How Should Airports and Air Cargo Invest Their Bond Proceeds?

Airport and air cargo issuers invest bond proceeds fund by fund, matching each fund's purpose, draw schedule and tax constraints to investments the indenture or investment policy permits and the federal arbitrage rules restrict.

Airport and air cargo projects are typically financed with revenue bonds, and many private-use airport and cargo facilities are financed with exempt facility private activity bonds, which can stay tax-exempt as qualified bonds under section 141(e) and remain subject to the federal arbitrage rules.

This page is the airport entry in mGIC's issuer sectors series: how these issues are structured, which funds hold the money, which products are bid for it, and where the compliance lines sit.

How are airport and air cargo projects typically financed?

Airport and air cargo projects are typically financed with revenue bonds: the MSRB glossary defines a revenue bond as a bond payable from a specific source of revenue.

The glossary adds that generally no voter approval is required before a revenue bond is issued; voter-approval rules vary by state.

Pledged revenues under that definition can come from project operations, grants, or excise or other non-ad-valorem taxes.

Many private-use airport and air cargo facilities are also financed with exempt facility private activity bonds.

Under section 141(e) of the Internal Revenue Code, a private activity bond can still be tax-exempt if it is a qualified bond, and the qualified categories include exempt facility bonds, qualified mortgage bonds, qualified veterans' mortgage bonds, qualified small issue bonds, qualified student loan bonds, qualified redevelopment bonds and qualified 501(c)(3) bonds.

IRS Publication 4078 lists airports and spaceports among the exempt facility categories in section 142, alongside docks and wharves, mass commuting, water, sewage, solid waste, qualified residential rental, local electric and gas facilities, and qualified highway or surface freight transfer facilities.

A qualified bond must also meet the applicable volume cap requirements of section 146 and the requirements of section 147, although Publication 4078 notes that airports, like docks, are not subject to the volume cap.

mGIC covers the mechanics in its private activity bond guide.

Which funds hold airport bond proceeds, and what are their draw profiles?

An airport issue creates a set of separate funds.

Treasury Regulation §1.148-1(b) defines gross proceeds as any proceeds and replacement proceeds of an issue, and the arbitrage rules are written in those terms.

Sale proceeds are the amounts actually or constructively received from selling the issue, including amounts used to pay the underwriters' discount or compensation and accrued interest other than pre-issuance accrued interest.

Investment proceeds are amounts received from investing proceeds, net sale proceeds subtract the portion invested in a reasonably required reserve or replacement fund and the minor portion, and transferred proceeds are defined in Treasury Regulation §1.148-9.

The fund types an issue can create, from the construction fund to the rebate fund, are covered in mGIC's funds guide.

For sizing the investments, GFOA's best practice on the investment and management of bond proceeds lists typical horizons by fund.

GFOA presents these as typical ranges, not rules, and points issuers to their advisory team and investment policy.

A terminal or air cargo hub construction fund falls in the 12 to 36 month construction fund range, the longest typical horizon among the funds in that table that are spent down on a draw schedule.

Airport debt service funds are paid from the specific revenue source the bonds are payable from, and the bona fide debt service fund definition matters for them.

Treasury Regulation §1.148-1(b) treats a fund as a bona fide debt service fund when it is used mainly to match revenues with principal and interest within each bond year and is depleted at least once each bond year, except for a reasonable carryover amount not exceeding the greater of the prior year's earnings on the fund or one-twelfth of the prior year's principal and interest payments.

mGIC's debt service fund guide covers which funds meet that definition and what follows from it.

Which reinvestment products fit airport bond proceeds?

mGIC evaluates and competitively bids guaranteed investment contracts, full-flex repurchase agreements and structured portfolios of U.S. Treasury securities for airport bond proceeds.

Structured Treasury portfolios are matched to anticipated cash needs and can carry a money-market allocation for faster-than-expected spend-down, and mGIC's stated priorities across the three are safety first, then liquidity, then yield.

mGIC's guide to reinvestment products covers each in detail, and money market funds, local government investment pools and forward delivery agreements have their own guides under the same hub.

