Talbingo's tourism sector is about to receive a $1.35 million boost toward upgrading the dam's boat ramp and recreational facilities.
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The funding will go towards a designated swimming area, improved boating facilities, picnic areas, carparking and foreshore access at Talbingo Dam.
Deputy Premier and Minister for Regional NSW John Barilaro said the NSW Government committed $850,000 with Commonwealth-owned Snowy Hydro Limited contributing $500,000.
The upgrade comes after the decision to close the spillway due to safety concerns, which was a major tourist attraction for the town.
"We know the spillway has closed, and for Talbingo, the lake is everything so we need new ways to drive summer tourism," Mr Barilaro said.
"It's important as we look toward the future that we look towards other investments and other infrastructure to drive tourism in and out of peak season, and some of these changes we are making are opportunities for investment to grow the region after the summer from hell to see an exciting future ahead."
Snowy Hydro's CEO Paul Broad said the funding was a vital part of the town's recovery.
"Your region is hurting," he said.
"We hope that, even if only in a small way, bringing new life to Talbingo will see a point of people coming to recreate with families, enjoy the town in a very safe environment, and help the region thrive."
Member for Wagga Joe McGirr attended the announcement made by the water of Talbingo Dam on Thursday, recognising the value of tourism for regional NSW.
"We know how important this lake is from a tourism point of view," he said.
"It's an important way for the community to continue to thrive, particularly after the decision made about the spillway."
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Snowy Valleys Councillor Cate Cross has been an advocate for Talbingo since her involvement with council began, and said the funding was "just what the town needs".
"One thing I've learnt from this is that the community is absolutely passionate about the town it lives in and making sure it can thrive," she said.
"The community has been very, very sorely tested and this is a step forward for us."
Works will commence in 2020 and are expected to be completed before next summer.