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obligation had not then been triggered) ended up funding a large portion of the realigned Vineyard Avenue and some core underground utility facilities within or adjacent to the roadway. Later, when residential development within the VCSP area proceeded, one of the VCSP developers (in lieu of paying VCSP fees) constructed the sewer pumping station within the VCSP, since the sewer pump station was mandatory prior to occupancy of any development there. The City, through its Sewer Expansion Fund, constructed the off-site gravity sewer main for the VCSP along Vineyard Avenue from Pietronave Lane to Bernal Avenue (for which, like the water facilities discussed in this report, the City will presumably be reimbursed by Specific Plan fees as full development of the area occurs). The VCSP water facilities that the VCSP Financing Program envisioned the City would finance (the tank and access road, pumping station and turnout) were described and budgeted in the City's FY 2003/04 CIP budget. At that time, the total cost of these facilities was estimated at approximately $3.9 million ($3,885,000). Of the $3,885,000, staff proposed at that time the sources of funding to include $3,135,000 as a loan from the Water Replacement Fund, to be paid back by VCSP fees as development occurred; $645,000 from the Water Expansion Fund, reflecting the need to upsize the tank size and some pumping facilities to serve existing and new development in some of the Ruby Hill and adjacent Bonde Zone areas; and $105,000 from the Water Replacement Fund (but not as a loan) to reflect improved service to existing customers in the Bonde Zone. As provided for in the VCSP Financing Program, staff also began collecting higher Specific Plan fees in the VCSP area based upon the revised water facilities cost estimate, to assure the Water Replacement Fund would be repaid. Of the $3.9 million budgeted, approximately $400,000 has been spent for tank design and portions of the pump station and turnout design. Escalation of the Reservoir and other VCSP Water Facility Costs Approximately a year and a half ago, City staff was notified by the tank design engineers (Tetra Tech) that the tank construction portion of the project was now estimated at $2.4 million rather than the $1.9 million estimate included in the FY 2003/04 project budget. The escalation in costs was due primarily to the increases in the cost of reinforcing steel and concrete since the original FY 2003/04 budget estimate. In addition, at about that same time, the pump station design consultants were estimating an escalation of the pump station construction costs of approximately 50%, from $1 million in the 2003/04 estimates to approximately $1.5 million. Consequently, as provided for in the VCSP Financing Program, the Specific Plan fees were again adjusted to account for this estimated increase in costs. When the reservoir and rough grading of the access road were put out to bid in May 2006, the engineer's estimate was $3.4 million. The lowest responsible reservoir bid received by the City was $3.9 million. When staff inquired about this difference, a contractor who is very familiar with the tank construction industry noted that recent engineering and construction trade journals were reporting that some construction costs have averaged an escalation factor of approximately 20% per year during each of the past three years. This partially explains the SR06:152 Page 8 of 13