What Does an Escrow Verification Agent Check?

An escrow verification agent checks two things about a refunding escrow: that the escrow's cash flow is enough to pay principal and interest on the refunded bonds, and, where the escrow's yield is limited, that the escrow yield does not exceed the permitted yield.

The MSRB glossary describes the work product, a verification report, as one prepared by a certified public accountant or other independent third party that verifies the yield of the investments held in escrow in connection with an advance refunding bond issue and shows their cash flow is enough to pay principal and interest on the refunded bonds.

GFOA's refunding guidance places the verification agent, typically a CPA firm, among three refunding roles, alongside the escrow agent that holds the investments and, for open-market escrows, the escrow bidding agent that solicits bids.

What does the verification report check for sufficiency?

The sufficiency check measures the escrow investments' cash flow against the refunded bonds' own principal and interest payments, and GFOA describes the verification agent as the party that confirms the escrow is sufficient.

The benchmark is the refunded debt service, because the MSRB definition tests whether the escrow's cash flow is enough to pay principal and interest on the refunded bonds, not the refunding bonds.

The schedule the report tests follows the redemption plan: the MSRB glossary treats bonds as escrowed to maturity when the escrow pays them on their original schedule, and prerefunded when the escrow runs only to a call date or dates.

What those labels mean for the issuer's remaining obligations is covered in what it means to defease municipal bonds.

How a portfolio of securities is built to hit that schedule, and how the escrow is funded, is the structuring question covered in how a refunding escrow is structured and funded.

How does the verification agent check escrow yield?

The yield check computes the yield on the escrow's investments and compares it with the permitted yield, and GFOA describes that check as applying where the escrow's yield is limited.

The window is set by the temporary-period rules: proceeds of a refunding issue other than transferred proceeds generally get a 30-day temporary period, and proceeds of a current refunding issue get 90 days, or at most 30 days where the refunding issue's original term is 270 days or less, under Treasury Regulation §1.148-9(d)(2)(i)-(ii).

After that window, the tolerance is tight: for investments in a refunding escrow, Treasury Regulation §1.148-2(d)(2)(ii) treats a yield as materially higher than the bond yield once it exceeds the bond yield by more than one-thousandth of 1 percentage point.

Where the escrow is funded with SLGS, which the MSRB glossary describes as most commonly used for deposit in an escrow account in connection with the issuance of refunding bonds, the securities' rate terms come from Treasury's program rather than from negotiation.

Treasury offers SLGS to provide issuers of tax-advantaged bonds with investments that help them comply with the Internal Revenue Code (31 CFR 344.0(a)).

Paying for them takes an eligible source of funds, and 31 CFR 344.1 counts amounts held with gross proceeds in a refunding escrow or defeasance escrow among the categories, with the qualification call for any particular fund belonging to bond counsel.

The SLGS rate is the current Treasury borrowing rate less one basis point, floored at zero where that result would be negative, and because Treasury determines that borrowing rate, the SLGS rate is a regulated formula rather than a published market yield (31 CFR 344.1).

The subscriber may designate any rate up to the table maximum: Treasury releases the SLGS rate table by 10 AM Eastern each business day, and the table in effect on the business day the subscription process starts is the one that applies (31 CFR 344.4(b)).

So an escrow built on SLGS carries rate terms fixed by rule, while an open-market escrow carries the prices paid for its securities, which may be set through a bid solicitation.

When the funding is open-market instead, the SLGS vs open-market comparison applies, and GFOA notes that funding an escrow with open market securities may require an escrow bidding agent that solicits bids for securities used in the escrow.

For an open-market funding, mGIC can bid your escrow under its Bidding Agent service, which covers bid specifications, soliciting qualified providers, managing questions during the solicitation, receiving bids, and comparing bids on rate and non-rate terms.

Who prepares the escrow verification report?

The MSRB glossary describes the verification report as prepared by a certified public accountant or other independent third party, and GFOA lists the verification agent as one of three refunding roles.

GFOA adds that a municipal advisor, if the issuer has engaged one, may be able to act as the escrow bidding agent.

What an escrow shortfall means for the issuer depends on the defeasance: the MSRB glossary distinguishes legal defeasance, which ends the bondholders' rights and lien under the bond contract, from economic or financial defeasance, where the issuer would continue to be legally obligated to make payment if the deposited funds prove insufficient.

Where the verification agent sits among bond counsel, trustee, rebate analyst and Bidding Agent is covered in who is on a municipal bond financing team.

What does a verification report not decide?

A verification report covers the escrow's arithmetic, not the issue's legal and tax questions: whether the escrow meets the bond contract's requirements and the arbitrage rules is a determination for bond counsel and tax counsel.

mGIC is an independent, SEC-registered municipal advisor that owes its municipal clients a fiduciary duty, sells no proprietary investment product, and does not act as principal in the investments it evaluates.

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 free, no-obligation conversation about how an escrow will be funded, bid and verified, contact mGIC.

Final determinations about an escrow's legal and tax treatment rest with 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.