Investing Bond Proceeds in Virginia: Permitted Investments and Rules

Virginia public bodies may invest money other than sinking funds in U.S. obligations and U.S.-guaranteed securities under Code of Virginia §2.2-4501, and the sections around it add overnight, term and open repurchase agreements, registered open-end funds, qualified joint pools and a Treasury Board pooling program for bond proceeds.

State law is only the first gate for a bond fund, because the issue's own bond contract separately supplies the permitted investments that fund may hold.

This page is mGIC's Virginia entry in its permitted investments by state series, and it works through the statutes, the investment list, the agreement rules, collateral, the state pool, procurement and the firm's Virginia transactions.

Which Virginia statutes govern bond-proceeds investments?

Two chapters of Title 2.2 of the Code of Virginia carry the investment authority this page reads for Virginia bond funds: Chapter 45, the Investment of Public Funds Act, and Chapter 47, the Government Non-Arbitrage Investment Act (§2.2-4700 et seq.).

Chapter 45 opens with public money generally: §2.2-4501 says public bodies "may invest any and all moneys belonging to them or within their control, other than sinking funds," and it places sinking funds under §2.2-4500.

Chapter 47 addresses bond proceeds by name: it lets the Treasury Board help localities and authorities manage and account for bond proceeds, reserves and sinking funds whose earnings may be subject to federal rebate, including by pooling them.

The bond documents complete the frame: the MSRB glossary defines an indenture as a contract between the issuer of municipal securities and a trustee for the benefit of the bondholders, setting out the parties' rights, duties and remedies, and notes that many governmental issues, especially general obligation bonds, may not use one.

Where an issue does have an indenture, its investment provisions are what the bond indenture guide reads through, and which document governs a given fund is a determination for bond counsel.

What is on Virginia's permitted investment list?

For the money this page covers, Chapter 45 permits U.S. obligations and U.S.-guaranteed securities held directly, through repurchase agreements collateralized by them, or through registered funds limited to them (§2.2-4501(A)(2)).

The table gathers the categories the research verified, with the condition each provision attaches.

The fund line matters for proceeds held before spending: §2.2-4508 admits registered open-end funds only where "the investments by such funds are restricted to investments otherwise permitted by law for political subdivisions as set forth in this chapter," and the money market funds guide covers how those funds are used for proceeds.

Section 2.2-4501(A)(2) is one numbered item in the statute's enumerated list, and this page carries only the categories the underlying research verified, so the statute text is where the full state list lives.

What rules apply to investment agreements, GICs and repurchase agreements?

Repurchase agreements are named in the statute: §2.2-4507 authorizes overnight, term and open repurchase agreements "collateralized with securities that are approved for direct investment."

The research records two scope points: §2.2-4507 sets no term limit or margin percentage, and §2.2-4515 supplies the collateral and safekeeping rules, including where the counterparty is responsible for repurchase.

Guaranteed investment contracts and investment agreements are not named in the sections verified here, so this page cannot say whether one is available for a particular Virginia issue; the bond documents carry that answer, and 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."

The guaranteed investment contract and full-flex repurchase agreement guides describe how each structure works, and the GIC or repo comparison sets the two side by side.

Federal law runs alongside the state list on conduit issues: 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, and that the loan's yield generally must stay within the bond yield plus the permitted spread so the bonds do not become arbitrage bonds.

The yield restriction guide covers the federal yield limits that run alongside the state list.

What rating and collateral requirements apply in Virginia?

The research behind this page does not cover rating conditions in the rest of Chapter 45, so the statute text governs any rating question, and what the research does record is that §2.2-4515 covers collateral and safekeeping for repurchase agreements, including where the counterparty is responsible for repurchase, and §2.2-4501(A)(2) turns on what the security is, a U.S. obligation or a U.S.-guaranteed security.

On agreement mechanics, the research records that §2.2-4507 sets no margin percentage and no term limit.

