Sts. & Hy. Code, § 10427

After completion of the improvement and the payment of all claims from the improvement fund, the legislative body shall determine the amount of the surplus, if any, remaining in the improvement fund by reason of the assessment and any supplemental assessment levied for the improvement. The surplus shall be used, in amounts determined by the legislative body, for one or more of the following purposes:

(a) For transfer to the general fund of the city, provided that the amount transferred shall not exceed the lesser of one thousand dollars ($1,000) or 5 percent of the total amount expended from the improvement fund.

(b) As a credit upon the assessment and any supplemental assessment, in the manner provided in Section 10427.1.

(c) For the maintenance of the improvement.

(d) To call bonds, thereby reducing outstanding assessments and subsequent assessment installments. In the event that the legislative body determines to use all or some portion of the surplus to call bonds prior to maturity, the treasurer shall do each of the following:

(1) Cause the special reserve fund, if any, to be reduced as necessary pursuant to Section 8887 to assure that the bonds will not become subject to federal income taxation.

(2) Cause any assessment previously paid in cash to receive a credit in cash pursuant to subdivision (b) of Section 10427.1 for the proportionate share of the surplus as determined pursuant to subdivision (a) of Section 10427.1.

(3) Cause the preparation of new auditor’s records to reflect the adjusted principal amount of the remaining assessment. All subsequent assessment installments shall be based upon the adjusted principal amount of the assessment as reflected in the revised auditor’s record.