The Battle Over Groundwater Rights

Arizona’s housing growth just ran into a question that’s bigger than any one subdivision: who gets to change the rules for water, and how? We sit down with Phoenix water law attorney Michele Van Quatham to unpack a trial court ruling in Home Builders Association of Central Arizona v. Arizona Department of Water Resources, a case that turns on the 100-year assured water supply program and the power of agencies to shift policy without formal rulemaking.

We walk through how a developer typically qualifies for a 100-year water certificate in the Phoenix Active Management Area, including the groundwater “physical availability” analysis, hydrology studies tied to specific wells, and the 1,000-foot depth-to-water standard. Then we dig into the conflict sparked by the new Phoenix AMA groundwater model and the resulting pause on new determinations. The key legal issue is administrative procedure: the court finds that expanding the “affected area” to the full regional model functions like a new rule of general applicability, which requires public notice and the Arizona rulemaking process.

From there, we connect the courtroom fight to real-world water policy and planning. We discuss a second lawsuit challenging a program that effectively demands 125% to 133% of water supplies, the limits of Colorado River and Central Arizona Project water for replenishment, and why “new water” quickly becomes expensive. Finally, we explore practical paths forward, from advanced water reuse and direct potable reuse to desalination concepts and the complicated water footprint of data centers once energy and cooling are counted. If this conversation helped you see Arizona groundwater management in a new light, subscribe, share the episode, and leave a review.

Transcript

Meet A Phoenix Water Law Expert

The 100-Year Water Certificate Explained

Bob Sewell 0:04

Is that illegal? It's a question we ask ourselves on a daily basis. We ask it about our neighbors. We ask it about our elected officials. We ask it about our families. And sometimes we ask it to ourselves. The law is complex and it impacts everyone all the time. And that's what we do here. I'm attorney Bob Stow. And this is season five of the Worldwide Podcast that explores that one burning question. Is that if legal? Let's go. Today's guest on the show is Michele Van Quatham. She is an expert in water law. She's a water law attorney here in the Phoenix area. Michele, welcome to the show. Hi, Bob. Thank you. You've been back right or you are back. You've been on the show before. But there was a recent ruling in a trial court case that prompted me to have you back on again. It was an interesting, interesting little case, and it um well, not little to the parties and pretty big deal, actually. But the case was the Home Builders Association of Central Arizona versus the Arizona Department of Water Resources. And what ended up happening was the there's this Phoenix Activanagement area. And apparently, under the Phoenix Active Management Area, if you want to get a water certificate, and for those who don't know, and if in order to build here in Arizona, you have to provide a 100-year certificate. You have to say that based on these rules that the government has provided, that you would qualify for at least 100 years of water for that development. And in order to make that qualify, in order to qualify, you have to jump through all the tests and meet all the rules and obligations that are required. And uh so the this builder went out, tempted to do this. He was taking a piece of piece of land and going to put dias, what if I remember right, some sort of multi-family on it, right? And the uh the um Arizona Department of Water Resources said, No, you don't qualify. Why?

The Two Groundwater Tests

Speaker 2:38

Yes, your your podcast says, is this even legal? Court said no. So what happened, and this was a case actually not on an individual case, but was bought by Home Builders, Arizona or Home Builders Association of Central Arizona, which is a trade group, um, for a number of builders, and on behalf of probably commercial and industrial, too, even though not directly represented, because there were projects that were affected in all spheres that were looking to subdivide land parcels for sale, which is requires the 100-year certificate for an individual landowner, or if you're served by a water provider that's been designated as having a 100-year water supply, you can get a commitment of water service that peels off a part of their 100-year supply for that subdivision. So this case was centering on whether the Arizona Department of Water Resources, who administers the 100-year shared water supply program, was correctly applying its rules regarding one of the requirements that you need to meet to prove the 100-year shared water supply. There are many requirements, which is if you're going to rely on groundwater as the source, you have to show that it's physically available for 100 years. And the existing rules that DWR has today say that you have to show which wells you're going to use and you have to submit a hydrology study. And this the current statute says that you have to show that that water supply is sufficient to satisfy the proposed use for at least 100 years. And the old interpretation of that rule is that ADWR, the department, the agency, would look at the affected area around those proposed wells to determine whether two tests could be met. First, if they ran the hydrologic projection model, which is looking out 100 years, at the end of the hundred years, do the proposed wells have water still coming through them? And that's one test. And so if you satisfy that, then you also have to show that at that 100-year period, the depth to water in the Phoenix Active Management Area, which is an area that runs all the way from Apache Junction to west of the White Tank Mountains, can you show that the water level at those wells has not dropped below a thousand feet below land surface? So those two standards were historically applied with these sort of area-wide models projecting what happens in the area of the proposed wells.

