Part 16. Special Security Fund of California Streets And Highways Code >> Division 10. >> Part 16.

In any proceedings leading to the issuance of bonds pursuant to this division, the legislative body may include, as an incidental expense of the proceedings, an amount to create a special reserve fund for the bonds. The amount so provided shall not exceed 10 percent of the total amount of assessments to be levied under the proceedings.

Where a special reserve fund is created for a bond issue, the assessment levied on any parcel for the payment of the bond issue shall be reduced upon the payment, in whole or in part, of the assessment pursuant to provisions for either (1) cash payments of assessments prior to the issuance of the bonds or (2) advance payment of assessments following the issuance of the bonds. The proportional reduction on the assessment shall equal the ratio of the total amount initially provided for the special reserve fund to the total amount originally assessed in the proceedings for the bond issue.

Upon receipt of the bond sale proceeds, the amount so provided for the special reserve fund pursuant to Section 8880 shall be transferred to the fund. The special reserve fund shall be identified by the name of the proceedings under which the bonds are issued and shall constitute a trust fund for the benefit of the bondholders, subject to and to be administered in accordance with the provisions of this part.

The money in the special reserve fund shall be available for transfer into the redemption fund for the bonds pursuant to Part 13 (commencing with Section 8800). The amount so advanced shall be reimbursed from the proceeds of redemption or sale of the parcel for which payment of delinquent installments was made from the special reserve fund.

Whenever an assessment is paid off following the issuance of bonds, there shall be transferred, from the special reserve fund to the redemption fund, an amount equal to the reduction in the assessment determined pursuant to Section 8881.

Whenever the balance in the special reserve fund is sufficient to retire all remaining outstanding bonds in the issue, whether by advance retirement or otherwise, collection of the principal and interest on the assessments shall be discontinued and the special reserve fund shall be liquidated in retirement of the bonds. In the event that the balance in the fund at the time of liquidation exceeds the amount required to retire all outstanding bonds in the issue, the excess shall be apportioned to each parcel upon which the individual assessment remained unpaid at the time the balance in the reserve fund was sufficient to retire all outstanding bonds in the issue. The payments shall be made in cash to the respective owners of the parcels except that, if the excess is not greater than one thousand dollars ($1,000), the excess may be transferred to the general fund of the entity conducting the proceedings.

Money in the special reserve fund may be temporarily invested in any authorized investments pursuant to Article 1 (commencing with Section 53600) of Chapter 4 of Part 1 of Division 2 of Title 5 of the Government Code, or in any authorized investments pursuant to law in the case of money resulting from assessments levied for bonds authorized to be issued after the effective date of the amendments to this section enacted during the 1981-82 Regular Session of the Legislature, provided that the maturities thereof shall not be later than the date on which the money may be required for the redemption fund pursuant to this part. Any income realized from such investments shall be credited to the special reserve fund, and any loss or expense resulting from such investment shall be charged to that fund.

Notwithstanding any other provision in this part, for the purposes of (1) assuring that the bonds to be issued will not become arbitrage bonds as defined in the Internal Revenue Code of 1954 (Title 26 of the United States Code) and regulations promulgated thereunder by the Department of Treasury, and (2) providing for reduction of the amount of money in the special reserve fund during the term of the bonds, the legislative body may, by resolution adopted prior to the issuance of bonds under this division, provide that money in the special reserve fund, including investment income, shall be used, in the amounts and at the times as the legislative body may determine, for either or both of the following:
  (a) Credit upon the assessment in the manner provided in Section 10427.1.
  (b) Transfer to the redemption fund for advance retirement of the bonds pursuant to this division. The resolution may specify the terms and conditions, as the legislative body may determine to be reasonable, with respect to its authorization of either or both of the uses.