(a) There is hereby created a fund to be known as the “Municipal Refunding Trust Fund” and the Treasurer may establish and create in such fund such account or accounts and such municipal reserve account or accounts as he may determine. Said fund and said account or accounts or municipal reserve account or accounts may each contain proceeds of bonds and other moneys and shall each be held, separate and apart from all other moneys and funds, in such manner as may be determined by a bond determination made and signed and filed with the secretary of the State Bond Commission by the Treasurer.

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(b) Pending the use or application of moneys in said fund as hereinbelow directed, such moneys shall be invested by the Treasurer subject to the limitations of this part and such limitations, if any, as provided in the contract or contracts with the holders of the special obligation bonds. Obligations purchased as such investment of moneys in said fund shall be held at all times as part of said fund, and the interest thereon and any profit arising on the sale thereof shall be credited to said fund and any loss resulting on the sale thereof shall be charged to said fund, and for all purposes of this part, said obligations shall be valued at the amortized cost thereof.

(c) Except as may be otherwise required by the terms of any lien or pledge created by or pursuant to this part, the moneys in such fund shall be held only for and applied to the payment, subject to and in accordance with the terms of any covenant or principal of, and redemption premium if any and interest on, such bonds as such principal, premium and interest shall become due; provided, if at any time there is in said fund moneys which may be withdrawn therefrom by the terms of any such contract or covenant and are not otherwise required to be retained therein as determined by the Treasurer to assure the payment of all special obligation bonds theretofore issued or to be issued pursuant to this part, the Treasurer shall transfer or cause to be transferred therefrom such moneys which may be so withdrawn and which are not so required, first to the General Fund of the state in repayment of any sums theretofore appropriated by this part, and not previously repaid and second to the municipalities in proportion to the amount of municipal refunding bonds sold to the state in accordance with the contracts executed therewith.

(d) The moneys required by the contract with the holders of special obligation bonds to be held in or credited to any municipal reserve account established under this section, except as hereinafter provided, shall be used solely for the payment of the principal of special obligation bonds secured by such municipal reserve account as the same become due, the purchase of such bonds, the payment of interest on such bonds or the payment of any redemption premium required to be paid when such bonds are redeemed prior to maturity; provided, the Treasurer, on behalf of the state, as part of the contract with the holders of special obligation bonds shall have power to provide that moneys in any such account shall not be withdrawn therefrom at any time in such amount as would reduce the amount of such funds to less than the “required reserve” as defined in this section, except for the purpose of paying such principal of, redemption premium and interest on such bonds secured by such municipal reserve account becoming due and for the payment of which other moneys in the Municipal Refunding Trust Fund in accordance with the terms of any contract with the holders of special obligation bonds are not available. As used in this subsection, “required reserve” means, as of any date of computation, the amount or amounts required to be on deposit in the municipal reserve account or accounts as provided in the contract with the holders of the special obligation bonds. The Treasurer in the bond determination may provide that it shall not issue bonds at any time if the required reserve on the special obligation bonds outstanding and the special obligation bonds then to be issued and secured by a municipal reserve account will exceed the amount of such municipal reserve account at the time of issuance of such bonds, unless there shall be deposited in such municipal reserve account from the proceeds of the bonds so to be issued, or otherwise, an amount which, together with the amount then in such municipal reserve account, will be not less than the required reserve. On or before December first, annually, there is deemed to be appropriated from the state General Fund such sums, if any, as shall be certified by the Treasurer to the Secretary of the Office of Policy and Management and Comptroller of the state, as necessary to restore each such municipal reserve account to the amount equal to the required reserve of such account, and such sum shall be allotted, paid and deposited into such account in the Municipal Refunding Trust Fund during the then current state fiscal year. Nothing contained in this section shall preclude the Treasurer, on behalf of the state, as part of the contract with the holders of special obligation bonds, from establishing and creating other debt service reserve accounts or funds in connection with the issuance of such bonds.