How the three map to a specific airport fund turns on the fund's draw schedule, expected term and any yield restriction that applies, which is why the comparisons sit on their own pages: a GIC against a full-flex repo, a GIC against a Treasury ladder, and flex repo against a Treasury portfolio for a construction fund.

For parts of a program that will sit still, SLGS securities are a further option, and Treasury limits who can buy them.

SLGS may be purchased only with an eligible source of funds, and 31 CFR 344.1 lists the categories.

They are gross proceeds of tax-advantaged bonds or amounts reasonably expected to become gross proceeds; amounts released from gross-proceeds status by the universal cap in Treasury Regulation §1.148-6(b)(2); amounts held with gross proceeds in a refunding escrow, defeasance escrow, parity debt service reserve fund or commingled fund; proceeds of a non-tax-advantaged issue that refunds, or is refunded by, a tax-advantaged issue; and other amounts subject to yield limits.

Whether any particular airport fund is an eligible source of funds is a question for bond counsel, and mGIC's SLGS guide covers the mechanics.

How do private use limits apply to airport issues?

Section 141 of the Internal Revenue Code applies a private business use test and a private security or payment test to an airport issue, each measured as a share of the issue's proceeds.

Under section 141(b)(1), an issue meets the private business use test if more than 10 percent of the proceeds of the issue are to be used for any private business use.

Section 141(b)(2) applies the same 10 percent threshold to the private security or payment test, and section 141(b)(3) sets a 5 percent threshold for private business use that is unrelated or disproportionate to the governmental use.

Private business use means use in a trade or business by a non-governmental person, and section 141(b)(6)(A) excludes use as a member of the general public from the count.

Whether and how these tests apply to a specific airport or cargo facility is a determination for bond counsel.

The construction spending rules carry an ownership limit that matters for airports.

Treasury Regulation §1.148-7(f)(1) defines a construction issue as a non-refunding issue where the issuer reasonably expects, as of the issue date, that at least 75 percent of the available construction proceeds will be allocated to construction expenditures for property owned by a governmental unit or a 501(c)(3) organization; any private activity bonds in the issue must be qualified 501(c)(3) bonds or private activity bonds financing such property, and under Treasury Regulation §1.148-7(j) an issuer may elect to treat the construction portion as a separate issue.

For airports the practical point is that this definition is limited to property owned by a governmental unit or a 501(c)(3) organization, and many private-use airport and cargo facilities financed with exempt facility private activity bonds would not be owned by a governmental unit for tax purposes.

The 2-year construction spending exception page carries the full tests, and bond counsel applies them to the issue.

Publication 4078 also states that qualified private activity bonds generally must use 95 percent or more of net proceeds for the qualified purpose.

The arbitrage rules apply to private activity bonds as well, with differences from governmental issues that tax counsel tracks.

Which airport and air cargo transactions are in mGIC's representative record?

mGIC's representative reinvestment transactions include the DHL air cargo hub at CVG, Miami Air Cargo at MIA, the JFK International Air Cargo Center, Delta Cargo at JFK, and aircraft FBOs at Westchester County Airport and Hobby Airport.

Each is listed by name, and its own page in mGIC's case studies carries the transaction detail.

Since mGIC's founding in 2002, its record spans more than $60 billion in bond proceeds invested and swap notional executed across more than 1,000 transactions for issuers in more than 40 states, led by Managing Director Robert Rasmussen.

mGIC works on these transactions as an independent, SEC-registered municipal advisor and Bidding Agent; it does not sell a proprietary investment product, does not act as principal in the investments it evaluates, and delivers Bidding Agent and provider certifications to bond counsel at settlement.

For a second look at how an airport's construction fund, reserves and debt service accounts are positioned, talk to mGIC about a free, no-obligation reinvestment review.

Final legal and tax conclusions on any airport issue belong to 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.