(a) Any certified or designated municipality may establish a special capital reserve fund to secure general obligations with a term of more than one year issued pursuant to sections 7-560 to 7-579, inclusive. The special capital reserve fund shall be established pursuant to an indenture or other agreement between the municipality and the trustee. Such indenture or agreement shall include all the terms, conditions and requirements pertaining to the special capital reserve fund in accordance with the requirements of sections 7-560 to 7-579, inclusive, any requirements imposed by the secretary or the Treasurer, and any requirements imposed by the ordinance or resolution authorizing the issuance of such general obligations, and the municipality shall agree to comply with all such terms, conditions and requirements for the benefit of the holders of any general obligations supported by such special capital reserve fund and for the benefit of the state. Such indenture or agreement may also include covenants to pay the fees and expenses of the trustee and to indemnify the trustee against claims against the trustee and any other provisions which the municipality determines are necessary or appropriate to secure general obligations. The municipal officer or body empowered to issue such general obligations or to determine the details of such general obligations authorized by the municipality may establish such capital reserve fund and may determine the details and approve the terms of all indentures and agreements and other instruments necessary or appropriate to establish and implement such special capital reserve fund as provided in sections 7-560 to 7-579, inclusive, and may bind the municipality pursuant to any such indenture or agreement.

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(b) The special capital reserve fund shall consist of (1) bond proceeds and other moneys of the municipality available to be deposited therein and (2) any money made available therefor by the state in accordance with this section. All moneys held in the special capital reserve fund, except as hereinafter provided, shall be used to pay interest due and owing in respect of general obligations of the municipality secured by such special capital reserve fund and for the redemption and retirement of such general obligations as they mature or become due pursuant to any sinking fund redemption provisions, or for the redemption and retirement of such general obligations pursuant to any refinancing or refunding provided any such refinancing or refunding obligations are not supported by any special capital reserve fund and any amounts in such special capital reserve fund are first applied to repay to the state any amounts which the state has paid or deposited in the special capital reserve fund and which the municipality has not repaid to the state. Income and interest from the investment of moneys in the special capital reserve fund shall be retained therein to meet any deficiencies in the maximum required capital reserve. Any amounts in excess of the maximum required capital reserve may be transferred first to the state in an amount equal to the aggregate amount transferred by the state for deposit in the special capital payment fund minus the aggregate amount of all previous reimbursements to the state, second to the debt service payment fund until the moneys in the debt service reserve fund equal or exceed the debt service payment requirement, and third to the municipality. Notwithstanding any provisions of this section, no municipality shall issue an obligation secured by a special capital reserve fund unless and until there is in the special capital reserve fund moneys and investments in an aggregate amount equal to the maximum required capital reserve, after giving effect to such obligations being issued. Any municipality may appropriate and deposit bond proceeds into the special capital reserve fund to bring the amount of money and investments therein to the maximum required capital reserve. Any requirement set forth in sections 7-560 to 7-579, inclusive, pertaining to the special capital reserve fund may be modified to the extent necessary to comply with any covenant of the municipality necessary to ensure the exclusion of interest on general obligations of the municipality supported by the special capital reserve fund from gross income for federal income tax purposes. On or before December first of each year, there is deemed to be appropriated from the state General Fund such sums, if any, as shall be certified by the chief executive officer of a certified or designated municipality to the secretary, the Treasurer and the Municipal Finance Advisory Commission for a certified municipality or a designated tier I municipality, or the Municipal Accountability Review Board, for a designated tier II, III or IV municipality, as necessary to restore special capital reserve fund to an amount equal to the minimum required capital reserve, and such amounts shall be allotted and paid from the General Fund of the state to the trustee for deposit in the special capital reserve fund. Such amounts, if any, shall be repaid by the municipality to the state and credited to the General Fund as soon as possible, from any moneys available therefor. For purposes of valuation of the special capital reserve fund, securities acquired as an investment for such fund shall be valued at par, actual cost to the certified or designated municipality or market value, whichever value is lower.