Legal Storm Brews: State Agency’s Water Guidelines for New Developments Under Fire

Homebuilders have filed a lawsuit seeking to nullify what they describe as an illegal “tax” imposed on them to obtain building permits in specific areas around Phoenix and Pinal County. They argue that this fee will exacerbate the already elevated costs of home prices.

The lawsuit, initiated on March 10, claims that the Arizona Department of Water Resources lacks the authority to mandate that builders demonstrate a water supply sufficient not only for their projects for the next century but also an additional 33% surplus. According to attorney Andrew Gould, this requirement contradicts existing laws that only necessitate proof of water supply for the specific projects in question.

Gould maintains that the 33% surplus requirement “is not defensible” and lacks a solid basis in data. This legal challenge comes amid ongoing tensions between homebuilders and state regulators, particularly regarding water supply regulations.

Even if the Homebuilders Association of Central Arizona succeeds in this case and the additional requirement is dismissed, the conflict is far from resolved. The association is concurrently engaged in another lawsuit against the state, focusing on the implementation of development rules by the Department of Water Resources. That case, filed in January, is still awaiting a hearing.

This legal struggle has escalated to the political arena, with Republican lawmakers aligning with homebuilders to accuse the agency—and Governor Katie Hobbs—of actions that threaten to increase housing costs by complicating new home constructions. In response, Hobbs asserts that the department is fulfilling its legal obligations to ensure long-term groundwater availability.

The lawsuits trace back to the 1980 Groundwater Code, which mandates a demonstration of a 100-year water supply for developments within designated “active management areas.” Current water companies are presumed to have a sufficient supply, negating further requirements for builders within their service zones.

However, Tom Buschatzke, the director of the Department of Water Resources, revealed in 2023 that a recent analysis indicates many areas on the outskirts of Phoenix cannot meet this 100-year supply requirement. This includes regions like Queen Creek and parts of Buckeye, as well as numerous unincorporated territories.

In its January lawsuit, the builders contended that the modeling used by the department is flawed. They objected specifically to a clause that disqualifies any development if a well within the active management area is projected to run dry within a century.

The developments prompted outrage within the construction industry and criticism of Governor Hobbs from Republican officials.

In response to groundwater shortages in the highlighted areas, the Department of Water Resources has introduced measures that allow for the approval of development projects if water providers can secure “new alternative water supplies.” These alternatives could include effluent, surface water, or allocations from the Central Arizona Project.

Despite this potential remedy, Gould argues that the requirement for additional 33% of alternative water supply remains arbitrary and inadequately justified. He emphasized the lack of scientific backing for the department’s policies, categorizing them as political compromises rather than grounded in a legal framework.

While the current legislative session has yet to see changes to the 100-year water supply requirement, Governor Hobbs has expressed her opposition to piecemeal adjustments to water laws, favoring a comprehensive strategy that addresses both short-term and long-term water availability issues.

Gould presents an additional legal argument, noting that the water department is effectively placing the financial burden of securing the extra water supply on developers, which he argues exceeds the agency’s legal authority. The homebuilders are joined in this challenge by notable legislative figures, including House Speaker Steve Montenegro and Senate President Warren Petersen.

Montenegro, critical of the department under Hobbs’ leadership, declared that it has “gone rogue.” He accused the agency of introducing measures that threaten to inflate home prices significantly for Arizona families.

As the litigation unfolds, no hearing date has been established yet.