(a) The municipal capital project matching grant program is established in the department. Grants to municipalities under this program shall be administered as provided in this section.

(b) The municipal capital project matching grant fund is established in the department and consists of appropriations to the fund. Appropriations to the fund do not lapse except as provided in (f) of this section. The money in the fund is held by the department in custody under this subsection for each municipality. The department shall establish, for each municipality, an individual grant account within the fund. As provided in this subsection, each fiscal year the department shall allocate, to the individual grant accounts, appropriations to the fund. The department shall credit interest earned on money in an individual grant account to that account. Except as provided in (c) of this section, the amount allocated under this subsection to an individual grant account in a fiscal year is determined by multiplying the total amount appropriated to the fund during that fiscal year by a fraction,

(1) the numerator of which equals for a municipality with a population

(A) under 1,000, the amount equal to that population multiplied by 1.5;

(B) of at least 1,000 but less than 5,000, the amount equal to that population multiplied by 1.4;

(C) of at least 5,000 but not greater than 10,000, the amount equal to that population multiplied by 1.2;

(D) of over 10,000, the amount equal to that population; and

(2) the denominator of which equals the sum of the numerators calculated for all municipalities under (1)(A) - (D) of this subsection.

(c) A minimum of $25,000 shall be allocated to each municipality's individual grant account each fiscal year under (b) of this section. The department shall reduce allocations under (b) of this section on a pro rata basis, based upon the population of the municipalities, if necessary to fund the minimum amount for each municipality. If appropriations are not sufficient to fully fund the minimum amount for each municipality, the amount appropriated shall be allocated equally among the municipalities' individual grant accounts.

(d) By October 1 of each fiscal year, each municipality shall submit to the governor a prioritized list of capital projects and estimated costs to be financed with money from the municipality's individual grant account established under (b) of this section. The list must include the amount and source of the local share required by AS 37.06.030. The governor shall include in the capital improvements program presented to the legislature under AS 37.07.060 the projects submitted by each municipality that the governor recommends for funding. If, in the capital improvements program, the governor includes projects in other than the priority order submitted by a municipality, the governor shall provide the legislature with a written statement of the reasons for that action.

(e) The legislature may make appropriations from a municipality's individual grant account established under (b) of this section to the municipality for capital projects under this section. Subject to appropriations under this subsection and to the local share requirements of AS 37.06.030, each municipality may draw amounts from its individual grant account for a capital project, in accordance with an appropriation for that project. In accepting a draw, the municipality covenants with the state that it will provide for the operation and maintenance of the capital project for which the draw is used for the practical life of the project, and acknowledges that the state is not responsible for operating or maintaining the capital project or for paying for its operation or maintenance. This requirement does not apply to use of money from a draw for repair or improvement of an existing facility that is operated or maintained by the state at the time that the draw is made if the repair or improvement for which the draw is used will not substantially increase the operating or maintenance costs to the state. No more than 10 percent of the total amount of money from a draw for land acquisition, or planning, design, construction, or repair of a facility may be used for administrative expenses. No more than five percent of the total amount of money from a draw for equipment or equipment repairs may be used for administrative expenses. If a municipality provides grant money from a draw to another recipient, the municipality may not use any of the money from the draw for administrative expenses. The municipality and its agents, contractors, and subcontractors shall comply with the hiring preferences under AS 36.10 in hiring employees to be paid wholly or in part with money from a draw.

(f) A municipality shall repay to the department money drawn from its individual grant account if substantial, ongoing work on the capital project is not started within five years after the effective date of the appropriation from which the draw is funded. Money repaid shall be deposited into the general fund. Money from an allocation to a municipality's individual grant account that has not been drawn out by the municipality within five years after the effective date of the appropriation from which the allocation is funded lapses into the general fund.

(g) For purposes of this section, in calculating the population of a borough, the population of each city in the borough is excluded. The determination of population shall be based on the latest figures of the United States Bureau of the Census or other population data that the Department of Commerce, Community, and Economic Development determines is reliable.

(h) The provisions of AS 37.05.321 apply to a grant and draws made under this section, and to earnings from the grant and draws.

(i) Before the department may pay a draw under this section to a municipality, the department shall have evidence acceptable to the department that the municipality

(1) has a preventive maintenance plan that

(A) includes a computerized maintenance management program, cardex system, or other formal systematic means of tracking the timing and costs associated with planned and completed maintenance activities, including scheduled preventive maintenance;

(B) addresses energy management for buildings owned or operated by the municipality;

(C) includes a regular custodial care program for buildings owned or operated by the municipality;

(D) includes preventive maintenance training for facility managers and maintenance employees;

(E) includes renewal and replacement schedules for electrical, mechanical, structural, and other components of facilities owned or operated by the municipality; and

(2) is adequately adhering to the preventive maintenance plan.

(j) In this section, unless specified otherwise, “department” means the Department of Commerce, Community, and Economic Development.