A $5 million funding shortage for Phase 2 of Bellevue’s 120th Avenue Northeast extension due to higher than expected project costs will require the city to borrow from its Phase 3 coffer, which is expected to be backfilled with future grant monies.

The project, which will continue extending a new five-lane arterial 120th Avenue Northeast from Northeast Seventh Street to Northeast 12th Street, experienced significant cost increases over engineering estimates of $12.03 million that included a 10 percent contingency and 10 percent allotment for staff time.

Several factors caused the increase, including property acquisitions, construction material costs and the state Department of Ecology expanding the area where ground contaminants will need to be removed, said Ron Kessack, assistant director for the city’s transportation department.

Kessack told the council on Aug. 4 the city is required to remove from the project area a layer of peat in the ground, leftover from past swampier conditions around Lake Bellevue. He added the city expects to cut costs by performing on-site treatment, rather than trucking off the contamination at a $600,000 price point. Ground stabilization will also be required near the lake.

Depending on the results of soil and groundwater mitigation, the remnants of three properties in the project area — valued at up to $4 million — could be resold.

The city is also paying $1.8 million more for the Barrier Porsche property than it was appraised at, which Kessack said has become more common with property acquisitions as the local economy continues to rebound from the recession.

Companies that include Comcast and Puget Sound Energy will offset some city costs by providing $660,000 for a joint utility trench, which will be used for future developments in the Wilburton and Bel-Red areas.

Deputy Mayor Kevin Wallace told Kessack he was uncomfortable about borrowing funds earmarked for a future project to pay for another, but Kessack said the city is also receiving a $4.39 million surface transportation grant to replace those borrowed funds.

Bellevue city councilmembers approved increasing the Stage 2 project budget Aug. 4, awarding a $14.9 million construction contract to Goodfellow Bros., Inc., of Wenatchee. Construction is slated for completion by late 2016.