The city council of any city and voters of any town in this state in a financial town meeting, or any other municipal body legally empowered to appropriate funds of a city or town, if they see fit to do so, may vote:

(1)  To establish a fund to be designated as a reserve fund, this fund to be available to the city or town as necessary for temporary borrowings in anticipation of taxes, but otherwise available only for capital expenditures;

(2)  To transfer, from time to time, to the reserve fund the whole or any portion of the surplus funds as the city or town may have at the end of the current or any succeeding year, to add to the fund by direct appropriation or to augment the fund by either or both methods;

(3)  To permit the investment by the city or town treasurer, with the advice and consent of the city or town council, as the case may be, of the fund in savings accounts or certificates of deposit of commercial or savings banks or trust companies, or in obligations of the United States or its agencies, or in any other short term investment, as would be made by prudent persons of discretion and intelligence;

(4)  To provide that transfers or appropriations shall not be voted to the fund which cause the fund to exceed five percent (5%) of the total assessed valuation of real estate and tangible personal property in the city or town; and

(5)  To provide that no city council and no financial town meeting, either annual or special, shall appropriate any moneys out of the fund unless notice of the proposal to do so, reasonably detailed as to purpose and extent, appears in the call for the meeting.