(1) The operating authority of any municipal waterworks system which was constructed or acquired pursuant to the authority contained in subchapter 2 of chapter 234 of this title shall have discretion to make payments from water revenues to the general fund of the municipality, in lieu of taxes, in return for police, fire, and health protection and in return for administrative and other services furnished the waterworks system by the municipality.
(2) The payments, if made, shall be an operation and maintenance expense of the waterworks system.
(3) In any calendar year, the payments authorized by this section shall not exceed the total of the following: A sum equal to five percent (5%) of gross income from water sales during the preceding calendar year; plus
(4) A sum equal to the amounts the municipality would have received from the waterworks system as property taxes for the preceding calendar year if the waterworks system's property had been privately owned and subject to tax by the municipality. For the purpose of this computation, the waterworks property shall be deemed to have an assessed value equal to twenty percent (20%) of book value as reflected by the waterworks system's usual accounting procedures.
(5) The payments shall be discretionary with the operating authority of the waterworks system and shall not be mandatory.
(6) Nothing contained in this section shall be construed as authorizing payments in violation of any trust indenture executed by municipalities to secure waterworks revenue bondholders. It shall be permissible for such indentures to limit or prohibit the payments authorized in this section.
(7) The payments authorized in this section shall not be made unless the municipality maintains water rates sufficient to provide the operating authority's estimated cost of operating and maintaining the waterworks system and sufficient to pay all other items specified in § 14-234-214.