Bob Sewell 5:32

And by the way, go ahead. For those who aren't water people, Arizona has wells well beyond a thousand feet in the ground.

Speaker 5:43

Absolutely. And there are places where there is water accessible to 3,000 feet. But the as a public policy, the rule says we're only going to go down a thousand feet. So you can only you can only use that to provide subdivision authority.

Bob Sewell 5:58

But if you leave Arizona, the thought of digging for 1,200 feet or more to hit water is kind of a mind blow.

Speaker 6:08

It is in some places. I think in Texas, there are probably some pretty deep wells. But if you look at like right, if you look at oil and gas wells, they'll go several thousand feet into the ground. So this is not something that can't be done.

Bob Sewell 6:21

Um and it's East Coasters find it weird.

New Groundwater Model Sparks A Pause

The Statewide Shutdown Dispute

Speaker 6:24

It is, it is, yes. They probably go 20 feet in the East Coast. So if you recall, early in June of 2023, the new governor Hobbes at that time had announced that the department had released a new groundwater model for the Phoenix Active Management Area, and that it required a pause on issuance of new determinations while stakeholders gathered around and looked because the new model showed there was unmet demand in the Phoenix area. And so that caused a crisis of epic proportions for developers who were trying to get their projects authorized. And so they um there were a number of them that have worked with the department since then. They're still working on it to update the model. They found errors. There were assumptions the department made that they thought were ridiculous, and so they suggested changes. The department looked at those changes and in late 2024 adopted an updated groundwater model that wasn't nearly as bad as was announced in 2023, but still showed that there were some wells primarily in rocky areas near the edge of the basin that in the 100-year period would not have access to water still, or that they would violate the 1,000-foot depth. And not all wells, just a few here and there at the edge, primarily at the edge of the basin or near the mountains. And so the department, though, took the position, similar to what had been announced in 2023, that that pause would continue, which people call a moratorium on these new determinations, until the newest model showed that some people would lose access to water. The home builders challenged that because they said, no, no, no, no. You've always just looked at the area of the proposed wells for the determination. You know, the wells that have trouble, maybe they're 70 miles away, and there's no way that in 100 years I'm going to affect a well 70 miles away, you know, that they have their effect is caused by something else. It's not me. But the department took the position that it would now look at the entire model extent. And if one well was not meeting the requirement, then no one would proceed. And so that was challenged by the home builders under both of those standards. And the court on April 21st, just a few days ago, found they ruled that it was Judge Blaney ruled that DWR's expansion of the affected area in the statute to include the entire regional model was actually a new rule. It was inconsistent with the department's application of its old rule, and some of the language indicates affected areas smaller than an entire regional model. And the court found that because they said their change in the way that they interpreted the law was a rule because it had general applicability to everybody. Everybody was shut down, including designated providers, could not go in for more groundwater determination. And it implements, interprets, or prescribes a law or policy of an agency. So because the department basically changed its position on how it applied the groundwater rules, that that was a rule that required the department to go through the formal rulemaking process in the Arizona Administrative Procedure Acts of notifying the public that it was going to change the rule and going through the governor's regulatory review council, they didn't take those steps. And so it was an invalid rule that could not be applied until they take the appropriate steps. And the ruling isn't final yet because there's some administrative matters before the court issues the final ruling.

