This law allows a legislative body to set aside up to 10% of the total assessments as a special reserve fund when issuing bonds. This reserve is considered an incidental expense in the bond issuance process.

This law explains that when a special reserve fund is set up for a bond issue, any charges on property for paying off the bond can be lowered if part or all of the charge is paid before or after the bonds are issued. If payments are made early, the reduction amount will match the percentage of the fund's initial amount compared to the total amount initially assessed for the bonds.

When the money from selling bonds is received, a portion is set aside for a special reserve fund. This fund is named after the bond proceedings and is meant to protect the bondholders. It operates like a trust fund for their benefit and must be managed according to specific rules in this part of the law.

This law states that money in a special reserve fund can be moved to a redemption fund to help pay off bonds. If money is used from the special reserve fund because someone is late on their payments for a particular property, then once that property is sold or redeemed, the special reserve fund will be repaid.

When a specific debt, known as an assessment, is fully paid after bonds have been issued, a corresponding amount is moved from a special reserve fund to a redemption fund. The transferred amount equals the decrease in the assessment as figured out using the rules in another law section (Section 8881).

This law says that if there's enough money in a special reserve fund to pay off all the outstanding bonds, the collection of payments from property owners will stop and the reserve fund will be used to retire the bonds.

If there’s extra money left after paying off the bonds, this excess will be distributed among the property owners who still owe money. They’ll get cash payments unless the excess amount is less than $1,000. If it's less than $1,000, the extra money can be moved to the general fund of the managing entity.

This law explains that money in a special reserve fund can be temporarily invested in certain approved investments, as long as these investments mature before the money is needed for a specific purpose, like a redemption fund. It's important that any profits from these investments go back into the special reserve fund, while any losses or costs must be charged to this fund too.

This law allows a legislative body to decide how to use the money in a special reserve fund to help bonds avoid becoming "arbitrage bonds," which are defined by federal tax law. Specifically, before the bonds are issued, the legislative body can pass a resolution to use this money in two ways: to give credits on assessments as per another law, or to retire the bonds early by transferring money to a redemption fund. The resolution can also set reasonable rules and conditions for these money uses.