This bill, S.F. No. 2321, proposes a new requirement for local governments that receive state funding for capital projects. Specifically, it mandates that grantees establish a Capital Project Replacement Fund to finance future major rehabilitation, expansion, replacement, or preservation of the funded capital projects.

Key Provisions:

1. Creation of Replacement Accounts

   • Local governments (excluding state agencies) receiving direct appropriations or grants for capital projects must set up and maintain a dedicated fund.
     
   • The fund ensures money is available for project repairs or replacements throughout its useful life, as defined in agreements with the granting state agency.
     
   • Funds may also be used for capital improvements on other assets owned by the grantee if approved by the granting agency.

2. Capital Project Replacement Policy

   • Grantees must adopt a policy outlining:
     a) Risks mitigated by the replacement fund.
     b) Intended uses (e.g., maintenance, major upgrades, preservation).
     c) Criteria for applying the funds to other needs, such as safety, security, or sustainability.

3. Minimum Deposits & Fund Balances

   • The Commissioner of Administration will determine the annual minimum deposit amounts for different project types.
     
   • Determinations will consider factors like depreciation and construction cost inflation.
     
   • The required fund balance cannot exceed the original state grant amount.

4. Auditing & Compliance

   • The State Auditor has authority to audit these accounts as part of local government audits.
     
   • Existing projects already requiring replacement funds under other laws are exempt, as long as their existing deposits meet the new minimum standard.

5. Penalties for Noncompliance

   • If a grantee fails to maintain the fund as required, the granting state agency will impose a penalty fee of 1% of the original state appropriation per year of noncompliance.
     
   • Collected penalties will be deposited into the state's general fund.

Purpose:

This bill aims to promote financial sustainability for state-funded capital investments by ensuring sufficient resources are set aside for ongoing maintenance, preserving public assets, and avoiding reliance on additional state funding for future repairs or replacements.