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<br />-2- <br /> <br />" <br /> <br />that it is difficult, if not impossible, for state and local <br />governments to finance capital expenditures of all kinds, in- <br />cluding water resources, <br /> <br />The Cabinet Council's approach presupposes that increased non- <br />federal cost sharing, and specifically upfront financing, is <br />necessary to augment development funds. In fact, state and local <br />governments are struggling to continue various services under a <br />growing financial burden which is aggravated by federal spending <br />cuts under a wide range of programs (many of which are initiated <br />at the federal level). They are not in a position to provide <br />upfront financing for development of necessary adequate future <br />water supplies, <br /> <br />Water project cost sharing in particular, and intergovernmental <br />grants in general, are management tools for efficient resource <br />allocation (among other things). Western states agree that in <br />general beneficiaries should pay for the cost of water project <br />services, with special consideration given agricultural water <br />supply and flood control projects, We would further point out <br />that water projects provide direct federal benefits and numerous <br />indirect benefits, The former demand federal financial partici- <br />pation, The latter are difficult to allocate and subsequently <br />recapture related costs and therefore some degree of federal sub- <br />sidy is justified, <br /> <br />With respect to the proposed cost sharing recommendations by project <br />purpose: <br /> <br />(1) The requir'ement for agricultural water supply and <br />flood control purposes is a variable with a minimum of <br />35%. This is quite arbitrary, ignores the irrigators' <br />ability to pay, and sets up competition between projects <br />and states. <br /> <br />(2) 50% of recreation costs are often now advanced by <br />non-federal interests, <br /> <br />(3) The federal investment in municipal and industrial <br />water supply and hydroelectric power has always been 100% <br />repaid, with interest, The states see no need for non-federal <br />interests to assume any of the upfront costs of revenue <br />generating projects that have historically ~eturned their <br />construction costs to the federal government, <br /> <br />(4) The proposal that industrial water users and power <br />users pay more than 100% of project costs is unacceptable <br />and cannot be supported unless such profits are dedicated <br />to the development and management of water resources in <br />the affected states. The Watt memorandum fails to explain <br />why non-federal interests would support construction of a <br />federal project financed lOO% or more with non-federal funds. <br />