The purpose of this subtitle is to codify the authority of the State Treasurer to enter into a capital lease agreement and to establish a method for financing a capital lease as defined in this subtitle.

In this subtitle the following terms have the meanings indicated. “Capital equipment” means any item of equipment that, by generally accepted accounting principles, is capitalized for purposes of accounting. “Capital lease” means any lease, conditional sale, installment sale, or similar agreement, defined as a capital lease in accordance with generally accepted accounting principles, that is used to finance: the acquisition or construction of improvements to real property, under § 3-602 of this article; or the acquisition of capital equipment. “Capital lease” includes a master lease.

The State Treasurer, with the approval of the Board of Public Works, may enter into a capital lease on behalf of one or more units of State government. Prior to submission of a capital lease to the Board of Public Works, the Treasurer shall submit to the Legislative Policy Committee the total financing request and any supporting information. The Legislative Policy Committee has 45 days within which to review and provide written comments on the financing.

A capital lease authorized under this subtitle: shall be contingent on the availability of appropriated or other legally available funds, not including nonappropriated pension or retirement funds, that permit the timely payment of principal, interest, and other obligations, if any, imposed by the terms of the capital lease; may not be construed or deemed to be a debt of the State or a unit of State government; and may not constitute a pledge of the full faith and credit and taxing power of the State or a unit of State government.

Except for capital leases used to finance energy performance contracts excluded from tax supported debt under § 8–104 of this title, the Treasurer shall, at a reasonable market rate, capitalize the payments on a capital lease authorized under this subtitle on an annual basis for each fiscal year the lease is in effect. The greater of the amount determined for a given fiscal year under subsection (a) of this section or the amount of any purchase value at the termination of a capital lease authorized under this subtitle shall be included in the tax supported debt considered by the Capital Debt Affordability Committee in its annual estimate for that fiscal year under Subtitle 1 of this title.

The State Treasurer may deposit the proceeds of a capital lease authorized under this subtitle in an escrow account or similar arrangement. The proceeds may be withdrawn for the purpose of making payment due under the terms of the capital lease. A withdrawal made under the provisions of this section shall be made in accordance with the terms of the individual contract. The State Treasurer may invest any unexpended proceeds held in escrow and the investment income on the proceeds in obligations authorized for the investment of State funds under § 6-222 of this article.

In this section the following words have the meanings indicated. “Code” means the Internal Revenue Code of 1986 and includes regulations and rulings issued under that Code. “Financial officer” means the secretary of the principal department that includes the appropriate unit or the head of the unit if the unit is an independent unit. “Financial officer” includes the Treasurer and the Comptroller. “Proceeds” means money received from the sale of a capital lease, and includes any money deemed to be proceeds of a capital lease under the Code. The financial officer may establish and maintain funds and accounts for the administration, management, investment and accounting of proceeds, including any investment earnings on proceeds, that may be necessary or appropriate from time to time to comply with the Code and to establish or maintain the exclusion from gross income for federal income tax purposes of interest on a capital lease. The financial officer may manage and invest proceeds, including any investment earnings on proceeds, in a manner so as to maintain the exclusion from gross income for federal income tax purposes of interest on a capital lease. The financial officer may restrict the yields on investments of proceeds if and to the extent necessary to maintain the exclusion from gross income for federal income tax purposes of interest on a capital lease. The financial officer may prepare and maintain records of the receipt, deposit, investment, management, disbursement and application of proceeds, including any investment earnings on proceeds, that may be necessary or appropriate from time to time to comply with the Code and to maintain or verify the exclusion from gross income for federal income tax purposes of interest on a capital lease. The financial officer may establish a separate rebate fund to be used to make any payments to the United States with respect to investment earnings on proceeds that may be required from time to time by the Code. There may be separate accounts within the rebate fund. Amounts deposited to the rebate fund shall be used only for the purpose of making rebate payments to the United States. The financial officer may make payments from the rebate fund as may be required from time to time in order to: comply with the Code; and maintain the exclusion from gross income for federal income tax purposes of interest on a capital lease. Any excess money held in the rebate fund with respect to a capital lease after all required rebate payments for that capital lease have been made, as certified by the financial officer, shall be applied in a manner consistent with the Code. The financial officer may prepare and file from time to time with the appropriate agency of the United States any forms, information, and reports with respect to each capital lease and the expenditure and investment of proceeds that may be required under the Code. The financial officer and other officers of a State unit may: take any other or further actions; enter into any agreement or covenant regarding the use of proceeds, including any investment earnings on proceeds, the deposit of money to the rebate fund, and the making of rebate payments; and provide certifications of facts and estimates, that may be necessary or appropriate from time to time to comply with the Code and to establish or maintain the exclusion from gross income for federal income tax purposes of interest on a capital lease. Nothing in this section shall prevent the Treasurer from entering into a capital lease the interest on which is not excludable from gross income for federal income tax purposes.