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Attachment 1 property/facility lease for 125% of the useful life of the property (likely a term of 35-40 years). The proceeds of the grant can only be used for the purposes authorized by the legislature. Once constructed, the Facility must be used to operate the approved governmental program. As permitted by the Act and the Commissioner’s Order, the City can in turn enter into a lease and management agreement or similar document with KINF (discussed below). However, Minnesota Management and Budget (“MMB”) must approve the lease and management agreement and it must comply with requirements set forth in the Act and Commissioner’s Order as outlined in the grant agreement. The details of documentsother than the grant agreementrequired are described in more detail in specific sections below. Even though the grant will be passed through to KINF, the grant agreement will impose certain requirements on the City that cannot be delegated to KINF including a requirement that that the City report to MMB annually, in a statement sworn before a notary public, that the real property and the Facility are being used for the approved governmental purposes. Further, the City will be required to annually review projected budgets to verify that projected revenues are sufficient to meet projected expenses. The City will have an obligation to reject inaccurate or unbalanced budgets. Once it approves a budget, the City will supply a certified copy of the resolution approving the budget and a copy of the budget to the State. The grant agreement will also contain certain City obligations before and during construction. These include making sure KINF complies with design submittal requirements, managing reimbursement requests, ensuring the project is constructed as approved, and monitoring various Stateregulations including but not limited to the payment of prevailing wages. Many of these obligations can be met by hiring a construction manager. The costs of the construction manager can be passed along to KINF who can either pay for those costs out-of-pocket or with grant proceeds. The City should carefully draft the agreement with the construction manager (and conduct some oversight) to ensure that all state requirements are being monitored. As required by theCommissioner’s Order and the Act, the grant agreement prohibits the encumbrance or sale of the Facility unless the City determines by official action that the property is no longer usable or needed by the City to carry out the governmental program for which it was constructed. If the City determines that the property is no longer needed for the governmental program (likely because the nonprofit ceases to exist or is not meeting the requirements of the lease and management agreement as described below), any sale of the property must be approved by the Commissioner of MMB and the Property must be sold at fair market value. Net proceeds of the sale of the property must first be used to be provided to MMB and applied first to repay MMB for the grant(assuming that the State grant funds are not the only funding source for the Facility) and then to the other uses in accordance with the Act. Similarly, the bond-financed project cannot be sold, mortgaged, encumbered, or otherwise disposed of without the approval of the Commissioner of MMB. To make sure that potential future buyers or lenders of the Facility are aware of the limitations imposed by the Act and the grant agreement, MMB requires that the City execute and deliver a Minnesota General Obligation and Bond Financed Declaration that will be recorded against the property. Under the grant agreement ifthe City defaults on its obligations, the State can take any actions permitted by law including to refuse to disburse grant proceeds, or to force the City to pay back bond proceeds. If the City fails to pay the State back, the State can withhold other assistance. The term of the grant agreement is for 125% of the useful life of the property. 2 RS160\\1\\946530.v3 Qbhf!334!pg!494