ABInsight: Arizona Water, an Overview

The Motions, Notions and Commotions of Water!  Part 1: Arizona Water, an Overview

By: Thomas M. Brophy, Director of Research, ABI Multifamily

For additional articles in the Arizona Water Series click on the links below:

Part 2: To Worry or Not to Worry (about Arizona Water)?

Part 3: Where Water Efficiency Increases ROI

Part 4: Responding to the Drought Hype – Add ‘Water Supply’ to Your Due Diligence Checklist

Introduction – Water Series

You might think it odd, nay off topic, for a multifamily brokerage and advisement firm, to write a series on a topic as esoteric as water.  Nonetheless we, at ABI Multifamily, feel it prudent to address all topics salient to the multifamily housing industry.  Water, more so than available land, contracting economy or other feckless political construct, will continue to be the noose around which our collective necks rest should solutions to our current crisis continue to evade the body politic.

In the panoply of real estate related articles, data sets and charts all of us peruse on a daily basis, none is less understood and cast aside more than water.  In the West, water was, and continues to be a serious and chronic problem; whether we get too much, a la Norbert, or, more fittingly, too little which is the progenitor of our current water crisis whose deleterious effects are being felt in Nevada and California.

Before any true understanding of contemporary water issues can be understood, it is first necessary to understand the general history and development of the corpus that is water law, which is where Part 1 of our series begins.  Subsequent series articles will include interviews with industry professionals including Shane Leonard, General Manger, Roosevelt Water Conservation District (RWCD), Sheryl Sweeny, Shareholder-Attorney, Ryley Carlock & Applewhite, and others.

Abstract – Part 1: Arizona Water, an Overview
Although it would be difficult to summarize everything about Arizona water into one article, the following attempts to lay the groundwork for a general understanding of Arizona water and includes information on:

(1)    The government agencies responsible for guidance (ADWR, CAP, CAGRD, AWBA, etc.)
(2)    Sources of water (with detailed maps)
(3)    A brief history of water law development

The information contained in the proceeding article comes from a variety of sources all of which have been extensively hyperlinked throughout the article.  We encourage you to use this article as a beginning reference point and explore the aforementioned links to grow in understanding of our most precious resource, water.

Arizona Water Law
Arizona’s water law is based on the doctrine of prior appropriation, but it is administered based on a bifurcated system where surface water is regulated separately from groundwater. There are basically four categories of water supplies available in Arizona: Colorado River water (CAP), surface water other than Colorado River water (Verde, Salt, Gila Rivers, lakes, streams, ponds etc.), groundwater, and effluent. Each water supply is managed in a different manner. Surface water rights are based on “first in time, first in right,” (Howell Code, c. 1864 and Clough v. Wing, c. 1888) and groundwater rights vary depending on location. The Arizona water code is located in Title 45 of the Arizona Revised Statutes.

Water rights in Arizona can be held by any legal entity. There are no restrictions on who can hold water rights, thus the owner can be an individual, group of individuals (related or not), corporations, government agencies, etc. A surface water right is considered to be attached to the land, and therefore, may not be transferred without approval. The owner of a right must apply to the Arizona Department of Water Resources (ADWR) to sever and transfer the use of a water right to a new location. If the water right was granted for domestic, municipal, or irrigation use, the holder must be granted approval from the ADWR before changing the use of the water.

An owner of a water right may voluntarily abandon the right, or the right may be found to have been forfeited if no use is made of the water for five consecutive years. Water that is abandoned or forfeited reverts to the public and becomes available for new appropriation.

Arizona Department of Water Resources (ADWR)
Established by the 1980 Groundwater Code (Code), the Arizona Department of Water Resources (ADWR) is responsible for ensuring that dependable, long-term water supplies are available for Arizona. The ADWR oversees the use of surface and groundwater resources, administers state water laws (except those related to water quality – Arizona Department of Environmental Quality), explores methods of augmenting water supplies to meet future demands, and works to develop public policies that promote conservation and distribution of water.

Surface Water
Arizona Revised Statutes (A.R.S.) § 45-101 defines surface water as “waters of all sources, flowing in streams, canyons, ravines or other natural channels, or in definite underground channels, whether perennial or intermittent, floodwaters, wastewaters, or surplus water, and of lakes, ponds and springs on the surface.”

In its early history, Arizona adopted the doctrine of prior appropriation to govern the use of surface water.  This doctrine was based on the tenet of “first in time, first in right” which means that the person or legal entity who first puts the water to a beneficial use acquires a right that is better than later appropriators of the water.  Essentially, pre-1919 Arizona water law allocated surface water on a “divert and post” basis.  (Salt River Project (SRP) derives most of its surface water rights from this law).  However with the enactment of the Public Water Code on June 12, 1919, surface water users were required to apply and receive a permit, i.e. Certificate of Water Right, prior to surface water withdrawals.

