HF4840

Purpose

• This bill would authorize the state to fund upgrades, replacement, and modernization of the MAXIS system using lease-purchase financing. It would allow the state to sell certificates of participation to raise money for the MAXIS project. The changes would be included in Minnesota law (Chapter 16A) and would create a framework for how the MAXIS improvements are financed, paid for, and managed.

Key terms and definitions

• MAXIS project: the development, acquisition, installation, and implementation of a modernization plan or replacement of the MAXIS system.
• Lease-purchase agreement: an agreement for leasing and installment purchases of the MAXIS project between the state (via the commissioner) and a vendor or financing source.
• MAXIS lease-purchase guidelines: policies and requirements set by the commissioner for this project.
• Certificates of participation: financial instruments sold to raise money for the MAXIS project.
• MAXIS lease project fund: a state treasury fund where lease-purchase proceeds and investment income are held and managed.

How the financing would work

• The commissioner may enter into a lease-purchase agreement to fund the MAXIS project, and may issue certificates of participation to raise funds.
• The term of the lease-purchase and related certificates must be no longer than the shorter of:
  • the expected useful life of the MAXIS project, or
  • ten years from the issuance date.
• Money raised must cover costs of issuance, capitalized interest, credit enhancement, or reserves as needed.
• Proceeds must go into the MAXIS lease project fund, and any investment income from those proceeds also goes into the MAXIS lease project fund.
• If needed, the commissioner can transfer money from the general fund to the MAXIS project fund before the proceeds are received, but must return those amounts when proceeds arrive.
• Administrative expenses related to selling and delivering the lease-purchase agreement may be paid from the lease-purchase proceeds.

Covenants and protections

• The state would covenant to typical lease-purchase terms, including:
  • maintaining insurance as required,
  • being responsible for claims or costs related to the MAXIS project to the extent of insurance or self-insurance,
  • allowing the lessor to exercise remedies if the state defaults or if money is not appropriated,
  • using liquidated damages if there is a default.

Tax and debt implications

• The lease-purchase does not create general or moral debt for the state beyond appropriations.
• Payments during the current lease term are treated as a current expense.
• Property bought under a lease-purchase is not subject to personal property taxes, and the purchaser (the state) would not owe sales tax on the property or payments, but the state could owe certain tax obligations on the property under state law.

Revenue use and management

• Proceeds and investment earnings are credited to the MAXIS lease project fund and used only for the MAXIS project as described in the authorizing law.
• After the project is completed or abandoned, any remaining funds in the MAXIS lease project fund would be transferred to the general fund.

Refunding and refinancing

• The commissioner can issue new lease-purchase agreements and refunding certificates to refinance existing ones, including paying any premiums, interest, or costs related to the refunding.
• Proceeds from refunding can be used to buy back old certificates, pay them off, or pay interest on the refunding agreements, and may be placed in escrow until used.

Funding timeline and appropriation (Sec. 2)

• The bill would appropriate 10 million dollars in each of the following fiscal years: 2027, 2028, 2029, 2030, 2031, 2032, 2033, 2034, 2035, and 2036.
• These appropriations would be from the general fund to the commissioner to make MAXIS lease-purchase payments.
• The state would not be obligated to continue these payments in any future year, and any unspent funds would cancel at the end of each biennium.
• The provision for appropriations would expire on June 30, 2037.

What this means in practice

• The state would fund MAXIS modernization mainly through lease-purchase financing rather than traditional debt or immediate cash spending.
• The MAXIS project would have a dedicated funding mechanism and governance through the MAXIS lease project fund.
• There are built-in protections for budgeting (no obligation to future years), for potential refinancing, and for handling remaining funds after project completion.

Relevant terms - MAXIS, MAXIS project, MAXIS lease project fund - lease-purchase agreement, certificates of participation (COPs) - MAXIS leasepurchase guidelines - commissioner (state official responsible for MAXIS) - nonappropriation, liquidated damages - credit enhancement, reserves, costs of issuance - refunding certificates, refunding - general fund, appropriation, and state treasury - not a public debt, current expense - property tax treatment, sales tax treatment - modernization, development, installation, implementation