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...... .'. .", , .:~<f.l functions of the projeot. It is the transitional step leading from the economic evaluation of the project to the design of its reim- bursement or cost sharing schedules. prelimin~ry exploration in the field of reimbursement re- vealed that before objeotive study of the problems and development of application prooedures oould be aooomplished, major deoisions of a policy nature would have to be made at higher levels of delibera- tion. One of these deoisions would determine the latitude of the AWRBIAC in reoommending ohanges in existing polioies or suggesting new polioies where none now exist. Awaiting suoh deoisions, it appeared that the urgenoy to oontinue. study of reimbursement methods for A'~ applioation had diminished. Consequently no reoommendations with respeot to reimburssment polioies or methods appear in this report. METHOD UNDER STUDY The method of cost allooation under review is known as the Separable Costs-Remaining Benefits method. It. presupposes that thel'e will be available for its applioation the be.sio data developed du~ing the project formulation and evaluation studies. Tho method is designed for simultaneous applioation to both the investment costs and the operation, maintenanoe, and replaoement costs of a project. It is stated in the Green Book that equitable distribution of project costs among the purposes served is attainod by providing for proportional sharing of the savings due to including the func- tion in a multiple-purpose project. Actually, however, only the joint costs, or unassignable oosts, reoeive the proportioning treat- ment. The method prohibits the cost allocated to any purpose from exoeeding the oorresponding benefits and prohibits the allocated oost from failing the oorresponding separable oosts. The method regards, first, the determination of the separ- able cost of inoluding each function in the multiple-purpose projeot. The separable oost of each project function is defined as the differ- ence in cost between the multiple-purpose project which includes the particular funotion and the projeot oost with that funotion omitted. This oost difference should include oonsideration of necessary modi- fications of design and operation. The method regards, seoondly, the determination of an equitable distribution of joint oosts incurred for several purposes in common. Joint costs are defined as the differenoe between the cost of a multiple-purpose project as a whole and the sum of the separable oosts for all projeot purposes. It is stated that the distribution of joint oosts in proportion to the excess of benefits over separable costs assigns to eaoh purpose an equitable share of project savings. The amount of the benefit thus used as a basis -2-