Judge Calls It An Invalid Rule

Bob Sewell 10:22

So here's what's interesting, just as an overall holistic thought of process on this. So we this is not unique in what we're seeing in politics today. We have these administrative states. For us locally, it's the administration Arizona Administrative Procedure Act. And so what we end up having in this case is the judge says, Hey, you didn't follow the Arizona Administrative Procedure Act. You have this rule, and everyone's required to follow it, or this set of rules, and but it's arbitrary. Well, he didn't say it's arbitrary, that has special legal significance.

Speaker 11:57

Correct.

Bob Sewell 11:58

So we have a problem, right? And we can we agree that Arizona has a problem in that we're on a collision course with how we use water.

Speaker 12:10

Yes. I think everybody, including the home builders and the developers, recognize the importance of the 100-year program. And what they're asking for in the case is just for it to proceed as it should through a stakeholder process and that everybody have input and that all of the safeguards of good government are there when decisions are made like this. It's not just a fiat coming down from a few agency staff that is not questionable. And you know, as someone practicing in this area, it was incredibly frustrating to all of my clients that were affected to make investments expecting a certain standard to apply, and then part way through the process to have the rug pulled out from underneath them without notice. And had they been, had they been, you know, given the notice that that usually would occur when a big change was happening in the law, they would have maybe had a few months or maybe you know, not enough time, maybe enough time to do to change course in their own in their own activities to adapt. And that was not provided to them. So so this is really um more so than a groundwater case. This is really an administrative procedures case. But there are also some big groundwater implications, of course.

Predictability For Builders And Investors

Bob Sewell 13:34

Huge groundwater implications, but it is an administrative procedure case, you're right. And it goes it goes when you when clients like yours that come to you and they're like, hey, help us get this 100-year certificate, help us go through this this uh jump you through the hoops that are required. I don't know all everything required, right? And and when they're making purchases of land, when they're paying for surveys, when they're plotting this stuff, when they're when they're doing the investment in geology and whatever else they have to do. I'm not an expert on this. All this stuff requires immense resources. And without predictability, we have a problem because it affects valuations, it affects the input we're gonna put in. So how so what am I seeing here? I mean, if you if you're want to comment on this, I don't know. What am I seeing? Because I'm seeing this is something I'm seeing in now in the federal system, it's something I'm we're now seeing the state system, where they just are ignoring the procedures and safeguards.

A Second Lawsuit Over Water Requirements

Speaker 14:54

I think what I'm seeing, and this is I have to say, this is not the only um policy where this has occurred with the same agency. So I think this ruling goes some way towards maybe correcting some of this, some of this activity, I hope. But what it says is that the people who are setting policy, and there are some well-meaning people at the Department of Water Resources that truthfully, you know, in good faith, believe that they know good water policy and want to implement it, but they don't trust, I think, that if they elevate the policy through the appropriate processes, that perhaps they will get what they want. And so, and and that's a very valid concern. Will the legislature pass that policy? It might get changed by the time it filters back through all of the process. And so I think that that part of it goes back to I think Congress and the legislature, and the fact that they're not doing the job that everybody would like them to do at the policy setting level. So that that's my personal opinion is I think that we could all do a better job of building consensus before we go to both the legislature and Congress so that they have no reason to fight.

Bob Sewell 16:14

Yeah, it's interesting. This this is not the only case on the horizon, right? You you've uh been you've identified other cases, some not the flip is true, or they've exceeded the legislative authority, right?

Speaker 16:30

Right. So there there are some cases that haven't been brought yet, but there also is a case pending based on this same um set of rules for the assured water supply program. And it was being heard somewhat in parallel. It's a case also brought by the Home Builders Association of Central Arizona and by the Speaker of the House and the President of the Senate against the Department of Water Resources for a declaration that rules that the department actually did promulgate in November, excuse me, I'm not going to give a date in 2024, were invalid because of they adopted essentially a whole new program as a means of providing water providers and the development community a way to work around this moratorium that they set in the the first case we discussed by essentially bringing 125%, or the home builders would say 133% of non-groundwater sources to support proposed growth. So essentially the program would have the water provider at the developer bring 100% of the water they need for their subdivision and more, 25, 30 percent more, 33% more to essentially retire some of the groundwater use of existing customers of the water provider.

