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Chapter 0223 - 572R - H Ver of SB1335
House Engrossed
Senate Bill
water
banking; annual report; posting
(now:� groundwater
savings credits; irrigation)
State of Arizona
Senate
Fifty-seventh Legislature
Second Regular Session
2026
CHAPTER 223
SENATE BILL 1335
AN
ACT
Amending sections 45-465.05 and 45-494,
Arizona Revised Statutes; RELATING to groundwater.
(TEXT OF BILL BEGINS ON NEXT PAGE)
Be it enacted by the Legislature of the State of Arizona:
Section 1. Section 45-465.05, Arizona Revised
Statutes, is amended to read:
START_STATUTE
45-465.05.
Permanent relinquishment of irrigation grandfathered rights;
groundwater savings credits; assured water supply; rules; report; definitions
A. A person that owns land
within
the Phoenix or Pinal active management area that may be legally
irrigated with groundwater pursuant to an irrigation grandfathered right may
apply to the director to permanently relinquish all of the irrigation
grandfathered right in exchange for groundwater savings credits. The
director shall approve the application if all of the following conditions apply:
1. The person's use of the irrigation grandfathered
right complies with this chapter and the applicable management plan.
2. For each irrigation grandfathered right that is
relinquished, the director determines that land to which the irrigation
grandfathered right is appurtenant has been legally irrigated with groundwater
in at least three of the preceding five years.
3. The person has filed
all
reports required pursuant to section 45-632 for the last five years.
4. The person does not maintain a negative balance
in the person's flexibility account established pursuant to section 45-467.
5. The department has not issued a certificate of
assured water supply for the acres associated with the relinquishment.
B. The director shall quantify groundwater savings
credits. When quantifying groundwater savings credits, the following apply:
1. The amount of groundwater savings
credit
credits
shall be determined in acre-feet by multiplying
the acres associated with the relinquishment by the following conversion
multiplier:
(a) In the Phoenix active management area, one
hundred fifty.
(b) In the Pinal active management area, one
hundred.
2. A person may not receive groundwater savings
credits for a volume of water that exceeds sixty times the mean amount of
groundwater used annually pursuant to the irrigation grandfathered right in the
three years with the highest use during the five years preceding an application
to permanently relinquish the irrigation grandfathered right. If a
person applies to relinquish an irrigation grandfathered right after conveyance
of an irrigation grandfathered right, the mean amount of groundwater used
annually shall be determined using a proportionate share of the total amount of
groundwater used annually pursuant to any irrigation grandfathered rights
appurtenant to the land included in the irrigation grandfathered right that the
person has applied to relinquish in the years used to satisfy the requirements
of subsection A, paragraph 2 of this section.
C. When issuing groundwater savings credits, the
director shall:
1. Identify all of the following:
(a) The amount of groundwater savings credits as
calculated pursuant to subsection B of this section.
(b) The number and location of the acres associated
with the relinquishment.
(c) The wells that have been used to serve land to
which the irrigation grandfathered right is appurtenant.
(d) The owner of the acres associated with the
relinquishment at the time of the relinquishment that holds the groundwater
savings credits.
2. Determine whether the criteria prescribed in
subsection D, paragraph 3 or subsection E, paragraph 3 of this section would be
satisfied. This determination shall
be applied
apply
to
both of the following:
(
a
)
An
assured water supply application that is submitted to the department within two
years after the date the groundwater savings credits are issued
,
and
the determination
shall remain valid until the
director makes a final decision on the assured water supply application.
(
b
) a notice of
intent to pledge groundwater savings credits to a designation of assured water
supply that a person submits pursuant to subsection g, paragraph 2 of this
section within two years after the date the groundwater savings credits are
issued, and the determination shall remain valid until the director makes a
final decision on the application to modify a designation of assured water
supply.
D. For the purposes of a designation or modification
of a designation of assured water supply, the volume of groundwater
withdrawn or stored water recovered outside the area of
impact of storage associated with groundwater savings credits calculated
pursuant to subsection B of this section is exempt from the requirement to
demonstrate that the groundwater is physically available in accordance with
section 45-576 if all of the following apply:
1. The acres associated with the relinquishment and
the location of the proposed use associated with the groundwater savings
credits are or will be within the service area of a municipal provider that is
designated as having an assured water supply or that has applied for a
designation of assured water supply.
2. The applicant proposes to withdraw groundwater or
stored water recovered outside of the area of impact of storage associated with
the groundwater savings credits from one or more of the following locations:
(a) Any well that was used to serve land to which
the irrigation grandfathered right
is appurtenant
.
(b) Any well that is
located
within one mile of any well that was used to serve land to which the irrigation
grandfathered right is appurtenant.
(c) Any well that is located on the acres associated
with the relinquishment.
(d) Any well that is located within one mile of the
acres associated with the relinquishment.
3. The applicant demonstrates that groundwater or
stored water recovered outside the area of impact of storage can be withdrawn
to serve the proposed use for one hundred years without exceeding the depth of
the aquifer or the applicable depth-to-static water level limit of
the active management area, whichever is less. For the purposes of
this
demonstration:
(a) The director may not consider other withdrawals
that exceed the depth of the aquifer or the applicable depth-to-static
water level limit during the one hundred-year period as follows:
(i) In the Phoenix active management area, the depth-to-static
water level limit is one thousand feet below land surface.
