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Minnesota Legislature

Office of the Revisor of Statutes

16A.695 PROPERTY PURCHASED WITH STATE BOND PROCEEDS.
    Subdivision 1. Definitions. (a) The definitions in this subdivision apply to this section.
(b) "State bond financed property" means property acquired or bettered in whole or in part
with the proceeds of state general obligation bonds authorized to be issued under article XI,
section 5, clause (a), of the Minnesota Constitution.
(c) "Public officer or agency" means a state officer or agency, the University of Minnesota,
the Minnesota Historical Society, and any county, home rule charter or statutory city, school
district, special purpose district, or other public entity, or any officer or employee thereof.
(d) "Fair market value" means, with respect to the sale of state bond financed property,
the price that would be paid by a willing and qualified buyer to a willing and qualified seller
as determined by an appraisal of the property, or the price bid by a purchaser under a public
bid procedure after reasonable public notice.
(e) "Outstanding state bonds" means the dollar amount certified by the commissioner, upon
the request of a public officer or agency, to be the principal amount of state bonds, including any
refunding bonds, issued with respect to the state bond financed property, less the principal amount
of state bonds paid or defeased before the date of the request.
    Subd. 2. Leases and management contracts. (a) A public officer or agency that is
authorized by law to lease or enter into a management contract with respect to state bond financed
property shall comply with this subdivision. A reference to a lease or management contract in
this subdivision includes any amendments, modifications, or alterations to the referenced lease or
management contract and refers to the lease wherein the public officer or agency is the lessor of
the state bond financed property and the other contracting party is the lessee.
    (b) The lease or management contract may be entered into for the express purpose of
carrying out a governmental program established or authorized by law and established by official
action of the contracting public officer or agency, in accordance with orders of the commissioner
intended to ensure the legality and tax-exempt status of bonds issued to finance the property, and
with the approval of the commissioner. A lease or management contract must be for a term
substantially less than the useful life of the property, but may allow renewal beyond that term
upon a determination by the lessor that the lessee has demonstrated that the use continues to carry
out the governmental program. If the lessor and lessee do not renew the lease or management
contract and if the lessee has contributed to the land and the capital improvements on the state
bond financed property, the lessor may agree to reimburse the lessee for its investment in the land
and capital improvements. The reimbursement may be paid, at the option of the lessor and lessee,
at the time of nonrenewal without a requirement for a prior escrow of funds or at a later date and
on additional terms agreed to by the lessor and the lessee. A lease or management contract must
be terminable by the contracting public officer or agency if the other contracting party defaults
under the contract or if the governmental program is terminated or changed, and must provide for
program oversight by the contracting public officer or agency. The expiration or termination of a
lease or management agreement does not require that the state bond proceeds be repaid or that the
property be sold, so long as the property continues to be operated by, or on behalf of, the public
officer or agency for the intended governmental program. Money received by the public officer or
agency under the lease or management contract that is not needed to pay and not authorized to be
used to pay operating costs of the property, or to pay the principal, interest, redemption premiums,
and other expenses when due on debt related to the property other than state bonds, must be:
    (1) paid to the commissioner in the same proportion as the state bond financing is to the
total public debt financing for the property, excluding debt issued by a unit of government for
which it has no financial liability;
    (2) deposited in the state bond fund; and
    (3) used to pay or redeem or defease bonds issued to finance the property in accordance with
the commissioner's order authorizing their issuance.
    The money paid to the commissioner is appropriated for this purpose.
    (c) With the approval of the commissioner, a lease or management contract between a city
and a nonprofit corporation under section 471.191, subdivision 1, need not require the lessee to
pay rentals sufficient to pay the principal, interest, redemption premiums, and other expenses
when due with respect to state bonds issued to acquire and better the facilities.
    Subd. 3. Sale of property. A public officer or agency shall not sell any state bond financed
property unless the public officer or agency determines by official action that the property is no
longer usable or needed by the public officer or agency to carry out the governmental program
for which it was acquired or constructed, the sale is made as authorized by law, the sale is made
for fair market value, and the sale is approved by the commissioner. If any state bonds issued to
purchase or better the state bond financed property that is sold remain outstanding on the date of
sale, the net proceeds of sale must be applied as follows:
    (1) if the state bond financed property was acquired and bettered solely with state bond
proceeds, the net proceeds of sale must be paid to the commissioner and deposited in the state
treasury; or
    (2) if the state bond financed property was acquired or bettered partly with state bond
proceeds and partly with other money, the net proceeds of sale must be used: first, to pay to the
state the amount of state bond proceeds used to acquire or better the property; second, to pay in
full any outstanding public or private debt incurred to acquire or better the property; third, to pay
interested public and private entities, other than any public officer or agency or any private lender
already paid in full, the amount of money contributed to the acquisition or betterment of the
property; and fourth, any excess over the amount needed for those purposes must be divided in
proportion to the shares contributed to the acquisition or betterment of the property and paid to
the interested public and private entities, other than any private lender already paid in full, and the
proceeds are appropriated for this purpose. In calculating the share contributed by each entity, the
amount to be attributed to the owner of the property shall be the fair market value of the property
that was bettered by state bond proceeds at the time the betterment began.