Bob Sewell 18:04

Is that go ahead? But is that even possible? What are you gonna create more? Are you gonna create more surface water out of thin air? How does this happen?

Colorado River Limits And Replenishment

Speaker 18:15

So we've always brought new water supplies to development. I mean, one of the factors of um the assured water supply program that I think has made it so such a good planning tool over the years is that under the existing rules, ever since the mid-1990s, people who subdivide property in the Phoenix Active Management Area and the Pinal Active Management Area and the Tucson area, um, in the Prescott area, have to bring almost as many non-groundwater supplies to the table as they do groundwater supplies in order to get an assured water supply determination. Because if they use groundwater, they have to replenish it, replenish that water in the ground every year or every three years, depending on what how you do it. So you're virtually um not 100%, but almost 100% net not using groundwater. So it's it's a more sustainable program in that respect. And so every time somebody developed on 100% groundwater, they would have to show how that water would be replenished in the ground that they were relying on. And they usually do that through the Central Arizona Groundwater Replenishment District, which is a function of the Central Arizona Project that finds new growth non-groundwater supplies like Central Arizona Project Water, effluent, or other supplies that are not groundwater and puts them physically back in the ground as a service to those member lands and member service areas. And so the effect of these rulings, by the way, is we might be developing more on groundwater, but we also would have to replenish that groundwater. The new rule that's being challenged in this second case challenges the fact that we have to bring more than we need.

Bob Sewell 20:10

So tell me about that.

Speaker 20:12

So the the the fact that the new rule program would require more than the statute requires, is what's being challenged. The statute requires a developer pursuing a certificate, or in this case through a water provider, an assured water supply, the water provider would be demonstrating the availability of water because the requirement is now 125% of the water you need, or 133% of the water you need, that that exceeds the statute, which says that you must show that there's 100% of the water that you need for your development. And so the developers are complaining that this is essentially a water tax that was not authorized by the legislature. And the legislative legislative leaders that have joined the case are asserting the same thing. And so we'll be finding out what the court thinks about that theory soon.

Bob Sewell 21:10

Interesting. And I see that look, I see their point. How how does the Central Arizona Water Project, where does it get its water? Mostly the is it mostly the Colorado River or is it s other sources?

Speaker 21:25

It is mostly the Colorado River. Um they do have some allocations that are specifically for that use. Um, and that is actually, you know, if you think about what happens with groundwater, this is even if the ruling doesn't get challenged in a way that that requires the agency to go back and issue new determinations based on groundwater, which isn't a clear path right now. Um those new certificates and new designation quantities would have to have a source to replenish. That is not groundwater. And there is a limit to that, as you noted. You know, where do you get new water? That's a big question. And so the Central Arizona projects function of the replenishment district, they have planned the sources that are available to them, and they are going to suffer shortages in Colorado River water just like the rest of us. And so they will be dealing with diminishes diminishing availability of their supplies. They have to get new supplies. They just purchased water from the Gila River Indian community or are purchasing. They just announced a purchase from the Harquahala Water Importation Project. And so they are going out and acquiring new supplies, but at some point that will become um less um available. And at that point, then this groundwater authority would be diminished. So it will it will converge on a limit.

Regional Solutions And Rising Costs

Bob Sewell 22:58

Interesting. I gotta be honest, it seems it seems like we need a more holistic approach. I mean, we obviously these cases from a very legal standpoint, it looks like the people challenging them have a good basis. And it looks like we got regulators and an executive that wants to, while I I think they're they have a a good point, they want they're try they're attempting to push a legislative agenda and and through uh which they don't have the authority, right? They're this is a right through through agency action, the administrative state.

