1.    The program shall establish and maintain a reserve fund in which there must be deposited all moneys appropriated by the state for the purpose of the fund, all proceeds of bonds required to be deposited by terms of any contract between the program and its bondholders or any resolution of the program with respect to the proceeds of bonds, any other moneys or funds of the program which are deposited by the program, any contractual right to the receipt of moneys by the program for the purpose of the fund, including a letter of credit or similar instrument, and any other moneys made available to the program only for the purposes of the fund from any other source. Moneys in the reserve fund must be held and applied solely to the payment of the interest on and the principal of bonds and sinking fund payments as they become due and payable and for the retirement of bonds, including payment of any redemption premium required to be paid when any bonds are redeemed or retired prior to maturity, and for the payment of principal and interest on municipal securities guaranteed by the program. Moneys in the reserve fund may not be withdrawn if the withdrawal would reduce the amount in the reserve fund to less than the required debt service reserve, except for payment of interest then due and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, sinking fund payments, the     retirement of bonds in accordance with the terms of any contract between the program and its bondholders, the payment of principal and interest on municipal securities of an irrigation district for which a guarantee has been issued by the program, and for the payments on account of which interest or principal or sinking fund payments or retirement of bonds or execution of a guarantee, other moneys of the program are not then available in accordance with the terms of the contract. The reserve fund may not be used for the payment of a guarantee by the program unless the commission has determined that bonds of the program cannot be issued under acceptable terms for the payment of the guarantee, or the payment of the guarantee will not reduce the reserve fund to an amount less than the required debt service reserve. The required debt service reserve must be an aggregate amount equal to at least the largest amount of money required by the terms of all contracts between the program and its bondholders to be raised in the then current or any succeeding calendar year for the payment of interest on and maturing principal of outstanding bonds, and sinking fund payments required by the terms of any contracts to sinking funds established for the payment or redemption of the bonds.

2.    If the establishment of the reserve fund for an issue or the maintenance of an existing reserve fund at a required level under this section would necessitate the investment of all or any portion of a new reserve fund or all or any portion of an existing reserve fund at a restricted yield, because not restricting the yield may cause the bonds to be taxable under the Internal Revenue Code, then, at the discretion of the program, no reserve fund need be established prior to the issuance of bonds, the reserve fund need not be funded to the levels required by this section, or an existing reserve fund may be reduced.

3.    No bonds may be issued by the program 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. Nothing in this chapter prevents the program from satisfying this requirement by depositing upon issuance so much of the proceeds of the bonds to be issued, as is needed to achieve the required debt service reserve. The program may, at any time, issue its bonds or notes for the purpose of providing any amount necessary to increase the amount in the reserve fund to the required debt service reserve, or to meet higher or additional reserves as may be fixed by the program.

4.    In order to ensure maintenance of the required debt service reserve, the legislative assembly shall appropriate and deposit in the reserve fund the amount certified by the commission as necessary to restore the reserve fund to an amount equal to the required debt service reserve, or maintain a reserve fund established by the commission under this chapter and required according to the terms of a guarantee issued by the program. However, the commission may approve a resolution for the issuance of bonds, as provided by this chapter, which states in substance that this subsection is not applicable to the required debt service reserve for bonds issued under the resolution.

5.    If the maturity of a series of bonds of the program is three years or less from the date of issuance of the bonds, the program may determine that no reserve fund need be established for that respective series of bonds, or that it may be established in an amount less than the required debt service reserve. If such a determination is made, holders of the respective series of bonds may have no interest in or claim on existing reserve funds established for the security of the holders of previously issued program bonds and may have no interest in or claim on reserve funds established for the holders of subsequent issues of bonds of the program.