(1) The Disability and Relief Fund for Firemen and Policemen shall be created and, except as otherwise provided in subsection (2) of this section, maintained by an ad valorem tax levied annually on all property in the municipality, provided the election called for in Section 21-29-203 has authorized the creation of the fund. The levy made, and the deductions from the salaries of members, shall be in an amount sufficient, but not more than the amount necessary, to make the system actuarially sound by July 1, 2000, as certified to the municipality by the board. Such tax shall not be included in the ten percent (10%) limitation on increases under Section 27-39-321, nor shall any tax increase exceed one-half (½) mill per year; however, if any levy to pay debt service on bonds issued under Section 31-25-20 as described in subsection (2) of this section is reduced for any year as a result of payment of the bonds or otherwise, the levy under this subsection (1) for such year may be increased by an amount, in addition to the one-half (½) mill otherwise authorized, not to exceed the reduction for such year in the millage levied to pay debt service on the bonds.

(2) In addition to, or in lieu of, the method of funding provided for in subsection (1) of this section, the municipality may fund or assist in funding the retirement system through the use of revenue bonds issued pursuant to Section 31-25-20. Any tax levied to service the debt on such bonds shall not be included in the ten percent (10%) limitation on increases under Section 27-39-321.

(3) The fund may be created and maintained by such gifts, donations and bequests as may be made to the fund by any person or corporation, by any appropriation or tax levy, or both, of the municipality, by such sum or sums as the municipality may receive from insurance companies for the benefit of the fund, and by the deduction by the municipality from the salary of each member of the Disability and Relief Fund for Firemen and Policemen of not less than seven percent (7%) nor more than ten percent (10%) of the amount thereof. Any increase to an amount in excess of seven percent (7%) shall be in increments of not more than one percent (1%) per annum. No increase from the deduction of seven percent (7%) shall be made unless the board determines that the avails of the tax levy of three (3) mills, when combined with the avails of the deduction of seven percent (7%), is insufficient to keep the system actuarially sound.

(4) The municipality and the Board of Trustees of the Public Employees’ Retirement System may enter into such contracts and agreements as are deemed necessary to implement the provisions of this section, including, but not limited to, contracts and agreements addressing the use, application and investment of proceeds of bonds issued under Section 31-25-20 and earnings thereon and the relative rights and obligations of the municipality and the Public Employees’ Retirement System during the period that the bonds are outstanding and thereafter.