This bill mandates that local governments establish capital project replacement accounts for projects that receive state funding. Specifically, it requires grantees who receive state appropriations or grants for capital projects to create a replacement fund dedicated to major rehabilitation, expansion, replacement, or preservation of the project once it reaches its useful life. The bill outlines the responsibilities of grantees, including the adoption of a capital project replacement policy that details the fund's intended use and criteria for addressing other capital improvement needs. Additionally, the bill stipulates that the state auditor may audit these accounts as part of regular audits of local governments.

The legislation also includes provisions for minimum deposit amounts into these replacement funds, determined by the commissioner of administration, and establishes penalties for noncompliance, which would result in a fee equal to one percent of the state appropriation for each year of noncompliance. However, capital projects that already require a replacement fund under existing laws are exempt from these new requirements, provided they meet the minimum deposit criteria. The effective date for these provisions is set for capital projects funded through state grant agreements entered into on or after July 1, 2025.