By Howard Fischer
Mail | X: @azcapmedia

PHOENIX — A state agency acted illegally in imposing what developers are calling a “tax” they have to pay to build in certain areas that don’t have regular sources of water, a judge has concluded.

In an often highly technical ruling, Maricopa County Superior Court Judge Scott Blaney said the Department of Water Resources does have the power to make rules to decide when planned development in one of the state’s Active Management Areas complies with legal requirements to show a 100-year supply of water.

What the agency does not have, the judge said, is the ability to craft a rule to withhold legally required building permits unless the developer’s water provider can show it has access to not just the water it needs for the next 100 years but another 33% on top of that.

Attorney Andrew Gould said this is a victory not just for the Homebuilders Association of Central Arizona, who he represents, but also for those looking for homes.

“At the end of the day it was forcing, ultimately, homebuyers to subsidize groundwater for other uses,” he said. “And it was impacting housing and affordability.”

This is the second legal loss for the Department of Water Resources. In a separate ruling, Blaney voided the agency’s decision on how it determines if any specific development has “unmet” water supply — what essentially triggered the new rule about the 133% requirement. The judge said the agency did not follow proper procedures for enacting that rule.

The net effect is unclear.

Gould contends this means the rules are back to the way they were before the Department of Water Resources imposed a moratorium in 2023 on new development in certain areas including around Buckeye, Queen Creek as well as parts of Pinal County.

What that means, he said, is as long as a developer can show it has sufficient water for its project — from any combination of sources including groundwater, surface water or anything else — the agency cannot refuse to issue building permits.

But it also may be that, in voiding the rule that gave developers that option to find new sources of water — albeit with that 133% requirement — there is no way for them to get around DWR’s determination that there is not a 100-year supply of available water in the affected areas. And that could mean they don’t get permits for new housing.

That possibility is causing concern for Gov. Katie Hobbs who pushed DWR to enact the rule the judge voided.

"The superior court issued an order that threatens to shut down housing development and increase housing prices, harms our water security, and gets Arizona law wrong,'' said gubernatorial press aide Christian Slater.

A spokesman for the Department of Water Resources said the agency was studying the ruling and had no immediate comment.
At the heart of the lawsuit is the 1980 Groundwater Code. It created “active management areas” where groundwater supply is a concern. That, in turn, led to the requirement that developers show they have a 100-year supply.

Most developers can obtain that simply by having a contract with a municipal or private water company that has its own certificate of an assured water supply. But that doesn’t work in areas where that is not an option, meaning developers have had to provide their own proof.

In 2023, DWR released a study showing that, according to its modeling, there are areas where there isn’t enough water to provide that assurance. And that resulted in a moratorium on new permits in those areas.

Under pressure from the governor, the agency developed rules for an “alternative designation of a 100-year water supply.”

That allows developers to meet the legal requirements — and get building permits — if they can identify sufficient sources of water that can include effluent, surface water, allocations from the Central Arizona Project and water transported from elsewhere. It does not rely on scarce groundwater.

Several water companies and developers have pursued that option. Most recently, the Arizona Water Co. got one of those alternate certificates for Pinal County that will enable it to build 80,000 new homes.

But that left the issue that to get the alternate certificate there had to be enough for not just the needs of a new development — and from only certain sources — but 33% more. And that, he argued, is beyond the authority that state lawmakers gave the Department of Water Resources.

“What they’ve done with the regulation is they’ve rewritten the statute and said you have to have this combination of water supplies and you’re going to have to pay this amount,” Gould said. “And there’s nothing in the statutes that authorizes the executive branch agency to rewrite the statute.”

He said some people may agree with what the agency was trying to do in provide an alternative to get around the problems of developers having to show an assured supply of water to get the building permits. But Gould said that’s legally irrelevant.

“The fundamental legal issue is did ADWR have the authority to write this rule,” he said. “And they didn’t.”

Blaney agreed the agency, in demanding that developers provide 133% of the water they actually need, broke the law.

“The statute plainly requires that applicants show that water will be continuously available to satisfy the water needs of the proposed use for at least one hundred years,” the judge wrote. The requirement for something above that, he said, conflicts with the plain language of the statute.”