There's a tense relationship between water and housing in Arizona. Court rulings can complicate it

The Arizona Department of Water Resources has lost two legal cases this year — both dealt with homebuilders.

In the first, a judge found the agency did not follow the proper procedures for determining areas that had "unmet demand" for a 100-year assured water supply. That supply is a requirement for new development in Active Management Areas, which include the Phoenix and Tucson areas.

The lawsuit arose out of a 2023 decision by the Hobbs administration to pause new home construction in certain parts of the Valley, like Buckeye and Queen Creek.

Politics

Judge has struck down Arizona water rules for homebuilders. But what comes next is still unclear

Howard Fischer/Capitol Media Services, Camryn Sanchez/KJZZ

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 the second ruling, from earlier this month, the judge said ADWR could not use an alternative program to allow homebuilders to build if their water providers had enough water for 100 years, and then another 33% on top of that.

These rulings also come in the context of potential litigation over the future of the Colorado River. The new state budget includes another $6 million to pay for possible legal fees if there are lawsuits.

Rhett Larson, the Richard Morrison Professor of Water Law at Arizona State University's Sandra Day O’Connor College of Law, spoke to The Show more about it. He’s also a senior research fellow with the Kyl Center for Water Policy at ASU’s Morrison Institute for Public Policy.

Full conversation

MARK BRODIE: And Rhett, how significant do you think this latest ruling is in terms of the alternative path to assured water supply?

RHETT LARSON: It’s pretty significant. There have been now we’ve had two water providers that have relied on this process to to receive a designation. And this process was implemented as sort of a response to challenges that homebuilders were facing with restrictions on development based on groundwater.

And this has increased the amount of uncertainty as far as ability of homebuilders to rely on this program. It’s also increasing the amount of uncertainty as to how much development can now occur that’s solely based on groundwater.

I think there will be an appeal by the Department of Water Resources in this case, so I don’t know that we should count on this being the final word, but it definitely increases the uncertainty and it highlights the sort of tense relationship between effectively managing our water resources while addressing what is a very serious housing challenge.

MARK BRODIE: If the appeals are not successful and this ruling is the final word, does that also increase uncertainty for homebuilders?

RHETT LARSON: Yeah, I think that there’s a chance that this ends up being a bit of a pyrrhic victory for homebuilders if they end up winning at the end of this thing. And the reasons that I think it can be a pyrrhic victory for them is I think homebuilders might look at this now and see well there are all of these restrictions that are getting in our way from being able to build homes.

And I think a lot of that frustration is justified and understandable. But if they win at the end of this thing, Number 1, I think it there’s a risk that it will erode confidence in the assured water supply program, which is a consumer protection program. People who buy homes in Arizona have the assurance that, hey, there’s going to be 100 years of water here, and if we slowly erode with these court decisions, then I think that’s a risk.

The other risk is, is that for homebuilders, this was a participatory process to create this alternative designation, and I think they may see people less willing to sort of engage in a negotiation to develop policies that respond to the homebuilders’ concerns if at the end of the day, the homebuilders just sue on the very policies people were implementing to help them out.

MARK BRODIE: So this was, of course, the second court case that the Department of Water Resources lost this year.

There was another one dealing with sort of the unmet demand that back a few years ago when ADWR said that there are certain parts of the Valley, more sort of the the outskirts of the Valley, that there wasn’t enough water to meet the 100-year assured water supply, so builders couldn’t build there. And in that case, a court ruled that the Department of Water Resources couldn’t make that determination in that case.

When you take these two together, what do you see as that meaning both for homebuilding and for water in the state?

RHETT LARSON: Well, this sort of raises another issue why I think the homebuilders may regret winning this case, which is both of these decisions taken together, there’s a lot of substantive water in these decisions, but there’s also a lot of administrative procedure in these decisions.

How should the Department of Water Resources make a rule? And both of these decisions seem to be creating a precedent that says that if the Department of Water Resources needs wants to make a new rule, they need to go through a lot of process and they need to be very specifically authorized by the state Legislature to do so.

