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<br />Any income realized from the investment of monies in the Reserve <br />Fund shall be credited thereto, provided that in order to assure that <br />the Bonds do not become arbitrage bonds, as defined in the Internal <br />Revenue Code of 1954, as amended, the Reserve Fund shall be <br />administered so that at no time does the amount therein exceed the <br />lesser of the maximum annual debt service of all Bonds outstanding or <br />one and one-quarter (1.25) times the average annual debt service of all <br />Bonds outstanding. <br /> <br />Monies in the Reserve Fund shall be paid and transferred in the <br />following amounts and at the following times and under any of the <br />following circumstances: <br /> <br />(a) Whenever there are insufficient funds in the Redemption <br />Fund to meet the next maturing installment of principal of or interest <br />on the Bonds due to delinquent installments of assessments, an amount <br />necessary to pay such deficiency shall be transferred as an advance <br />from the Reserve Fund to the Redemption Fund. The amount so advanced <br />shall be reimbursed and deposited in the Reserve Fund from the proceeds <br />of redemption or sale of the parcel for which payment of delinquent <br />installments was made from the Reserve Fund. <br /> <br />(b) Any unpaid assessment which is paid in cash prior to its <br />final maturity date pursuant to the provisions of the Act for the <br />advance payment of assessments shall be proportionately reduced by an <br />amount equal to the ratio of the total amount initially provided for <br />the Reserve Fund to the total amount originally assessed in the <br />proceedings for the Bonds, and an amount equal to the reduction in said <br />assessment shall be transferred from the Reserve Fund to the Redemption <br />Fund. <br /> <br />(c) Any income realized from the investment of monies in the <br />Reserve Fund which would cause the foregoing limitations to be exceeded <br />shall be placed in the Redemption Fund and credited in the manner set <br />forth in Section 10427.1 of the Streets and Highways Code of the State <br />of California upon the remaining unpaid assessments; provided that, in <br />order to comply with current federal regulations, any excess that <br />cannot be credited to such unpaid assessments and expended within <br />thirteen (13) months from the date of deposit in the Redemption Fund <br />(except for a reasonable carryover amount not to exceed the greater of <br />one year's earnings on the Redemption Fund or one-twelfth of annual <br />debt service of the Bonds) shall be applied to the advance retirement <br />of the Bonds in the manner provided in the Act and in Section 22 <br />hereof. Administration of the Reserve Fund shall comply with federal <br />regulations. <br /> <br />(d) Whenever the balance in the Reserve Fund is sufficient <br />to retire all the remaining outstanding Bonds, including accrued <br />interest and redemption premium, if any, collection of the principal <br />and interest on the unpaid assessments shall be discontinued and the <br />Reserve Fund shall be liquidated in retirement of the Bonds. The <br />Council shall order the same to be credited against the remaining <br /> <br />-8- <br />