Fight between homebuilders, Arizona water department could upend groundwater protection framework

A lawsuit brought by homebuilders to invalidate actions by the state’s water department was back in court on Friday. The outcome of the case could upend the state’s entire groundwater protection framework.

The lawsuit was filed at the beginning of last year and stems from a report Gov. Katie Hobbs’ administration released in 2023 showing groundwater levels in the Phoenix metro area were unexpectedly low.

As a result, the Arizona Department of Water Resources stopped granting certificates to developers that are required to build new housing developments in parts of the Valley — including Buckeye and Queen Creek.

The Homebuilders Association of Central Arizona argued in a hearing Friday that ADWR illegally overstepped its authority with its response. The homebuilders want the department’s rules invalidated.

ADWR argued it was acting within its authority to protect water security.

Agency officials said that if they don’t respond to what studies show, they’d be endangering groundwater supplies not just for new developments, but for existing ones as well.

Salt River Project, the city of Chandler and the Arizona Municipal Water Users Association are all involved in the case on behalf of ADWR.

The Phoenix metro area is in a groundwater protection zone called an Active Management Area. In AMAs across the state, developers need to prove they’ll have 100 years worth of water before they’re allowed to obtain a certificate to build subdivisions. That process was established in the state’s 1980 Groundwater Management Act to conserve the state’s groundwater supply.

But 2023 was the first time ADWR has actually acted on its hydrology reports and put a sweeping restriction on growth. The “housing moratorium” rankled GOP lawmakers and developers, who accused Hobbs of being “anti-growth.”

The main argument by the plaintiffs is that ADWR effectively created new rules without going through a mandatory rulemaking process. Therefore, the homebuilders want an injunction against the rules.

“Isn’t updating the modeling the way you did the creation of a new rule?” Maricopa County Superior Court Judge Scott Blaney asked ADWR.

The agency argued that it’s applying new scientific data to existing rules, and that’s different than creating new rules.

“It’s rulemaking in disguise,” the homebuilders’ attorney, Jon Riches, said of the department’s actions.

Homebuilders make the argument that their industry is unfairly targeted by ADWR’s rules. It’s true that to build other kinds of buildings like multifamily homes or data centers, for example, developers don’t need to prove they have 100 years of assured water supply. It’s a rule that only applies to subdivisions.

But, as the homebuilders point out, residential subdivisions are not the biggest groundwater users by a long shot. Compared to agricultural users, for example, residential developments use a relatively small amount of water.

Katherine Davis-Young/KJZZ

ADWR unsuccessfully tried to get the case dismissed last year.

Attorney Jenny Winkler spoke on behalf of Chandler, the municipal water association and SRP. She said the homebuilders are complaining about the logical outcome of a hydrology report that shows low groundwater levels: keeping guardrails on building. She accused the homebuilders of expecting the department tasked with protecting groundwater supplies to “ignore reality.”

But if ADWR were to ignore the data and continue handing out water certificates that don’t account for real groundwater availability, Winkler said those certificates would be completely worthless to the homeowners who rely on them, and would remove “certainty and stability” for millions of other homeowners who already possess these certificates.

Blaney is expected to make a summary judgment on the case within 60 days.

His ruling will have huge implications for state water policy.

The “assured water supply” system is something ADWR has used for decades. It’s the foundation of groundwater management in the state.

There are few other regulations in place to temper development based on water availability.

The concept of a developer proving a property will have 100 years of assured water supply is built on existing data and predictions. But changes to those predictions could make those certificates meaningless.

Cuts to Arizona’s Colorado River supply, for example, or the ADWR report showing water decline at an unanticipated rate, would change the metrics developers use to show they will have 100 years' worth of water.

The homebuilders are also embroiled in a second lawsuit against ADWR, and that case was also prompted by the 2023 housing moratorium.

The homebuilders’ second case is tied to a new rule the agency implemented that actually allows subdivision development to continue in parts of the Valley with low groundwater supplies, but the homebuilders oppose it because they feel it imposes an unfair burden on them.

The Alternative Path to Designation of an Assured Water Supply, known as ADAWS, was adopted at the end of 2024.