By Howard Fischer
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PHOENIX — Homebuilders are asking a judge to void what they call an illegal “tax” they have to pay to get permission to build in certain areas of around Phoenix and in Pinal County, a levy they say will drive up already high home prices.

The lawsuit filed Monday alleges the state Department of Water Resources lacks the legal authority to tell them that if they want to build they have to show their water provider has have access to not just the water they need for the next 100 years but another 33% on top of that.

Attorney Andrew Gould said that runs contrary to state law, which requires only proof that they need show they have the water for their own specific project. He said even if that were legal — a point he does not concede — that 33% “is not defensible, lacks rationale, and is unsupported by the acceptable data.”

Even if the Homebuilders Association of Central Arizona prevails in this action and the additional “tax” is voided, that doesn’t end the dispute.

The organization already has separate litigation against the state over the way the Department of Water Resources is implementing rules that govern when development can occur. That case, filed in January, has yet to have a hearing.

All this has exploded not just in the courthouse but also at the Capitol as legislative Republicans who have joined the homebuilders in this lawsuit have accused the agency — and Gov. Katie Hobbs who is over it — of acting in ways that will drive up the already high price of housing by making it harder to build new homes.

Hobbs, for her part, said the department is simply following the law and ensuring the long-term supply of groundwater.

What’s behind both lawsuits is the 1980 Groundwater Code. It says for affected areas of the state identified as “active management areas” there has to be a finding that there is a 100-year supply of water.

Existing and private water companies are currently presumed to have their own 100-year supply. So there is no additional requirement on those who want to build within their service areas.

But Tom Buschatzke, director of the Department of Water Resources, reported in 2023 that a newly completed analysis of the groundwater in the basin along the fringes of the Phoenix area there simply won’t be enough to provide the legally required 100-year supply of water in the fringes.
That specifically includes much of Queen Creek, which doesn’t have its own 100-year certificate of assured water supply.

The same is true of a large swath of Buckeye. And then there are large unincorporated areas, all of which Buschatzke said the modeling shows cannot guarantee there will be enough groundwater beneath them to support the development for 100 years.

In filing suit in January, the association said the modeling is flawed.
They also specifically objected to a provision that says if there is a well anywhere inside of the “active management area” that will go dry within 100 years — not just the one that is proposed to serve the development, then the builder cannot get the required certificate to begin construction.

All that provoked an outcry among developers and criticism of Hobbs by Republican lawmakers.

Since the original problem was identified, the Department of Water Resources has crafted what has been billed as a potential solution to that problem of groundwater shortages in the Phoenix and Pinal “active management areas.”

It says water providers can make up for the lack of available groundwater — and the construction projects in their area can be approved — if they obtain what the agency calls “new alternative water supplies.” That can include effluent, surface water, allocations from the Central Arizona Project and water transported from elsewhere.

Buschatzke, in a statement late Monday, defended the rules and said they do not impose a tax on developers. Instead, he said, they provide an alternate path for water providers to be designated as having an assured water supply without demonstrating the physical ability of groundwater through an acceptable model.

Gould said that is not an acceptable solution. To take advantage of the rules require the water provider who intends to serve the development to secure an additional 33% of this alternative water supply “beyond the needs of the applicant’s proposed use.” All that, Gould said is arbitrary.

“That ADWR has no model or study that it could cite to is ultimately unsurprising,” he wrote. “ADWR has publicly admitted that its number presents a political compromise, rather than the product of any defensible rulemaking.”

Then there’s the legal issue.

“It is not the job of ADWR to make political compromises,” Gould said. “That is the Legislature’s responsibility.”

So far, though, state lawmakers have not advanced any plan to either alter the 100-year requirements in the Groundwater Code or approve any sort of exceptions.

Even if they did, Hobbs has said she will not sign piece-meal changes to the state’s water laws but instead is looking for a comprehensive plan that deals with current availability problems while not endangering future supplies.
Gould has another legal argument.

He cites a provision in the Arizona Constitution that bars governments from taking, whether for public or private use, “without just compensation having first been made.”

What is happening here, Gould said, is the water department is requiring water providers to find that additional 33% supply of water — presumably at some cost — as a condition for developers to be able to build on their own property.

The homebuilders are not alone in filing suit against the Department of Water Resources. They were joined by House Speaker Steve Montenegro and Senate President Warren Petersen, both Republicans — and both critics of Hobbs and the agency under her direction.

What gives them standing, according to the lawsuit, is arguing the department has exceeded its authority and tread into the area reserved for the Legislature. Montenegro, in a prepared statement, said the agency “has gone rogue.”

But he also took a partisan slap at the department and its actions, accusing it of mounting “a direct attack on hardworking Arizona families who will see the price of new homes increase by thousands.”

No date has been set for a hearing.