240.17Ad-22, and subsections (f) and (g) allow joint-account repos through an investment management firm; the full-flex repurchase agreement guide describes how the structure follows a draw schedule.

The statute sets no margin percentage above the market-value floor and requires no master repurchase agreement, so any larger cushion comes from the issuer's policy or the agreement itself, which the repo collateral guide discusses.

What rating and collateral requirements attach?

The chapter's credit protections are collateral for agreements and ratings for pools, and §2256.021 adds a rule for an investment that loses a required minimum rating.

For a GIC, the §2256.015(a) floor is collateral of U.S. or agency obligations at least equal to the bond proceeds invested, with the §2256.009(b) mortgage-backed instruments excluded.

For pools, §2256.019 requires a continuous rating no lower than AAA or AAA-m, or an equivalent, by at least one nationally recognized rating service.

When an investment the subchapter requires to carry a minimum rating loses it, §2256.021 provides that the investment is no longer authorized while it remains unrated and that the entity must take prudent measures to liquidate it.

A provider rating is not part of the GIC conditions: §2256.015 requires collateral rather than a provider rating, so any rating-based collateral step in a Texas GIC comes from the contract, which the GIC credit protection guide covers.

Can Texas bond proceeds go into a state investment pool?

The chapter routes pool deposits through two gates: §2256.016(a) requires a rule, order, ordinance or resolution authorizing the particular pool, and §2256.019 sets the continuous AAA or AAA-m rating floor.

Section 2256.016(b) also lists the disclosure items the entity must obtain about the pool, and the local government investment pool guide explains how pools work generally.

Three Texas pools have their own pages in this guide:

• TexPool is overseen by the Texas Comptroller of Public Accounts with Federated Hermes as asset manager; its October 2026 FAQ lists bond proceeds among deposited asset types and cites an S&P Global Ratings AAAm rating, and the documents reviewed describe no arbitrage rebate reporting service.
• TexSTAR, administered by HilltopSecurities and J.P. Morgan, lists Bond Proceeds Management and Arbitrage Rebate Services among its specialized services and, according to its website as accessed in Oct. 2026, reports an AAAm rating from S&P with no stated rating date.
• Texas CLASS describes bond-proceeds investment services only through its administrator's affiliate, PMA Securities, LLC, offered outside the trust itself.

A pool's listing of bond proceeds as an asset type says what participants deposit, not how the deposit fares under the federal arbitrage rules.

What procurement rules apply to a Texas bond-proceeds investment?

A GIC on Texas bond proceeds carries its own procurement conditions in §2256.015(c), separate from the entity-level rules the chapter imposes on policy, training, brokers and reporting.

Under §2256.015(c)(1) through (5), the purchase must satisfy all of the following:

• the bond order, ordinance or resolution must specifically authorize guaranteed investment contracts,
• the entity must receive bids from at least three separate providers with no material financial interest in the bonds from which proceeds were received,
• the entity must purchase the highest-yielding GIC that receives a qualifying bid,
• the price must reflect the reasonably expected drawdown schedule, and
• the provider must certify the administrative costs reasonably expected to be paid to third parties.

The drawdown condition ties the bid to the fund's spending plan, which the draw schedule guide explains.

These are state-law conditions, and the federal layer is separate: Treasury Regulation §1.148-5(d)(6)(iii) treats a GIC's price as fair market value if all of the fair market value safe harbor's requirements are met, including soliciting at least three reasonably competitive providers, so a purchase can pass one layer and still need work on the other.

When a solicitation draws fewer bids than a rule requires, the fewer than three bids guide covers the question.

Separately from the GIC conditions, the chapter imposes entity-level requirements:

• a written investment policy, plus a separate written strategy for each fund or group of funds, both reviewed not less than annually (§2256.005(a), (b), (d) and (e)),
• a policy that emphasizes safety of principal and liquidity, lists authorized investments and maximum maturities, and requires delivery-versus-payment settlement except for pool and mutual fund purchases (§2256.005(b), with delivery versus payment in §2256.005(b)(4)(E)),
• strategy priorities in order: suitability, preservation and safety of principal, liquidity, marketability, diversification and yield (§2256.005(d)), inside the chapter's overall order of safety, liquidity and yield (§2256.006(a)),
• at least 10 hours of training for the treasurer, chief financial officer and investment officer within 12 months after taking office, then 10 hours each two-fiscal-year period, or 8 hours for school districts and municipalities (§2256.008, which also excepts smaller entities, housing authorities, Water Code ch. 36 and ch. 49 districts, and entities that invest only in deposits or certificates of deposit),
• a broker list reviewed, revised and adopted at least annually (§2256.025), and
• the investment officer's written report at least quarterly (§2256.023).

The written acknowledgment of the policy reaches a business organization, which §2256.005(k) defines as an investment pool or a discretionary investment management firm, not each GIC provider.

The investment policy guide lists what a proceeds policy typically adds to the statutory floor, and the certifications and compliance file guides carry the post-award paperwork.

Which mGIC services and transactions reach Texas issuers?

mGIC's representative transactions, listed by name on its transactions page, include the aircraft fixed-base operator reinvestment at Hobby Airport.

Behind that list is a record of more than $60 billion in bond proceeds and executed swap notional across more than 1,000 transactions for issuers in more than 40 states.

mGIC is an independent, SEC-registered municipal advisor that sells no investment product and acts as no principal, and it provides reinvestment advisory, Bidding Agent and documentation services across guaranteed investment contracts, full-flex repurchase agreements and structured Treasury portfolios.

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.

For a no-obligation review of how a specific fund's investments line up with §2256.0208, the governing debt statute and the investment policy, mGIC offers Texas reinvestment help.

Final determinations about what a Texas statute permits for a particular issue belong to 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.