(a) The state may enter into agreements with municipalities, and any municipality may enter into an agreement with the state for loans herein provided, subject, however, to any existing contractual obligations of the municipality.

(b) Any loan agreement may include such provisions as may be agreed upon by the parties thereto, and shall include, in substance, the following:

(1) An estimate of the reasonable cost of the project to be constructed, as determined by the department;

(2) An agreement by the state to pay part of the amount of the loan to the municipality prior to the construction, or during the progress of the construction, or to pay the amount of the loan following completion of the construction, as may be agreed upon by the parties; and

(3) An agreement by the municipality to:

(A) Proceed expeditiously with and complete the project in accordance with plans approved pursuant to this part and to § 68-221-102;

(B) Commence operation of the waterworks on its completion, and not discontinue operations or dispose of the project without the approval of the department and the authority;

(C) Operate and maintain the project in accordance with applicable provisions of this chapter, and rules and regulations of the department;

(D) Establish and collect such fees, rates or charges for water service and/or pledge other available sources of revenues necessary to make payments according to the schedule established by the authority and to make payments as provided in this part; and

(E) Establish and maintain adequate financial records for the waterworks, and make an annual audit of the financial records and transactions covering each fiscal year and furnish a copy of such audits to the comptroller of the treasury.