And I think that the day may come for homebuilders when they want a very nimble and responsive Department of Water Resources where they want a rule that can happen quickly and efficiently and that doesn’t have to go through the state Legislature, and if that day comes, then these very cases that they won are going to get in the way of water policies that they might want because these cases are going to make it much harder for the Department of Water Resources to respond quickly to changing circumstances.

And it will put a lot more responsibility on our state Legislature to make specific water policy. And our state Legislature struggles to make very specific water policy. They tend to create sort of general power granting legislation and then count on the experts in the Department of Water Resources to fill in the technical details.

So I think one of, it is, I worry that it’s creating a sort of ossified agency that isn’t going to be as adaptive to what is a situation that needs a lot of adaptation, our changing water supply. I also think that it’s just highlighting that Arizona has a complex trade-off now that we can build, we can continue to build houses, but to continue to build houses, we are going to have to do it a number of things.

One of those things is we’re going to have to phase out more agriculture. Arizona, at least, Arizona uses a lot less water now than we did in the 1950s. But the reason is is that we’ve grown at the expense of agriculture. If we continue to grow at the expense of agriculture, we can actually save water while building homes. But our grocery prices will go up because the farms will go out. So that’s a hard trade-off.

Or we can augment our water supply, you know, we can build desalination plants and but if we do that, your water rates are going to go up a lot. So I think that Arizonans are right to be concerned about the price of housing. I think homebuilders are right to be concerned about regulatory obstacles to respond to that challenge, but the trade-offs are inevitable.

MARK BRODIE: So Rhett, while you're here, I wanted to ask to get your opinion on something that the Legislature did do toward the end of its session. It allocated another $6 million to the defense fund for the Colorado River. And I'm wondering if, in your mind, does that signal anything, like does that say that litigation is more likely in any way now that, you know, we're sort of getting into a time when new rules really have to be agreed to?

RHETT LARSON: At this stage, I don't see how litigation is avoidable, frankly. I think we are careening in that direction and short of something really remarkable, it seems like this is heading to court. And it's likely heading to court both in the federal court by at least some of the states suing the federal government, and it's likely headed to the United States Supreme Court, meaning the states will sue each other. But I will say is, I think it's great that Arizona is gearing up for that possibility, we're preparing ourselves for what is going to be a tough legal fight. But what I want to say is two things. Number 1, $6 million isn't enough money. Georgia v. Florida, when Georgia and Florida sued each other over the Appalachia Chattachoochee River, Florida spent over $60 million in legal fees in 10 years. And they lost. So it will cost a lot more than $6 million.

And Number 2, litigation could be a positive. Litigation is a positive if it starts imposing costs on people who are holding out and not negotiating in good faith.

MARK BRODIE: It could spur negotiation.

RHETT LARSON: Yes, it could spur negotiations. So if it does that, then litigation is the right move for us to make. But if we get bogged down in a decade-long Supreme Court battle, where our water supplies decision are being made by nine judges who live in Washington, D.C., only one of them whom has ever lived in west of the Mississippi, that is not a situation that we want. Better to have a negotiated settlement with our sister states. But right now that doesn't look possible.

MARK BRODIE: Well, and it seems like one of the other considerations may be comments from Utah Sen. Mike Lee, who basically said any state that sues over this will forego federal conservation money. Like is that a consideration here also?

RHETT LARSON: I mean, I would like to think that kind of legislation’s not going to move forward. If it did move forward, I think that that’s a terrible move because it’s basically saying that the federal government can take money that the federal government needs in order to support critical industries like TSMC, Honeywell, Boeing, Raytheon, I mean these are critical industries for our national defense, these are critical industries for our technology sector, it’s critical for our food supply.

So if we’re basically saying we are going to prevent Arizona from protecting its legal rights in court by hurting national defense and national food security, that seems like a terrible decision.

MARK BRODIE: All right, that is Rhett Larson, Richard Morrison Professor of Water Law at ASU’s O’Connor College of Law, also associated with the Kyl Center for Water Policy there. Rhett, thanks as always for your time, I appreciate it.

RHETT LARSON: My pleasure, anytime.