The cost to bring Anderson Dam, which holds back the largest reservoir in Santa Clara County, up to modern earthquake standards has increased to $2.3 billion, water officials said Monday. That’s double what was estimated a year ago, triple the price tag from two years ago, and nearly certain to drive water rates higher next year across Silicon Valley.
“It’s very disturbing,” said John Varela, chairman of the Santa Clara Valley Water District, a government agency based in San Jose that owns the dam and is is overseeing the project.
“The cost escalations are just absurd,” he added. “It’s like a taxi cab when you go inside for a cup of coffee and the meter keeps running and your $5 fare goes to $10 and you say ‘Wait a minute.’”
In 2020, federal dam safety officials ordered the reservoir along Highway 101 between San Jose and Morgan Hill drained and its dam rebuilt to modern seismic standards. They feared its 240-foot-high earthen dam, built in 1950, could collapse in a major earthquake on the nearby Calaveras Fault, putting the lives of thousands of residents at risk.
Two years ago, district engineers said the project would cost $648 million. In January 2022, they said the cost had jumped to $1.2 billion.
Now as the design approaches 90% completion, they said Monday that the new $2.3 billion price tag includes $1.9 billion for the new dam, and another $400 million for a new outlet tunnel and other associated projects. Construction on the outlet tunnel is underway now. Work on the dam isn’t expect to begin until 2026, with a completion date of 2032.
Water district board members are scheduled to discuss the price jump at their meeting Tuesday.
The board is likely to consider higher water rates in the coming months to make up the cost to repair the massive dam, a linchpin of Silicon Valley’s water supply.
“Costs are escalating,” Varela said. “We have no way to slow it down. Do we pause our projects, put them on hold, until costs go down? We have to move forward.”
Board members also are in early discussions about potentially putting a water bond on next November’s ballot in Santa Clara County to pay for Anderson repairs and other projects. Such a bond could also include funding for recycled water projects, and a controversial plan to build a $2.5 billion new dam at Pacheco Pass.
On Monday, engineers in charge of the Anderson project pointed to two factors for the jump in cost: First, they said, state and federal officials overseeing their work from the state Division of Safety of Dams, and the Federal Energy Regulatory Commission, are requiring the concrete spillway to be longer and deeper than their original proposal, which will add about $75 million.
Second, labor costs and the cost of materials — from concrete to steel — have been rising worldwide, driving up most of the cost increase.
“When we look at what’s happened in the last two years it’s been a contractors market,” said Ryan McCarter, deputy operating officer of the water district who is overseeing the Anderson project. “Their markup, materials and labor have all gone up.”
The trend of higher construction costs is happening on other public works projects around the Bay Area. The price tag to bring BART to San Jose has tripled in price in recent years to $12.2 billion — some of which planners attribute to rising construction materials and labor costs.
In the East Bay, the price tag to expand Los Vaqueros Reservoir in Contra Costa County jumped from $980 million last year to $1.4 billion now. The Contra Costa Water District says much of that cost is due to labor and materials increases.
Think of it as a hangover from the worldwide COVID pandemic, one expert said Monday.
During COVID, much of the world economy slowed dramatically. When a vaccine was developed and society re-opened, there was a huge backlog of demand for building materials and projects — from highways to hospitals to kitchen remodels, said K.N. Gunalan, a civil engineer in Salt Lake City, and past president of the American Society of Civil Engineers.
“Labor rates have gone up,” he said. “Engineering costs have gone up. Demand is higher. People are vying for limited resources.”
On top of that, fuel costs are up worldwide. And the Biden administration and Congress have approved more than $2 trillion in funding to boost construction of roads, bridges, water projects, semiconductor manufacturing companies and renewable energy facilities across the United States, further increasing demand.
Lots of engineers and construction workers retired during COVID or took new careers, Gunalan added.
“The demand is still greater than the supply. It will probably be at least another year or so before it levels off,” he said. “But finding skilled labor is going to be a challenge for a long time.”
One way to help the water district raise money for Anderson would be to kill the $2.5 billion Pacheco project, said Katja Irvin, with the Loma Prieta chapter of the Sierra Club. Environmentalists and ranchers oppose that proposal, saying it would be too expensive and flood sensitive land around Henry Coe State Park.
Taxpayer groups said Monday that the water district needs more independent oversight, and new candidates running for its open seats next year.
“Taxpayers should rise up and demand reform,” said Mark Hinkle, president of the Silicon Valley Taxpayers Association. “The board needs more competition. Incumbency has led to waste, delays and corruption. Not good.”
Varela, the board chairman, said the Anderson project must be finished.
“It’s unfortunate. It’s a sign of our times,” he said. “We have to bite the bullet and stay on the project, on the time scale. We have to do it. Anderson is the single largest dam in our system.”