Section 1197-M. Exemption from taxes, assessments and certain fees; payments in lieu of taxes

1. It is hereby determined that the creation of the  authority and the carrying out of  its  corporate  purposes  is  in  all
  respects  for  the  benefit  of  the people of the state and is a public
  purpose,  and  the  authority  shall  be  regarded   as   performing   a
  governmental function in the exercise of the powers conferred upon it by
  this  title  and  shall  not  be  required  to pay any taxes, special ad
  valorem levies or special assessments upon any real property owned by it
  or any filing, recording or  transfer  fees  or  taxes  in  relation  to
  instruments filed, recorded or transferred by it or on its behalf.
    2.  The  authority  may  pay,  or  may  enter into agreements with any
  municipality to pay, a sum or sums annually or otherwise or  to  provide
  other  considerations to such municipality with respect to real property
  owned by the authority located within such municipality and constituting
  a part of its water system.
    3. Any bonds issued pursuant to this title together  with  the  income
  therefrom  shall  be exempt from taxation except for transfer and estate
  taxes. The revenues, moneys and all other property and all activities of
  the authority shall be exempt from all taxes and  governmental  fees  or
  charges,  whether  imposed  by  the state or any municipality, including
  without limitation real estate taxes, franchise taxes,  sales  taxes  or
  other excise taxes.
    4.  The  state  hereby  covenants  with  the  purchasers  and with all
  subsequent holders and transferees of  bonds  issued  by  the  authority
  pursuant  to  this  title,  in  consideration  of  the acceptance of and
  payment for the bonds, that the bonds of the authority  issued  pursuant
  to  this  title  and  the  income  therefrom  shall  be exempt from such
  taxation, as aforestated in subdivision three of this section, and  that
  all  revenues,  moneys, and other property pledged to secure the payment
  of such bonds shall at all times be free from such taxes as  aforestated
  in such subdivision.
    5.  Notwithstanding  the above, nothing herein shall prevent the state
  from assessing a tax or surcharge against the water customers  based  on
  their  water  consumption,  provided,  however,  that all such taxes and
  surcharges and the authority's obligation to collect and pay such  taxes
  and  surcharges  shall be subordinate to the rights of holders of all of
  the authority's bonds  and  notes  and  to  the  payment  of  principal,
  premiums if any, and interest thereon.