(a) A grant made under AS 29.60.510 may be made

(1) only for

(A) provision of subsistence resources on which the residents of the municipality, village, or school district rely for subsistence needs;

(B) the additional costs of a reasonable and appropriate function or service, including administrative expenses for the incremental costs of providing the function or service, limited to:

(i) public health and welfare functions and services, including hospital, clinic, and emergency medical services; alcohol, drug abuse, and mental health services; family support services; and the operation of waste disposal systems and water quality improvement systems;

(ii) public safety functions and services, including police protection, search and rescue, and fire protection;

(iii) public utility functions and services, including the operation of electric generating plants and distribution systems, water supply systems, telephone systems, and fuel distribution systems; and

(iv) housing functions and services, limited to leasing or making other arrangements for temporary housing to be occupied by persons associated with containment or cleanup of the release;

(C) costs associated with leasing transportation facilities for use in activities associated with the containment or cleanup;

(D) costs of repair or replacement of equipment or a capital asset associated with a function or service set out in (B) of this paragraph the useful life of which has been substantially reduced by use associated with the containment or cleanup; and

(2) to compensate the municipality, village, or school district for

(A) the reduction of revenue attributable to the release of the oil or hazardous substance; and

(B) the actual costs of projects or activities that are delayed or lost because of the efforts of the municipality, village, or school district responding to the release or associated with the containment or cleanup of oil or the hazardous substance.

(b) If money received under this section is used for a capital expenditure, the commissioner may require the municipality, village, or school district that acquired the item as a capital expenditure to transfer it to the state at the end of the period during which the item is actually used for spill response if the commissioner finds that retention of the item would confer an inappropriate benefit on the municipality, village, or school district.