How to Build a Construction Draw Schedule for Bond Proceeds

A construction draw schedule is the dated estimate of when an issuer will spend the proceeds held in its construction fund, and building it is the first step in deciding how to invest those proceeds.

GFOA recommends making certain that the drawdown of proceeds is planned and recorded, and that the investment duration is no longer than the expected drawdown schedule.

The schedule is the working document the rest of the financing team uses: it drives the investment's term and withdrawal provisions, and it supports the spending expectations certified at closing.

What inputs come from the project team?

The raw material is the project team's spending estimate: the construction contract's payment provisions, the engineer's or architect's cash flow projection, the project budget by line item, and any grants or other funding sources that share project costs.

A usable schedule lists each expected draw by month or quarter, with the amount and the purpose, so that the investment's deposit and withdrawal dates can be matched to it.

The inputs to collect are the following:

• the construction contract's payment provisions, including billing and retainage terms
• the engineer's or architect's cash flow projection by month or quarter
• the project budget by line item, with contingency amounts identified
• grants, contributions or other funding sources that share project costs, and their timing

Those estimates become a record at closing: Treasury Regulation §1.148-2(b) requires an officer of the issuer responsible for issuing the bonds to certify, in good faith, the issuer's expectations as of the issue date, and the certification must state the facts and estimates that form the basis for those expectations.

No certificate is required if the issuer expects no unspent gross proceeds after the issue date, other than a bona fide debt service fund, or if the issue price does not exceed $1 million.

The regulation treats the certificate as evidence of the issuer's expectations, and it says the certification does not establish any conclusions of law.

GFOA adds a sizing point: it suggests staging bond issues over the construction period and not issuing well before spending begins, which it says limits arbitrage liability and negative arbitrage.

How do the expected and conservative cases differ?

A buildable schedule has two versions: an expected case that follows the project team's current estimate, and a conservative case that pushes the same spending later and assumes it arrives more slowly.

Because proceeds arrive at closing and leave as draws are paid, the principal balance under investment on any date is the deposit minus cumulative draws, in either case.

The conservative case matters because Treasury Regulation §1.148-2(b) judges whether an issue consists of arbitrage bonds on the issuer's reasonable expectations as of the issue date, so the question the conservative case answers is whether those expectations are supportable if the project runs long.

The time test adds a second reason: Treasury Regulation §1.148-2(e)(2)(i)(B) looks for a substantial binding obligation to a third party to spend at least 5% of net sale proceeds on the capital projects within 6 months of the issue date, and an obligation subject to contingencies within the issuer's or a related party's control does not count as binding.

Early spending expectations can rest on contracts still being negotiated, which is the gap between the two cases.

How does the draw schedule drive term and structure?

The schedule shapes the investment's term, its withdrawal provisions and the mix of instruments, because the federal fair-market-value safe harbor for GICs and the arbitrage spending tests are both written around the expected drawdown.

For GIC purchases, Treasury Regulation §1.148-5(d)(6)(iii) treats the purchase price as fair market value only if all of the safe harbor's requirements are met, and one of them, in §1.148-5(d)(6)(iii)(A)(5), is that the terms of the solicitation take into account the issuer's reasonably expected deposit and drawdown schedule for the amounts to be invested, which is why the schedule belongs in the bid specifications.

GFOA's recommendation runs the same direction: keep the investment duration no longer than the expected drawdown schedule.

The SEC has described the products used at this point in a financing as instruments tailored to municipalities' specific collateral and spend-down needs, naming guaranteed investment contracts, repurchase agreements and forward purchase agreements.

Where draws fall on known future dates, the tax definition matters as much as the product name: Treasury Regulation §1.148-1(b) brings any agreement to supply investments on two or more future dates, such as a forward supply contract, within the definition of a guaranteed investment contract, along with nonpurpose investments that have specifically negotiated withdrawal or reinvestment provisions and a specifically negotiated interest rate.

The definition says "includes," so it is not exhaustive, and whether a particular instrument is a GIC for arbitrage purposes is a bond counsel determination.

Withdrawal provisions carry the spread between the two cases: a GIC solicitation that relies on the safe harbor takes the schedule into account, so withdrawal terms are written against it, and flexible withdrawals are the provisions that let actual draws run early or late within the investment.

An independent Bidding Agent puts the schedule into the specifications, solicits qualified providers and compares the bids on rate and non-rate terms.

State law can add its own drawdown condition: Texas Government Code §2256.015(c)(4) requires the price of a GIC to reflect the reasonably expected drawdown schedule, one of five conditions §2256.015(c) sets for Texas GICs, alongside specific authorization in the bond-authorizing order, ordinance or resolution, at least three bids from separate providers with no material financial interest in the bonds, purchase of the highest-yielding qualifying bid, and a provider certification of administrative costs reasonably expected to be paid to third parties.

Those are Texas requirements, separate from the federal bidding safe harbor in Treas. Reg. §1.148-5, and the Texas state page collects them.

The other constraint on term is the federal clock: a temporary period is how long proceeds may be invested at higher yields without that alone making the issue an arbitrage bond (26 U.S.C. 148(c)(1)), and the spending exceptions treat an issue as meeting the rebate requirement when proceeds are spent inside their windows, so the schedule is measured against the windows below, with the temporary periods page explaining how they work.

The 3-year and 5-year capital project periods do not apply to refunding issues (Treas. Reg. §1.148-2(e)(1)), which Treas. Reg. §1.148-9 addresses.

Section 148(f)(4)(B)(ii) also allows one year for up to 5% of the proceeds of certain governmental issues.

Rebate and yield restriction are separate questions from the schedule itself, and the spending exceptions page lists the exceptions in full.

California's LAIF builds pool accounts around the schedule as well: it accepts separate bond proceeds accounts that require a Bond Application and the Official Statement, take a one-time deposit with no cap, carry no minimum or maximum balance, and are set up with a monthly drawdown schedule, closing automatically at a zero balance, according to its June 30, 2026 Information Digest.

LAIF does not otherwise allow multiple accounts or subaccounts.

How often should the draw schedule be updated?

GFOA recommends revisiting the drawdown schedule periodically, and the schedule is the document to refresh whenever the project team revises its spending estimate or a milestone moves.

Each revision is the point at which the investments actually held get compared to the draws actually expected, the mismatch case covered on the spend-down mismatch page.

Records belong with the rest of the closing documents: GFOA recommends keeping records for the required period, which it describes as typically the life of the bonds plus three years, and the compliance file page lists what else to keep.

Outside events can force a revision too: the SLGS regulations reserve Treasury's right to change or suspend the offering at any time the Secretary determines that Treasury cannot issue obligations without exceeding the statutory debt limit, and during such a contingency unredeemed Demand Deposits may be moved into special 90-day certificates of indebtedness (31 CFR 344.2(l), 344.7(b)).

Treasury suspended SLGS issuance with Secretary Yellen's May 1, 2023 debt-limit letter to Congress, and its January 17, 2025 Description of the Extraordinary Measures lists suspending SLGS sales as a measure, noting that SLGS issuance had averaged about $10 billion per month, that no statute requires Treasury to issue SLGS, and that some issuers would have to invest proceeds in alternative assets.

When the schedule, the certified expectations and the investments actually held need to be read together, mGIC's reinvestment advisory review covers a construction fund's objectives, permitted investments, draw schedules, credit terms and timing, and you can talk to mGIC about a free, no-obligation review.

Final conclusions about an issue's arbitrage position, including which temporary periods and spending exceptions apply, rest with its 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.