[Code of Federal Regulations]
[Title 33, Volume 3]
[Revised as of July 1, 2001]
From the U.S. Government Printing Office via GPO Access
[CITE: 33CFR241.4]

[Page 329-330]
 
                TITLE 33--NAVIGATION AND NAVIGABLE WATERS
 
         CHAPTER II--CORPS OF ENGINEERS, DEPARTMENT OF THE ARMY
 
PART 241--FLOOD CONTROL COST-SHARING REQUIREMENTS UNDER THE ABILITY TO PAY PROVISION--Table of Contents
 
Sec. 241.4  General policy.

    (a) Procedures described herein establish an ``ability to pay'' test 
which will be applied to all flood control projects. As a result of the 
application of the test, some projects will be cost-shared by the non-
Federal interest at a lower level than the standard non-Federal share 
that would be required under the provisions of section 103 of Pub. L. 
99-662, 33 U.S.C. 2213. The ``standard share'', as used herein, refers 
to the non-Federal share that would apply to the project before any 
ability to pay consideration.
    (b) Section 103(m) requires that all cost-sharing agreements for 
flood control covered by the terms of section 103(a) or 103(b) be 
subject to the ability to pay test. The test must therefore be applied 
not only to projects specifically authorized by Congress, but to the 
continuing authority projects constructed under section 14 of the 1946 
Flood Control Act (33 U.S.C. 701r), section 205 of the 1948 Flood 
Control Act (33 U.S.C. 701s), and section 208 of the 1954 Flood Control 
Act (33 U.S.C. 701g), all as amended.
    (c) The ability to pay test shall be conducted independently of any 
analysis of a project sponsor's ability to finance its ultimate share of 
proposed project costs. The ability to finance is addressed in a 
statement of financial capability which considers current borrowing 
constraints, alternative sources of liquidity, etc. It is therefore much 
more narrowly defined than the ability to pay test, which considers the 
underlying resource base of the community as a whole. The ability to pay 
test shall not be used to affect project scope, or to change budgetary 
priorities among projects competing for scarce Federal funds.
    (d) Any reductions in the level of non-Federal cost-sharing as a 
result of the application of this test will be applied to construction 
costs only. Operations, maintenance and rehabilitation responsibilities 
are unaffected by the ability to pay test.
    (e) When projects are eligible for credits as outlined in ER 1165-2-
29, reference Sec. 241.3(e), the ability to pay test will be applied 
before any adjustments are made for credits. If the ability to pay test 
results in a lower non-Federal

[[Page 330]]

share, the allowable amount of credits will be limited by the lower 
share.
    (f) The test is based on the following principles:
    (1) Since the standard non-Federal cost-share is substantilly less 
than full costs in every case, the ability to pay test should be 
structured so that reductions in the level of cost-sharing will be 
granted in only a limited number of cases of severe economic hardship.
    (2) The test should depend not only on the economic circumstances 
within a project area, but also on the conditions of the state(s) in 
which the project area is located. Although states' policies with 
respect to supporting local interests on flood control projects are not 
uniform, the state represents a potential source of financial assistance 
which should be considered in the analysis.
    (3) The alternative level of cost-sharing determined under the 
ability to pay principle should be governed in part by project benefits. 
If, as a result of the project, local beneficiaries receive more income, 
or are required to use fewer resources on flood damage repair or 
replacement, or on flood insurance, a portion of these resources should 
be available to pay for the non-Federal share, even in those cases where 
an analysis of current economic conditions indicates that there are 
relatively limited resources in the project area and its state.
    (4) Since project benefits represent availability of resources in 
the future, but not the present, project sponsors should be permitted to 
defer a certain percentage of the non-Federal share whenever current 
economic circumstances suggest that non-Federal resources may be 
limited.
    (g) The Non-Federal interest may, at its discretion, waive the 
application of the ability to pay test. In this case, the Non-Federal 
interest shall be considered to have the ability to pay the standard 
cost-share and no further economic inquiry will be required.