The bill mandates that local governments establish a capital project replacement fund for any capital improvement projects that receive state funding. This fund is intended for the major rehabilitation, expansion, or replacement of the capital project and must remain intact for the duration of the grant agreement unless the commissioner of management and budget provides written approval for its use. The bill also requires the commissioner to determine minimum deposit amounts into these funds based on various factors such as depreciation and construction cost inflation. Additionally, the state auditor will conduct audits of these accounts as part of regular local government audits.

Certain exceptions are included in the bill, allowing capital projects that already require a replacement fund under existing laws to be exempt from the new requirements, provided their deposits meet the minimum amounts set by the commissioner. The provisions of this bill will take effect for capital projects receiving state funding on or after July 1, 2024.