    When all of the net proceeds of sale have been applied as provided in this subdivision,
this section no longer applies to the property.
    Subd. 3a. Involuntary sale of property. Notwithstanding subdivision 3, this subdivision
applies to the sale of state bond financed property by a lender that has provided money to acquire
or better the property. Purchase by the lender in a foreclosure sale, acceptance of a deed in lieu
of foreclosure, or enforcement of a security interest in personal property, by the lender, is not
a sale. Following purchase by the lender, the lender shall not operate the property in a manner
inconsistent with the governmental program established as provided in subdivision 2, paragraph
(b). The lender shall exercise its best efforts to sell the property to a third party as soon as feasible
following acquisition of marketable title to the property by the lender. A sale by the lender must
be made as authorized by law and must be made for fair market value.
    Subd. 4. Relation to other laws. This section applies to all state bond financed property
unless otherwise provided by law.
    Subd. 5. Program funding. Recipients of grants from money appropriated from the bond
proceeds fund must demonstrate to the commissioner of the agency making the grant that the
recipient has the ability and a plan to fund the program intended for the facility. A private nonprofit
organization that leases or manages a facility acquired or bettered with grant money appropriated
from the bond proceeds fund must demonstrate to the commissioner of the agency making the
grant that the organization has the ability and a plan to fund the program intended for the facility.
    Subd. 6. Match requirements. Recipients of grants from money appropriated from the bond
proceeds fund may be required to demonstrate a commitment of money from nonstate sources.
This matching money may be pledged payments that have been deposited into a segregated
account or multiyear pledges that are converted into cash or cash equivalent through a loan or
irrevocable letter of credit from a financial institution. The loan or irrevocable letter of credit may
be secured by a lien on the state bond financed property.
    Subd. 7. Ground lease for state bond financed property. A public officer or agency, as
lessee, may lease real property and improvements that are to be acquired or improved with state
bond proceeds. The lease must be for a term equal to or longer than 125 percent of the useful life
of the property. The expiration of the lease upon the end of its term does not require that the state
be repaid or that the property be sold and upon the expiration the real property and improvements
are no longer state bond financed property.
    Subd. 8. General applicability. (a) This section establishes requirements for the receipt and
use of general obligation grants and the ownership and operation of state bond-financed property.
General obligation grants may only be issued and used to finance the acquisition and betterment
of public lands and buildings and other public improvements of a capital nature that are used to
operate a governmental program, and for predesign and design activities for specifically identified
projects that involve the operation of a governmental program or activity. A general obligation
grant may not be used for general operating expenses, staffing, or general master planning. A
public officer or agency that is the recipient of a general obligation grant must comply with this
section in its use of the general obligation grant and operation, management, lease, and sale of
state bond-financed property. A public officer or agency that uses the proceeds of a general
obligation grant for any unauthorized purpose or in violation of this section must immediately
repay the outstanding balance of the grant to the commissioner, and a failure to comply authorizes
the commissioner to recover the outstanding balance as a setoff against any state aid provided to
the public officer or agency.
    (b) This section does not create any new authority regarding the ownership, construction,
rehabilitation, use, operation, lease management, or sale of state bond-financed property, or the
operation of the governmental program that will be operated on the property. Any authority that is
needed to enter into a management contract or lease of property, to sell property, or to operate a
governmental program or carry out any activity contained in the law that appropriates money for a
general obligation grant must be provided by as contained in some other law.
    Subd. 9. Grant agreement. All general obligation grants must be evidenced by a grant
agreement that specifies:
    (1) how the general obligation grant will be used;
    (2) the governmental program that will be operated on the state bond-financed property; and
    (3) that the state bond-financed property must be operated in compliance with this section,
all state and federal laws, and in a manner that will not cause the interest on the state general
obligation bonds to be or become subject to federal income taxation for any reason. A grant
agreement must comply with this section, the Minnesota Constitution, and all commissioner's
orders, and also contain other provisions the commissioner of the agency making the grant deems
appropriate. The commissioner shall draft and make available forms for grant agreements that
satisfy the requirements of this subdivision.
History: 1994 c 643 s 36; 1Sp1995 c 2 art 1 s 19-22; 1996 c 463 s 32; 2004 c 278 s 1; 2007
c 148 art 2 s 14-19