In order to appropriate surface water, one must file an application with Arizona Department of Water Resources (ADWR).  The application must describe the source of the water, the location of the proposed diversion, the proposed place of use, the beneficial use, and the proposed quantity and periods of use. Upon confirmation of completeness and correctness, the ADWR provides a public notice and there is an opportunity for public protest. Protests must allege that the proposed allocation will impair a prior water right, will be contrary to public interest, or will pose a threat to public safety. If the application is protested the ADWR can, but is not required to, hold a public hearing.  After the protest period and any hearing, the ADWR may either grant or reject the application. If the application is approved, a permit is granted. In general a permit is granted if the application does not conflict with vested rights, is not a threat to public safety, and is not contrary to the interests and welfare of the public.

The issuance of a permit allows the permittee five years to complete the necessary construction and to put the water to beneficial use. Upon putting the water to beneficial use, the water right is perfected and the permittee is granted a Certificate of Water Right.

Per A.R.S. § 45-151(A) the following beneficial uses are recognized in Arizona:
Domestic (includes the watering of gardens and lawns no exceeding one-half acre)
Wildlife and Fish
Ground Water Recharge

Arizona Revised Statutes (A.R.S.) § 45-101(5) defines groundwater as “water under the surface of the earth regardless of the geologic structure in which it is standing or moving.  Groundwater does not include water flowing in underground streams with ascertainable beds and banks.”

Historically, Arizonans have been pumping groundwater faster than it is replaced naturally – a situation called overdraft. Because of the significant problems due to overdraft, the Arizona Ground Water Management Code (Code) was passed in 1980. The Code has three primary goals. The first is to control the severe overdraft currently occurring in many parts of the state. The second goal is to provide a means to allocate the state’s limited ground water resources. The third goal is to augment Arizona’s groundwater through water supply development.

To accomplish these goals, a comprehensive management framework was established within the Arizona Department of Water Resources (ADWR). This management framework consists of three levels of water management to respond to different groundwater conditions. The lowest level of management includes general provisions that apply statewide. The next level applies to Irrigation Non-Expansion Areas (INAs). The highest level of management, with the most extensive provisions, is applied to Active Management Areas (AMAs) where groundwater overdraft is most severe. The boundaries of AMAs and INAs are generally defined by groundwater basins (see Map imbed). There are currently five designated AMAs in Arizona and they are the areas surrounding Phoenix, Tucson, Pinal, Santa Cruz, and Prescott. INAs were established in rural farming areas where the groundwater overdraft problems are less severe. There are currently three INAs: Douglas, Joseph City, and the Harquahala INA. New AMAs and INAs can be designated by the ADWR, if necessary, to protect the water supply or on the basis of a public vote held by local residents of an area.Arizona MAP of AMAs and INAs

Outside of AMAs and INAs, groundwater may be withdrawn and used for reasonable and beneficial use without a permit. Use of this groundwater, however, does require the filing of a notice of intent to drill with ADWR. Within AMAs, groundwater use requires a permit. Groundwater withdrawal permits (which allow for new use of water) are limited to certain specified activities. Arizona groundwater law requires certain criteria to be met for each type of withdrawal before a permit can be issued. In addition to rights granted through permits, three other types of groundwater withdrawal rights exist within AMAs. The first is grandfathered groundwater rights (Agricultural, Type 1 and Type 2 IGFR). These rights are based on historic use of groundwater for five years prior to the designation of the AMA. Most grandfathered rights are appurtenant to the land, but some are not and may be purchased or leased from the owner (Type 2 only). Withdrawal rights can also be granted to municipal water providers, private water companies, and irrigation districts within AMAs, enabling them to provide service to their customers (Service Area Providers). Finally, small domestic wells are exempt from the regulations within an AMA. Users of small domestic wells may withdraw ground water for non-irrigation purposes without a permit.

Groundwater use and management in each AMA is coordinated by a Ground Water Users Advisory Council (GUAC) appointed by the governor. These councils develop water conservation strategies within the AMA. The requirement of each AMA is to achieve a “safe yield” (although Pinal AMAs goal is ‘plan depleted’) which occurs when the amount water consumed from the aquifer equals the amount of water recharged to the aquifer.

Assured Water Supply
In order to assist in the fulfillment of the 1980 Groundwater Code regulations, the AWS Program was created and substantially augmented in 1995 with the adoption of the Assured Water Supply Rules (AWS Rules).  These rules, detailed below, apply specifically to developments within one of Arizona’s five (5) Actively Managed Areas (AMAs): Phoenix, Tucson, Pinal, Santa Cruz, or Prescott AMAs.

