This bill mandates that local governments establish capital project replacement accounts for projects that receive state funding. Specifically, it requires grantees who receive direct 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 the grantee, including adopting a replacement policy that details the fund's intended use and criteria for addressing other capital improvement needs. Additionally, the state auditor is authorized to audit these accounts as part of regular audits of local governments.

The bill also stipulates that the commissioner of administration will determine the annual minimum deposit amounts for these replacement funds, considering factors like depreciation and construction cost inflation. Grantees are not required to maintain a fund balance exceeding the amount of the state appropriation for the capital project. Furthermore, it includes provisions for penalties for noncompliance, which would result in a fee equal to one percent of the state appropriation for each year of noncompliance. The new requirements will take effect for capital projects funded through state grant agreements entered into on or after July 1, 2025.