Speaker 23:41

This is a long story that uh in our in our history in the United States, both at the federal and state level. So I think the reaction to all of this is, and we've always done a great job of this in Arizona, but we've gotten away from it in recent years, is to bring the experts together, everybody who has a stake, including the developers, including the the environmental interests, other people that have a stake, the Indian communities, and really sit down in a room, and it's a big room now. We have a lot of interested parties and try to develop consensus proposals before we get into the sphere of trying to pass rules or legislation so that so that we can provide that great policy recommendation to the people that need to pass the laws.

Bob Sewell 24:33

And it seems like it needs to happen on an interest interstate level, because you know, look, California could theoretically desalinate, right? Sure. Much easier than Arizona. Sure. And I mean, they got the ocean, we don't. And but yet their populations are fighting for the exact same drop of the Colorado River that we are.

Speaker 25:03

San Diego is actually proposing to sell some of its water to Arizona. So there are different projects already in the study phase, at least I would say, um, to augment Arizona supply. I see a lot of um legal barriers that need to be overcome to get those projects going. And there are also some significant cost issues associated with those water supplies because as we import new water, it becomes extraordinarily more expensive than it has been in the past. And I think that's going to be difficult for people in Arizona to incorporate into their lives.

Data Centers And Hidden Water Use

Bob Sewell 25:45

We know that we're going to have increased pressure on the water supply. We know it. Those people who don't know it, uh they're, you know, they're they're shutting their eyes to the obvious. Those politicians who aren't pre who are pretending right now that, you know, once in a while you're here in old Arizona and they'll say, no, we've got crazy amounts of water. It's amazing. The I think they're shutting their eyes to the obvious problem that we need to solve. But yet, as we proceed, uh it seems like we're we're not proceeding intelligently. Like we're bringing in data centers. We got these data centers, they use a ton of water. My neighborhood has a brand new, you know, my around my neighborhood, I've got a brand new beach. Okay, it's awesome. I love it. It's got waves, and you can go surfing there anytime in the middle of the desert. I mean, that's pretty awesome. But yet, you know, and and oh, and then Arizona to love golf. Huge industry. Golf is a credible waters consumer. Grass loves water. Are we are we thinking inappropriately here? What are we doing?

Speaker 27:03

I think a lot of the pressure that you see in growth of water supplies is really coming um from the industrial sphere right now, which is as you mentioned, data centers are are very scary to people. But I will say that there's huge pressure on those data centers to be waterless or very low water use, and they're much better than they used to be about accepting that fact because it takes more energy, it's more expensive. So they used to come in and say, no, I'm not going to do that, but now they're saying, okay, I'll do that. So that sort of technology is there. The problem with that is you can have a almost waterless data center, and what it's doing is essentially pushing the water use to the electric provider who now needs to build a new power plant that needs water cooling. And so there's really going to be a water impact at some level from that kind of growth. But I would also caution people that there's a lot of data center development activity right now that is probably not real or not going to be a data center because it's a very lucrative business right now to develop data centers. And so a lot of people are excited about that. And they are entitling their properties and hoping, you know, they've got their fingers crossed that there's going to be a data center that's going to come and buy their property, but that may not happen for a variety of reasons, including limitations on the quick availability of sufficient power. So there will be some development, but I don't think it's going to be as widespread as it's been publicized.

Bob Sewell 28:44

Interesting. Now, last time I had you on, uh, you kind of blew my mind about a couple of things. I want to I want to see if how you feel about these theories now. And then um talk there was some talk about the possibility of desalinate the Sia Cortez, bringing it up for through Mexico, through the state of Sonora, right, and right into our backyard. Good idea. Totally dead. Where's that at?

