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The decision Tuesday from Maricopa County Superior Court Judge Scott Blaney came in a lawsuit filed on behalf of the Home Builders Association of Central Arizona by lawyers with the Goldwater Institute. They alleged the Water Resources Department violated state law by changing how it evaluated the availability of groundwater that builders have long relied upon to meet the demands of new homes.

Blaney agreed, writing that the department sidestepped the law when it unilaterally adopted the new formula for determining if a builder could pump enough groundwater to support the new homes it wanted to build without going through a formal rulemaking process.

The 2023 decision by state water regulators was announced by Democratic Gov. Katie Hobbs and led to howls of protest from developers who had been relying on groundwater to meet requirements of Arizona’s Groundwater Management Act, a 1980 law that requires builders to show they have an assured water supply that will last for 100 years.

Up 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 from the wells it intended to use to supply them.

But after a new study done by the department, it determined the entire Phoenix Active Management Area, essentially the bulk of Maricopa County, was nearly 5 million acre-feet short of the water needed.

The department then said it would not approve any new developments there, relying on groundwater because of that basin-wide shortfall.

An acre-foot is generally enough to supply three homes for a year.

The department argued it didn’t formally change its rules on determining the physical availability of water. Blaney wasn’t buying it.

“ADWR appears to argue that it can unilaterally change process and criteria while still claiming adherence to its current rules,� the judge wrote. “This argument lack merit and improperly elevates form over substance."

A spokesman for the Department of Water Resources said the agency intends to appeal.

“Although there is no final judgment yet, the Arizona Department of Water Resources intends to challenge the decision once it is final,� said an agency statement.

A Goldwater Institute attorney who worked on the case, Timothy Sandefur, said the department's officials clearly were trying to avoid going through a formal rulemaking process under the state Administrative Procedures Act because they knew builders and others would flood them with objections in that process.

“The agency wanted to find a way to make sure that the people didn't have a say, and the way that they did that was by saying, ‘Oh, it turns out, we've discovered that the rule was always this way’ when that's just not true,� Sandefur said. “If they were to go through the APA process, I think it would give the people an opportunity to object and say (that) by making home construction impossible, all you're doing is raising the cost of housing and making Maricopa County unlivable.

“So that's why they tried to avoid going through the proper channels,� he added. “I think that if they did decide to try to go through the proper channels now, then they would have substantial opposition.�

Spencer Kamps, a lobbyist for the Home Builders Association of Central Arizona, said tens of thousands of home sites owned by developers were affected by the 2023 decision, mainly in the far western part of the Phoenix metro area. Several of those master-planned developments already have neighborhoods that were built before the state put the brakes on issuing new certificates of assured water supplies.

The Water Resources Department has still been receiving applications for certificates for those developments, but has not been processing them.

The agency also came up with two new ways for developers to obtain a certificate — buying up farmland and getting the water credits, called “Ag to Urban,� and one that creates a way to obtain assured water from alternate sources.

Kamps said neither helps the vast majority of the developments affected by the 2023 policy change.

Sanfedur said he doubts the state will succeed in an appeal.

“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,� Sandefur said.

The 2023 decision led to news stories across the nation about how Phoenix and Arizona were running out of water, something developers, lawmakers and even Hobbs said was not accurate. Still, the finding stung that there simply wasn’t enough groundwater to support unbridled growth that has driven the Phoenix economy for decades.

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