Board of Directors approves funds for Morgan Hill flood risk reduction, reaffirms commitment to San José project

August 20, 2024

A view inside the completed diversion tunnel, part of the Upper Llagas Creek Flood Protection Project.

The Valley Water Board of Directors is taking steps to ensure two crucial flood risk reduction projects in Santa Clara County move forward.

On Aug. 13, 2024, the Board voted to reallocate $42.7 million from the Upper Guadalupe River Flood Protection Project to the Upper Llagas Creek Flood Protection Project, which is entering the final phase of construction in Morgan Hill. The decision allows enough funds to pay for a shovel-ready project while also safeguarding sufficient local funding for the Upper Guadalupe River Flood Protection Project when it is ready to break ground in a few years.

Both projects receive a portion of their funding from the Safe, Clean Water and Natural Flood Protection Program, a countywide special parcel tax that voters approved in 2012 and renewed in 2020. The program provides approximately $52.3 million annually for 31 projects across Santa Clara County that deliver safe, clean water, natural flood protection and environmental stewardship.

The Board vote to reallocate Safe, Clean Water funding from one project to another followed a public hearing where several community members provided feedback. During the hearing, Valley Water Board Members expressed their commitment to completing both the San José and Morgan Hill projects. With the reallocation of funding, there is still sufficient funding to meet Valley Water’s local cost-share for the Upper Guadalupe River Flood Protection Project, which is a partnership with the U.S. Army Corps of Engineers (USACE).

This funding move was necessary because of an inflationary rise in construction costs experienced over the past few years. When Valley Water received bids this summer for Phase 2B of the Upper Llagas Creek Flood Protection Project, the lowest responsive bid amount of $129,274,180 was higher than anticipated. This is not uncommon, as large infrastructure projects nationwide have experienced inflation in construction costs.

Valley Water had already secured $80 million in federal funding for the Upper Llagas Phase 2B through a commitment from the United States Natural Resources Conservation Service. Because the construction contract came in at $142.2 million (which includes a standard 10% contingency), our agency needed to make up a funding shortfall of $51.9 million.

Valley Water also has a commitment of $4.2 million from the City of Morgan Hill for city-specific improvements. The project’s first two phases were completed in April 2022 and May 2024.

Following the vote to reallocate the Safe, Clean Water funding, the Board of Directors awarded the contract to build the final phase of the Upper Llagas Creek Flood Protection Project. Phase 2B construction will begin in September 2024 and, once complete, this project will protect roughly 1,100 homes, 500 businesses, and over 1,300 acres of agricultural land in southern Santa Clara County.

The reallocation of local funding to the Upper Llagas Creek Flood Protection Project does not change the construction schedule of the Upper Guadalupe River Flood Protection Project.

Valley Water does not anticipate any construction delays or changes to the scope of the Upper Guadalupe River Project as a result of this reallocation of funds. The USACE is working to complete a General Reevaluation Report on the Upper Guadalupe River Project, which they expect to complete by next summer. Once the report is complete, USACE will seek congressional authorization and funding for the new project. USACE and Valley Water expect to get that authorization and funding in 2026, and construction would begin soon after that funding is secured. As such, construction for the Upper Guadalupe River Project is still a few years out. In short, this is the usual process for federally funded USACE flood protection projects, and the planning and design work is continuing at the same pace.

Based on the latest USACE estimates and staff analysis, most of Valley Water’s estimated local cost-share for the Upper Guadalupe River Project will be met through real estate acquisitions. Valley Water has already acquired 95% of the required properties for this project, and the remaining required are smaller fee title properties and easements. Valley Water’s remaining funding allocation of $16.2 million is anticipated to be sufficient for any remaining local cost-share. If cost-share estimates change, staff will update this amount through the annual Capital Improvement Program Five-Year Plan Development Process.

The Valley Water Board of Directors remains 100% committed to completing the San José project on the Upper Guadalupe River, a federal-state-local partnership that will plan, design, and construct improvements along 5.5 miles of the channel from Interstate 280 to Blossom Hill Road. The Board has the same determination to complete the Upper Llagas Project which needs its local funding now to proceed. With prudent financial management like the action taken on August 13, Valley Water will be able to deliver both projects to better protect our communities from flooding.

To learn more, visit our project pages for the Upper Llagas Creek Flood Protection Project and the Upper Guadalupe River Flood Protection Project.

Photo caption: A view of the completed underground bypass tunnel, part of the Upper Llagas Creek Flood Protection Project in Morgan Hill.

Valley Water manages an integrated water resources system that includes the supply of clean, safe water, flood protection and stewardship of streams on behalf of Santa Clara County's 2 million residents. Valley Water effectively manages 10 dams and surface water reservoirs, three water treatment plants, an advanced recycled water purification center, a state-of-the-art water quality laboratory, nearly 285 acres of groundwater recharge ponds and 333 miles of waterways. We provide wholesale water and groundwater management services to local municipalities and private water retailers who deliver drinking water directly to homes and businesses in Santa Clara County.