Under AWS Rules, new development within an AMA must demonstrate that sufficient water supplies of adequate quantity and quality are available to meet the proposed new development uses for 100 years.  Only after demonstration of a sufficient water supply can a development be approved for sale to the public.  AWS Rules apply to developers who seek a Certificate of Assured Water Supply (Certificate of AWS) for an individual subdivision and to water providers (cities, towns, and private water companies) seeking a Designation of Assured Water Supply.  A Designation of AWS results from a demonstration that there are adequate water supplies available to the water provider to meet current and future demands on their entire system for 100 years.  To demonstrate an assured water supply, AWS rules require that water supplies used to demonstrate an assured water supply must be renewable water sources such as surface water, effluent, imported groundwater, credits from extinguishment of groundwater rights, and water stored pursuant to an underground storage project.  However, some groundwater is allowed in the demonstration through the groundwater phase-in allowance.

Outside an AMA a developer or city is required to have the state review its plans to determine if the development has an adequate water supply, as opposed to an assured water supply, for 100 years.  However, unlike developments within AMA boundaries, the developer can legally choose not to include water information in its filing with the state which automatically triggers a finding of “inadequate water” supply.  Although such a finding cannot, in and of itself, halt construction or lot division.  Nonetheless, the initial seller (aka developer) must disclose the state’s finding of inadequate water supply, which will be stipulated the AZ Department of Real Estate’s Public Report, subsequent sales do not have to include the disclosure.

Central Arizona Groundwater Replenishment District (CAGRD)
The CAGRD was created in 1993 by an act of the Arizona Legislature to provide groundwater replenishment services within the Central Arizona Project (CAP) service area (Phoenix, Tucson, and Pinal AMAs).  As a result of the 1980 Groundwater Management Code, and subsequent establishment of the AWS program, entities without access to CAP subcontracts (allowing access to renewable water resources), whether physical or monetary, raised the need for a mechanism to facilitate compliance with the AWS rules.  They argued that without such an entity future growth, outside areas with access to CAP water, would be hindered.  The penultimate result was the creation of the CAGRD.  Essentially, when a water provider or development entity becomes a member, the CAGRD assumes the replenishment obligations of the development and promises to replenish the legal equivalent of the renewable water the development would otherwise have had to use.  In essence, the member is allowed to continue to pump groundwater to service its area, and the CAGRD is responsible for ‘recharging’ or replenishing the existing groundwater supply from renewable resources.

There are two types of memberships in the CAGRD: Member Services Areas (MSA) and Member Lands (ML).  MSAs are the water service areas of municipal water providers, and may be water companies, water districts, towns and cities; MLs are subdivisions.

CAGRD funds itself through the collection of fees, charges, assessments and taxes (A.R.S. §48-3772) levied on CAGRD members.  Water providers serving Member Service Areas (MSAs) pay a replenishment tax directly to the CAGRD according to the number of acre-feet (AF) of excess groundwater they deliver within their service areas during a year.  For Member Lands (MLs), a replenishment assessment is collected by the county assessor for from each tax parcel according to the number of acre-feet (AF) of excess groundwater delivered to that parcel.

It is helpful to note that although Member Service Areas (MSAs) and Member Lands (MLs) may use membership in the CAGRD to meet Assured Water Supply (AWS) Rules, the applicant must still demonstrate physical and legal availability of groundwater for the sustained 100 year period.  Essentially, the applicant must meet the depth to groundwater criteria established by Assured Water Supply (AWS) Rules and have the legal right to withdraw groundwater.

Phoenix AMA Overview
The Phoenix AMA is located in central Arizona (see Map II).  It covers 5,646 square miles and consists of seven groundwater subbasins.  They include: East Salt River Valley (East SRV) Subbasin, the West Salt River Valley (West SRV) Subbasin, the Rainbow Valley Subbasin, the Hassayampa Subbasin, Lake Pleasant Subbasin, Carefree Subbasin, and the Fountain Hills Subbasin.

There are currently four main water supplies available to the Phoenix AMA:

  1. Groundwater
  2. Surface water, primarily from the Salt, the Verde, the Agua Fria, and the Gila Rivers
  3. Central Arizona Project (CAP) water
  4. effluent or treated wastewater

The Phoenix AMA is drained by the Gila River and four principal tributaries: the Salt, the Verde, the Agua Fria, and the Hassayampa Rivers. Other tribPhoenix AMA Maputaries include Queen Creek, New River, Skunk Creek, Cave Creek, Waterman Wash, and Centennial Wash. Regulatory water storage reservoirs have been constructed on the Salt, Verde, and Gila Rivers and for the Agua Fria River, allowing for a relatively high proportion of surface water use in some areas of the Phoenix AMA.

Approximately 2.3 million acre feet of water is used annually in the Phoenix AMA, with 1.4 million acre feet of renewable water (CAP, Salt and Verde surface water, and effluent) used and 900,000 acre feet of groundwater used.  Although its goal is achieving safe-yield by 2025, the Phoenix AMA is currently in an overdraft condition in the amount of approximately 251,000 acre feet annually.