(a) The bond bank authority shall establish and maintain a special fund called the “Alaska municipal bond bank authority reserve fund” in which there shall be deposited or transferred

(1) all money appropriated by the legislature for the purpose of the fund in accordance with the provisions of (g) of this section;

(2) all proceeds of bonds required to be deposited in the fund by terms of a contract between the bond bank authority and its bondholders or a resolution of the bond bank authority with respect to the proceeds of bonds;

(3) all other money appropriated by the legislature to the reserve fund; and

(4) any other money or funds of the bond bank authority that it decides to deposit in the fund.

(b) Subject to the provisions of (h) of this section, money in the reserve fund shall be held and applied solely to the payment of the interest on and principal of bonds of the bond bank authority as the interest and principal become due and payable and for the retirement of bonds; and the money may not be withdrawn if a withdrawal would reduce the amount in the reserve fund to an amount less than the required debt service reserve except for payment of interest then due and payable on bonds and the principal of bonds then maturing and payable and for the retirement of bonds in accordance with the terms of a contract between the bond bank authority and its bondholders and for which payments of other money of the bond bank authority is not then available. In this subsection, “required debt service reserve” means, as of the date of computation, the amount required to be on deposit in the reserve fund as provided by resolution of the bond bank authority.

(c) Money in the reserve fund in excess of the required debt service reserve as defined in (b) of this section, whether by reason of investment or otherwise, may be withdrawn at any time by the bond bank authority and transferred to another fund or account of the bond bank authority subject to the provision of (h) of this section.

(d) Money in the reserve fund may be invested in the same manner and on the same conditions as permitted for investment of funds belonging to the state or held in the treasury under AS 37.10.070; however, the authority may agree with the bondholders to further limit these investments.

(e) For purposes of valuation, investments in the reserve fund shall be valued at par or if purchased at less than par, at cost unless otherwise provided by resolution of the bond bank authority. Valuation on a particular date shall include the amount of interest then earned or accrued to that date on the money or investments in the reserve fund.

(f) Notwithstanding any other provision of this chapter, bonds may not be issued by the bond bank authority unless there is in the reserve fund the required debt service reserve for all bonds then issued and outstanding and for the bonds to be issued; however, the bond bank authority may satisfy this requirement by depositing as much of the proceeds of the bonds to be issued, upon their issuance, as is needed to meet the required debt service reserve. The bond bank authority may at any time issue its bonds or notes for the purpose of increasing the amount in the reserve fund to the required debt service reserve, or to meet whatever higher or additional reserve that may be fixed by the bond bank authority with respect to the fund.

(g) In order to assure the maintenance of the required debt service reserve in the reserve fund, the legislature may appropriate annually to the bond bank authority for deposit in the fund the sum, certified by the chairman of the bond bank authority to the governor and to the legislature, that is necessary to restore the fund to an amount equal to the required debt service reserve. The chairman annually, before January 30, shall make and deliver to the governor and to the legislature a certificate stating the sum required to restore the fund to that amount, and the sum so certified may be appropriated and paid to the bond bank authority during the then current state fiscal year. Nothing in this subsection creates a debt or liability of the state.

(h) All amounts received on account of money appropriated to the reserve fund referred to in (a)(3) of this section shall be held and applied in accordance with (b) of this section; however, at the end of each fiscal year, if the amount in the reserve fund is in excess of the required debt service reserve, any amount representing earnings or income received on account of money appropriated to the reserve fund that exceeds the operating expenses of the authority for that fiscal year shall be transferred to the general fund of the state.

(i) All references to the “reserve fund” in this section include special accounts within the reserve fund which may be created by the authority to secure the payment of particular bonds. The commissioner of revenue may lend surplus money in the general fund to the authority for deposit to any account in the reserve fund in an amount equal to the required debt service reserve. The loans shall be made on such terms and conditions as may be agreed upon by the commissioner of revenue and the authority, including, without limitation, terms and conditions providing that the loans need not be repaid until the obligations of the corporation secured and to be secured by the account in the reserve fund are no longer outstanding.