This bill mandates that local governments establish a capital project replacement fund for any capital improvement projects that receive state funding, as outlined in Minnesota Statutes, chapter 16A. Grantees are required to create a replacement account to ensure funds are available for major rehabilitation, expansion, or replacement of the project once it reaches its useful life. The bill specifies that the funds must remain in the account for the project's useful life unless otherwise approved by the granting state agency. Additionally, grantees must adopt a policy detailing the risks to be managed, intended uses of the fund, and criteria for addressing other capital improvement needs.

The bill also establishes minimum deposit requirements into these replacement funds, which will be determined by the commissioner of management and budget, taking into account factors such as depreciation and construction cost inflation. The state auditor is authorized to audit these accounts as part of regular local government audits. Exceptions are made for capital projects already requiring a replacement fund under existing laws, provided they meet minimum deposit standards. Noncompliance with these requirements will result in a penalty fee assessed by the granting state agency, which will be deposited into the general fund. The provisions of this bill will take effect for capital projects receiving state funding on or after July 1, 2024.