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SDS projects will help out the construction industry, but the price tag is escalating



Larry Brown needs work. The Monument contractor did excavating for Nor'wood Development for years, but the recession shot down the housing market and he's hurting. Like 110 other contractors who stream into an upstairs room at the Leon Young Service Center on Hancock Expressway on May 6, Brown wants to learn about the ultimate trickle-down economic project.

He wants a piece of the $2.3 billion Southern Delivery System water line that begins construction this year to bring water from Pueblo Reservoir.

"The work's so slow, I'm looking at anything to get going again," Brown says, taking a seat as others snack on fresh fruit, cheese and cookies. "If they had just a little bit for me, I would be happy."

Turns out, they are Colorado Springs Utilities, which actually is you, the city-owned system's 200,000 ratepayers who will fund the 62-mile pipeline's concrete, electric work, cranes, equipment, fuels, gravel, fencing, carpentry, job-site trailers, excavation and other needs. Because of SDS — and its primary purpose, to serve the 23,000-acre, east-side Banning-Lewis Ranch — water bills will double in less than a decade, including 12 percent increases in 2011 and 2012 as approved by City Council this week.

Just how much?

At the contractor meeting, Utilities CEO Jerry Forte and Colorado Springs Mayor Lionel Rivera call SDS' pipeline, pump stations and water treatment plant a shot in the arm for the local economy, one that will grease the way for growth.

"There is no question this is the most important project in the region," Rivera says.

He and Utilities officials dangle $550 million in construction projects in front of the hungry contractors. They note that during the six-year construction period, up to 700 workers (at peak employment in 2014) will share in a $160 million payroll.

What they don't say is how much it will cost all of us. Estimates for Phase 1, which includes construction of the pipeline, pump stations, dam hookup and a water treatment plant, have changed through the years due to inflation and growing construction costs, Utilities officials explain. The estimate has gone from $490 million in 2002 to $631 million in 2007 to $880 million in 2009. After the city's partners — Fountain, Security and Pueblo West — pay their shares, Utilities' cost now will be $838 million.

But wait. Inflation will add another $140 million during the construction period, according to Utilities, as estimated using the Construction Cost Index, an industry standard for project pricing. And then there's borrowing costs spanning 40 years of $1.33 billion, for a grand total of $2.3 billion.

And that doesn't include Phase 2, which would expand the treatment plant and pumping capability and build two reservoirs. Those components are now termed "not essential" — however, $22 million to buy land for the reservoirs is included in Phase 1, so the reservoirs apparently are essential. In fact, Phase 2 gives the project its biggest selling point: redundancy.

In a 2008 permit application submitted to Pueblo County, Utilities wrote, "The SDS project will allow the Applicant [Utilities] to develop water storage, delivery, and treatment capacity to provide critical system redundancy." But Phase 1 includes no water storage facility.

Phase 2, to be built from 2020 to 2025 at the earliest, would range from $387 million to $744 million, not including financing costs.

"It's so far out in the future, you're fooling yourself if you say you have a grasp on it," Utilities chief water services officer Bruce McCormick says. He notes too many unknowns — reservoir size, dam type, treatment regulations — preclude a more exact estimate. And with a slow economy, Phase 2 could move "way, way out" into the future.

Councilor Tom Gallagher says ratepayers haven't seen the half of it, because considerable costs, starting with power, aren't included in the SDS estimates.

"I'm not opposed to bringing the water to this community," he says. "It just needs to be done in a way we can afford. ... We are following the defense contractor model, which produces $2,000 hammers, $10,000 toilet seats and $18,000 coffee pots."

Gallagher's objections to the proposed rate increases, though, failed to sway colleagues.

Some low bids

McCormick notes that construction costs might actually go down from current estimates because of all those starving contractors who turned out last week. Bids for a $6 million contract recently awarded for work on Pueblo Dam were 20 to 25 percent below the engineer's estimate, he says.

That kind of upbeat outlook pervades the contractor meeting, with Dave Hoesing of Denver's CTL Thompson, Inc., saying the project signals an economic turnaround.

But at the end of the meeting Peter Michelin, a local retiree who showed up thinking he'd get to weigh in on the project, isn't that optimistic.

"I think it's a good idea to look forward, no doubt about it," he says. "But is there some way to build the project slower and not raise our rates so much in these tough economic times? It seems like we've lost the balance between those of us who live here and those who are yet to come."

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