Speaker 29:13

I think it's still a fantastic idea. I think the fact that it would occur in a different country is a huge barrier because we don't have the same politics as Mexico does. And they, of course, are completely going to need to be be on board with that project. So that is still a complete possibility. There are some environmental consequences to that that may be unacceptable to Mexico because of the nature of the small waterway there, relatively small waterway. Um, but that is definitely still on the table as a potential project. How it would probably occur to avoid new infrastructure is that the desalinated water would go to Mexico to satisfy the Colorado River obligation that the United States has, and then the Colorado River River water potentially would just stay in the United States. So it would be some sort of an exchange so that we didn't have to build a big pipeline, but it could be a big pipeline. So yeah, that's still on the table. A lot of things, a lot of things are out there. Floating ideas, desalination is actually a very um achievable goal, but it has environmental consequences and it has cost consequences.

Turning Wastewater Into Drinking Water

Bob Sewell 30:21

So now there was a talk about, and and I this one I think is still brewing fairly well. Doing more things, doing things like, and yeah, right for I think I think my uh mouth decided it need to stumble some more. But there's some talk of there's some talk about increasing our programs for what for reuse of water. For example, a lot of neighborhoods will use water that's been uh you know through our sewer system. They clean it up as best they can, and then they they uh lay it out on the ground and it seeps into the water supply, uh, or they uh put it on lawns or things like this. Um then you talked about no people they want to still drink.

Speaker 31:14

Oh, yeah, very exciting. This is my favorite uh water augmentation project because it uses water that's already here and it is expensive, but I don't think it's gonna be as expensive as importing a new water source. So the city of Phoenix is currently building a water reuse plant that will be um capable of providing um wastewater treatment to a level that it will be usable as direct use potable water. That's at the Cave Creek Water Reclamation Facility, and they've had articles in the newspaper about it. That's sort of a pilot program for a very large project that they plan in the future at the 91st Avenue wastewater treatment plant. Um, the city of Scottsdale has for many years it co-locates a wastewater treatment plant that's got a reverse osmosis program with its water campus, and they actually store wastewater that's been treated highly. Um, it's probably better than drinking water quality. Actually, it goes through the soil and then is withdrawn in wells. So it's sort of happening there, but they have the extra protection of a soil aquifer treatment process. But we, if you think about it, we already reuse water that's been used in Las Vegas and other places upstream. And so this is just a faster treatment process to get from wastewater to freshwater very quickly. So I see a lot more jurisdictions. I know Tucson has that in its plan as well. A lot of the other cities in the valley do have that in their plans, but I'm not aware of people that are actually building it other than the city of Phoenix.

Bob Sewell 32:56

I once, I know this is gonna make me a nerd, but I once toured a wastewater treatment plant. Uh and um the guy, the engineer, explained how it all worked, and it he showed us the water at the end, and he brings in a cup, and you know, and this is it. And sure enough, it was beautiful looking clear water, and he says, and this is potable water. And um and uh technically you you can drink this stuff.

Speaker 33:28

Yep.

Bob Sewell 33:29

And I said, uh, would you drink it? He says, No.

Speaker 33:33

Well, technically, uh technically you can't drink it because the Department of Environmental Quality still has something to say about that. But the aquifer protection requirements for wastewater treatment plants in Arizona, essentially, if you're going to put water on the ground, they do require that it come out of the plant as potable water. So they are treating it to that level. However, because of things that might slip through on a bad day, like viruses or things that aren't maybe regulated, they do require an extra measure of protection. And so if you're going to design a plant that has a direct reuse capability, they do additional treatment to make sure that those potential failures in the treatment process are addressed.

Bob Sewell 34:23

Michele, thanks for coming on the show. This has been really helpful.

Listener Review Request And Disclaimer

Speaker 34:26

You're welcome.

Bob Sewell 34:27

Thanks for listening to the podcast. Is that Even Legal is now listened to in a hundred countries and available on virtually all podcast platforms. Leave us a review, send us some show ideas, and do so at producer@ evenlegal.com. Don't forget, as smart as we sound and as lovable as we are, we are not your lawyers. And we are not giving you legal advice. But if you need some legal advice, get some. There's some great lawyers out there, and we are always ready to help. See you next time.