Judge Strikes Down State Water Rule That Stopped Phoenix Homebuilders

Phoenix Homebuilders Get Court Victory in Water Rule Battle

A Maricopa County judge ruled Tuesday that the Arizona Department of Water Resources acted illegally when it stopped issuing water certificates to homebuilders in Phoenix in 2023.

Maricopa County Superior Court Judge Scott Blaney issued the April 21 decision following a lawsuit filed by the Home Builders Association of Central Arizona and the Goldwater Institute. The plaintiffs alleged that ADWR violated state law by changing how it evaluated groundwater availability for new homes without going through a formal rulemaking process.

The 2023 policy change by state water regulators had profound effects on developers throughout the Phoenix metro area. ADWR announced the decision after a study showed the Phoenix Active Management Area was nearly 5 million acre feet short of the water needed to support growth.

An acre foot is generally enough to supply three homes for a year. Under the new policy, ADWR said it would not approve any new developments relying on groundwater because of that basin-wide shortfall.

Until the change, the water resources department would review hydrology reports submitted by individual developers to determine if there was enough water below the proposed homes to meet the 100-year supply requirements mandated by Arizona's Groundwater Management Act of 1980.

Blaney rejected the department's defense, writing that it had sidestepped the law by unilaterally adopting a new formula for determining groundwater availability without following proper procedures.

"ADWR appears to argue that it can unilaterally change process and criteria while still claiming adherence to its current rules," Blaney wrote in his decision. "This argument lacks merit and improperly elevates form over substance."

The ruling affects thousands of home sites owned by developers, mainly in the far western part of the Phoenix metro area. Spencer Kamps, a lobbyist for the Homebuilders Association of Central Arizona, told the Arizona Capitol Times that several master-planned developments already have neighborhoods built before the state put the brakes on issuing new certificates of assured water supplies.

The Goldwater Institute, which represented the homebuilders in the case, said the ruling vindicates concerns about bureaucratic overreach.

"We're delighted that the court has struck down the bureaucracy's newfangled restriction on home construction—a rule that reduced the availability of homes and raised housing costs in one of the nation's fastest-growing housing markets," Timothy Sandefur, vice president for legal affairs at the Goldwater Institute, said in a statement.

The department came up with two alternative ways for developers to obtain water certificates: buying farmland to get water credits through an Ag-to-Urban program, and obtaining water from alternate sources. Kamps said neither option helps the vast majority of developments affected by the 2023 policy change.

ADWR spokesperson said the agency intends to appeal the ruling. "Although there is no final judgment yet, the Arizona Department of Water Resources intends to challenge the decision once it is final," the agency said in a statement.

Sandefur expressed doubt about the appeal's chances. "I think the ruling is as clear as it could be, and I have a hard time imagining what sort of legal arguments they would use if they were to try," he said.

The 2023 decision drew criticism from developers, lawmakers, and even Governor Katie Hobbs. Hobbs had publicly stated that there was plenty of water in Maricopa County to provide for development needs.

"The reality is there is plenty of water in Maricopa County to provide for the needs of development," Sandefur said. "To have the governor and other people coming out and saying there's not enough water in Arizona, when in fact there is, is bad for the Arizona economy and bad for homeowners."

ADWR officials had argued they did not formally change their rules on determining the physical availability of water, merely using fresh data to update existing criteria. Blaney was not convinced.

The ruling restores the previous standards for groundwater requirements tied to new residential construction, requiring developers to show a 100-year groundwater supply for the specific site of their proposed project.