(a) Whenever any water authority incurs an indebtedness whether by the issuance of bonds, notes or otherwise by reason of the installation, enlargement or maintenance of a water distribution system within any member town, and the authority determines that the revenues and assessments reasonably anticipated by reason of such installation, enlargement or maintenance are insufficient to permit the payment of such indebtedness, the town in which such distribution system is located may, by appropriate action, guarantee the payment of definitive notes and bonds issued by the authority and thereafter from time to time lend to the authority such funds as may be required to retire such notes and bonds as the same become due together with such amounts as may from time to time be needed to satisfy interest and other charges upon such notes and bonds. Such amounts with interest at such rates per annum, not exceeding statutory limitations thereon, borrowed by the authority from such town shall be an obligation of the authority provided, such revenues and assessments as may be received by reason of the water service supplied to such town, after the payment of reasonable operating costs, shall be segregated in a separate account from other funds of the authority. Such funds shall be paid to such town from time to time in accordance with the terms of the loan until the entire amount due to such town is fully satisfied and shall be used for no other purpose. Operating costs are defined as those costs incurred in the maintenance and operation of the water distribution system including, but not limited to, the costs of physical maintenance of the installations, bookkeeping costs, the costs of surveys, soundings and examinations, employee wages and servicing of the bonds or debts of the authority other than those funds borrowed from the town in which the water distribution system is located, as the same becomes due together with such amounts as may from time to time be needed to satisfy interest and other charges upon such indebtedness.

(b) Any funds so loaned by a town to the authority shall be evidenced by such notes or other evidences of indebtedness as may be appropriate. Any member town is authorized to enter into an agreement to lend such funds as may be required upon complying with such procedures as may be prescribed by such town for the issuance of general obligation bonds of such town provided, any such town may lend such funds as part of its general operating budget. Such funds as may be received by such town from the authority shall be used by the town as it shall determine in its budget.

(P.A. 78-129.)