Item PFA-3 - Water Revenue Bonds

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(i) all Maintenance and Operation Costs of the Water System estimated by the City to become due and payable in such Fiscal Year; (ii) all Debt Service coming due and payable in such Fiscal Year; and (iii) all payments required to meet any other obligations of City which are charges, liens or encumbrances upon, or payable from, the Net System Revenues. The City shall fix, prescribe, revise and collect rates and charges for the services and facilities furnished by the Water System during each Fiscal Year which are sufficient to yield Net System Revenues, at least equal to one hundred and twenty percent (120%) of the amounts payable under the preceding clause (ii) in such Fiscal Year. (b) The City may establish, as a fund within the Water Revenue Fund, a fund denominated the Rate Stabilization Fund. From time to time the City may deposit into the Rate Stabilization Fund, from current System Revenues, such amounts as the City shall determine and the amount of available current System Revenues shall be reduced by the amount so transferred. Amounts may be transferred from the Rate Stabilization Fund solely and exclusively to pay Maintenance and Operation Costs, and any amounts so transferred shall be deemed System Revenues when so transferred. All interest or other earnings upon amounts in the Rate Stabilization Fund may be withdrawn therefrom and accounted for as System Revenues. SECTION 6.09. Payment of Claims. The City will pay and discharge any and all lawful claims for labor, materials or supplies which, if unpaid, might become a lien on the Net System Revenues or any part thereof or on any funds in the hands of the City or the Trustee might impair the security of the Installment Payments, but the City shall not be required to pay such claims if the validity thereof shall be contested in good faith. SECTION 6.10. Compliance with Contracts. The City will comply with, keep, observe and perform all agreements, conditions, covenants and terms, express or implied, required to be performed by it contained in all contracts for the use of the Water System and all other contracts affecting or involving the Water System to the extent that the City is a party thereto. SECTION 6.11. Insurance. (a) The City will procure and maintain or cause to be procured and maintained insurance on the Water System with responsible insurers, or provide self insurance reserves, in such amounts and against such risks (including accident to or destruction of the Water System) as are usually covered in connection with water systems similar to the Water System. In the event of any damage to or destruction of the Water System caused by the perils covered by such insurance or self insurance, the Net Proceeds thereof shall be applied to the reconstruction, repair or replacement of the damaged or destroyed portion of the Water System. The City shall begin such reconstruction, repair or replacement promptly after such damage or destruction shall occur, and shall continue and properly complete such reconstruction, repair or replacement as expeditiously as possible, and shall pay out of such Net Proceeds all costs and expenses in connection with such reconstruction, repair or replacement so that the same shall be completed and the Water System shall be free and clear of all claims and liens unless the City determines that such property or facility is not necessary to the efficient or proper operation of the Water System and therefore 21 55394.00068\42092413.3