Where an agreement is bid under the federal fair-market-value safe harbor, the bona fide solicitation element in Treasury Regulation 1.148-5(d)(6)(iii)(A) treats a term as material if it may directly or indirectly affect the yield or the cost of the investment, and the written specifications must include all material terms.

The repo collateral and GIC credit protection guides describe how collateral margin and provider downgrade provisions are handled in bond-proceeds agreements.

Can Virginia bond proceeds go into a state investment pool?

Yes: Chapter 47 directs a pooling program at bond proceeds specifically, letting the Treasury Board manage authorized investments for bond proceeds and establish pools in the State Treasurer's custody (§2.2-4702(1) through (3)).

An issuer may contract with the Treasury Board under §2.2-4703, and §2.2-4704 frames the chapter as an additional, alternative method rather than a replacement for other investment authority.

The chapter's scope is written for tax-exempt financing: "bonds" are defined as tax-exempt obligations (§2.2-4701), and the covered funds include, without limitation, bond proceeds, reserves and sinking funds where any portion of the investment earnings is or may be subject to rebate to the federal government.

Separately, §2.2-4513.1 lets elected treasurers join qualified jointly administered investment pools that have a professional manager, organized as trust funds under Code of Virginia §15.2-1300 et seq.

The MSRB glossary describes a local government investment pool as a pool established by a state or local governmental entity or instrumentality that serves as a vehicle for investing public funds of participating governmental units.

The statute text verified here does not set the Chapter 47 program's current terms, and the local government investment pool guide explains how pools take and pay out deposits while the state pool or GIC comparison frames the pool-versus-bid decision for a draw schedule.

What procurement rules apply to bidding investments in Virginia?

The Virginia sections verified here do not supply a bidding procedure for investment agreements, so the bidding standard this page can describe is the federal fair-market-value safe harbor: under Treasury Regulation 1.148-5(d)(6)(iii), the purchase price of a GIC, or of an investment bought for a yield-restricted defeasance escrow, is treated as fair market value on the purchase date only if all of the safe harbor's requirements are met.

One of those requirements is a bona fide solicitation, which under 1.148-5(d)(6)(iii)(A) calls for written bid specifications sent to potential providers on a timely basis, all material terms included and only commercially reasonable terms, with electronic specifications permitted.

Under the same regulation, a term is material if it may directly or indirectly affect the yield or the cost of the investment.

For yield-restricted defeasance escrows, the regulation adds a timing condition: the hold-firm period must be no longer than reasonably required.

A refunding escrow brings the roles GFOA describes: an escrow agent, typically a commercial bank, holds the escrow investments; a verification agent, typically a CPA firm, confirms that the escrow is sufficient and that its yield does not exceed the permitted yield where yield is limited; and an escrow bidding agent solicits bids for open-market escrow securities.

GFOA notes that a municipal advisor, if one is engaged, may be able to act as the escrow bidding agent, and the bid specifications, Bidding Agent and fair-market-value safe harbor guides take the solicitation standard apart.

In its Bidding Agent work mGIC prepares bid specifications, solicits qualified providers, manages questions, receives bids and compares rate and non-rate terms, 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, with the fee disclosed.

Which representative transactions has mGIC done in Virginia?

mGIC's representative transactions include the Pocahontas Parkway transaction in Virginia.

Across its record, the firm has more than $60 billion in bond proceeds invested and swap notional executed, in more than 1,000 transactions for issuers in more than 40 states.

mGIC is an independent, SEC-registered municipal advisor that sells no proprietary investment product and acts as no principal in the investments it evaluates, and the products it evaluates and bids are guaranteed investment contracts, full-flex repurchase agreements and structured Treasury portfolios with a money-market fund allocation for faster-than-expected spend-down, under priorities that run safety first, then liquidity, then yield.

If you want an independent read on how a Virginia fund's investments line up with the Code of Virginia and the issue's bond documents, mGIC offers Virginia reinvestment help through a free, no-obligation reinvestment review.

Final determinations about what a particular issue's proceeds may be invested in, and how the federal tax rules treat their yield, 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.