(1) Cities of the second class and villages may borrow money or issue bonds in an amount not to exceed twelve percent of the taxable valuation of all the taxable property within such city or village according to the most recent assessment for the purchase of fire-extinguishing apparatus and for the purchase, construction, and maintenance of such waterworks, mains, portion, or extension of any system of waterworks or water supply or to pay for water furnished such city or village under contract, when authorized as is provided for by subsection (3) of this section.

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(2) Such cities or villages may levy and collect a general tax in the same manner as other municipal taxes are levied and collected in an amount sufficient to pay the interest and principal of the bonds referred to in subsections (1) and (3) of this section, as the same mature, upon the taxable value of all the taxable property within such city or village, in addition to the sum authorized to be levied under section 17-506. All taxes raised by such a levy shall be retained in a fund known as the water fund.

(3) No money shall be borrowed or bonds issued as referred to in subsections (1) and (2) of this section unless authorized by a majority of the legal voters of such city or village voting on the proposition at an election held for that purpose. Notice of the election shall be given by publication in a legal newspaper in or of general circulation in such city or village for at least two weeks prior to the date of such election. The requirement of this section of a vote of the electors shall not apply when the proceeds of the bonds will be used solely for the maintenance, extension, improvement, or enlargement of any existing system of waterworks or water supply owned by the city or village and the bonds have been ordered issued by a vote of not less than three-fourths of all the city council or village board of trustees as the case may be. The bonds shall be the bonds of such city or village and be called water bonds. The bonds shall become due in not to exceed forty years from the date of issue and shall draw interest payable semiannually or annually.