(1) Except as provided in subsection (2) with respect to the second guaranteed entitlement for counties, local governments shall not use any portion of the moneys received in excess of the guaranteed entitlement from the revenue sharing trust funds created by this part to assign, pledge, or set aside as a trust for the payment of principal or interest on bonds, tax anticipation certificates, or any other form of indebtedness, and there shall be no other use restriction on revenues shared pursuant to this part. The state does hereby covenant with holders of bonds or other instruments of indebtedness issued by local governments prior to July 1, 1972, that it is not the intent of this part to affect adversely the rights of said holders or to relieve local governments of the duty to meet their obligations as a result of previous pledges or assignments or trusts entered into which obligated funds received from revenue sources which by terms of this part shall henceforth be distributed out of the revenue sharing trust funds.
(2) The second guaranteed entitlement for counties may be assigned, pledged, or set aside as a trust for the payment of principal or interest on bonds, tax anticipation certificates, or any other form of indebtedness, including obligations issued to acquire an insurance contract or contracts from a local government liability pool and including payments required pursuant to any loan agreement entered into to provide funds to acquire an insurance contract or contracts from a local government liability pool.
(3) As an additional assurance to holders of bonds issued before April 18, 2000, which are secured by the guaranteed entitlement or second guaranteed entitlement for counties, or bonds issued to refund such bonds which mature no later than the bonds that they refunded and which result in a reduction of debt service payable in each fiscal year, it is the intent of the Legislature that, to the extent the elimination of tax sources dedicated to funding the guaranteed entitlement or the second guaranteed entitlement for counties or a reduction in the rate of assessment of such taxes results in an inability of a county to pay debt service on such bonds, the Legislature will provide alternative funding sources in an amount sufficient to pay any deficit in the amount required for such debt service. This commitment of the Legislature is contingent on the county first using any funds available under this part for the payment of such debt service.
(4) Notwithstanding subsections (1) and (2), a local government may assign, pledge, or set aside as a trust for the payment of principal or interest on bonds, tax anticipation certificates, or any other form of indebtedness an amount up to 50 percent of the funds received in the prior year.