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Dialogue has begun at the action level, and there is genuine optimism for building a new intergovernmental partnership to break the water project funding logjam. More remains to be done to effect viable local, state and federal working partnerships. The President also spelled out his cost -sharing and financing policies for water projects, and stated, inter alia, that the costs of project planning are to be shared with project sponsors, Consistency in cost-sharing for individual project purposes is to be sought, so that all sponsors are treated consistently and fairly; but each water agency is to negotiate reasonable financing arrangements with the sponsors of each project. Ultimately, Congress and the President together will decide cost-sharing, financing and cost recovery arrangements, The Assistant Secretary of the Army for Civil Works, who oversees the Corps of Engineers Civil Works program, has recommended specific cost-sharing and financing policies to the Office of Management and Budget. With respect to the sharing of planning costs, the Corps planning process has been divided into two phases, The policy proposes that the federal government will bear the full costs of an initial 12- to 18-month "reconnaissance" phase, Project sponsors would provide 50 percent of the cost of a follow-up two- to three-year "feasibility" study for those "reconnaissance" studies deemed "winners." Up to one-half of the non-federal cost may be services in kind. With respect to project implementation, under Army policies, costshares for each project purpose are consistent among projects, and almost invariably exceed traditional costshares. Non-federal sponsors will provide their share during construction, rather than the traditional form of repayment with interest over the life of the project. We in the Army believe there should be set cost-sharing percentage formulas; however, there is a great deal of flexibility on individual, verifiable hardship cases for sponsors to extend their period of payment. The Army recognizes that its proposed and currently voluntary cost-sharing agreements reached with sponsors would be superseded by water resources legislation, If a sponsor is not able to borrow at favorable interest rates, the Army will consider financing those outputs and require repayment at the Treasury rate, This rate is currently about 11 percent and should not be confused with the federal discount rate of 8-3/8 percent used in economic analyses of water projects. The Army is using these policies in negotiating voluntary agreements with non-federal project sponsors - with the explicit understanding that Congress will ultimately decide the cost-sharing issue. A Light at the End of the Tunnel The time is right for cost-sharing - financing can be found! The 1986 budget proposals submitted to OMB by Robert Dawson, acting assistant secretary of the Army for Civil Works, and subsequently included in the President's budget, contain a total of 29 project for which the Army has reached voluntary cost-sharing agreements with local sponsors. These projects include those for which the Assistant Secretary previously negotiated agreements in 1982, 1983 and 1984, as well as those negotiated by Corps field offices in 1985. There is more good news, The Interstate Conference on Water Problems (ICWP), with the Corps, sponsored four regional financing workshops during the fall of 1984, Over 330 planners, engineers, financial consultants, investment bankers and government officials shared ideas, problems and success stories on water project financing. Topics included benefits and revenues, financing powers and limitations, financial planning, financial and economic analysis, creative financing techniques and financial implementation. Dialogue has begun at the action level, and there is genuine optimism for building a new intergovernmental partnership to break the water project funding logjam. 23