(ii) In the Pinal active management area, the depth-to-static
water level limit is one thousand one hundred feet below land surface.
(b) For withdrawals located within one mile of any
well that was used to serve land to which the irrigation grandfathered right is
appurtenant, the applicant may rely on the director's determination pursuant to
subsection C of this section, if applicable, or on the director's most recent
assured water supply projection to satisfy this requirement. This
subdivision
shall
does
not apply if
more than forty percent of the water used during the period used in the
director's most recent assured water supply projection by land to which the
irrigation grandfathered right is appurtenant was in lieu water as defined in
section 45-802.01.
(c) Except as provided by subdivision (b) of this
paragraph, the applicant must update the director's most recent assured water
supply projection only to make reasonable modifications to the locations or
rates of the withdrawals to reflect the changes that result from the proposed
use.
4. The applicant submits evidence to the department
that the water used pursuant to the groundwater savings program established
under this section will not be used on any of the following:
(a) Turf that is not located in a recreational use
area or other space that is regularly used for stormwater management or for
civic, community or other recreational purposes, including playgrounds, sports
fields, cemeteries or schoolyards.
(b) Water parks.
(c) Decorative water features, including lakes,
ponds or lagoons, except as provided in section 45-132, subsection B,
paragraph 4, subdivision (a).
E. For the purposes
of an application for a certificate of assured water supply that proposes to
rely on groundwater savings credits, the volume of groundwater or stored water
recovered outside the area of impact of storage associated with the amount of
groundwater savings credits calculated pursuant to subsection B of this section
is exempt from the requirement to demonstrate that the groundwater or stored
water recovered outside the area of impact of storage is physically available
in accordance with section 45-576 if all of the following apply:
1. The proposed use associated with the groundwater
savings credits is on the acres associated with the relinquishment or on land
that is located within one mile of the exterior boundary of the acres
associated with the relinquishment.
2. The applicant proposes to withdraw groundwater or
stored water recovered outside the area of impact of storage associated with
the groundwater savings credits from one or more of the following locations:
(a) Any well that was used to serve land to which
the irrigation grandfathered right is appurtenant.
(b) Any well that is located within one mile of any
well that was used to serve land to which the irrigation grandfathered right is
appurtenant.
(c) Any well that is located on the acres associated
with the relinquishment.
(d) Any well that is located within one mile of the
acres associated with the relinquishment.
3. The applicant demonstrates that groundwater or
stored water recovered outside of the area of impact of storage can be
withdrawn to serve the proposed use for one hundred years without exceeding the
depth of the aquifer or the applicable depth-to-static water level
limit of the active management area, whichever is less. For the
purposes of this demonstration:
(a) The director may not consider other withdrawals
that exceed the depth of the aquifer or the applicable depth-to-static
water level limit during the one hundred-year period as follows:
(i) In the Phoenix active management area, the depth-to-static
water level limit is one thousand feet below land surface.
(ii) In the Pinal active management area, the depth-to-static
water level limit is one thousand one hundred feet below land surface.
(b) For withdrawals located within one mile of any
well that was used to serve the irrigation grandfathered right, the applicant
may rely on the director's determination pursuant to subsection C of this
section, if applicable, or on the director's most recent assured water supply
projection to satisfy this requirement. This subdivision
shall
does
not apply if more than forty percent of the water
used by the irrigation grandfathered right during the period used in the
director's most recent assured water supply projection was in lieu water as
defined in section 45-802.01.
(c) Except as provided by subdivision (b) of this
paragraph, the applicant must update the director's most recent assured water
supply projection only to make reasonable modifications to the locations or
rates of the withdrawals to reflect the changes that result from the proposed
use.
4. The applicant submits evidence to the department
that the water used pursuant to the groundwater savings program established
under this section will not be used on any of the following:
(a) Turf that is not located in a recreational use
area or other space that is regularly used for stormwater management or for
civic, community or other recreational purposes, including playgrounds, sports
fields, cemeteries or schoolyards.
(b) Water parks.
(c) Decorative water features, including lakes,
ponds or lagoons, except as provided in section 45-132, subsection B,
paragraph 4, subdivision (a).
F. An applicant that submits an application for a
certificate of assured water supply on or before December 31, 2030 may rely on
groundwater savings credits pledged to the certificate that is issued based on
that application. An applicant may not pledge groundwater savings
credits to an application for a certificate of assured water supply that is
submitted on or after January 1, 2031.
G. The director shall adopt rules on or before June
30, 2026 through expedited rulemaking to:
1. Set licensing time frames to issue groundwater
savings credits.
2. Develop a summary process to
apply
pledge
groundwater savings credits to designations of
assured water supply.
H. Before the director issues groundwater savings
credits, the director shall both:
1. Notify the holder of the irrigation grandfathered
right in writing of the department's preliminary recommendations regarding the
items described in subsection C of this section.
2. Request written confirmation that the holder of
the irrigation grandfathered right would like to proceed with relinquishment.
On receipt of confirmation that the applicant would like to relinquish the
irrigation grandfathered right, the director shall issue groundwater savings
credits pursuant to subsection C of this section.
The
holder of the groundwater savings credits may
only continue
to irrigate the land
consistent with a temporary permit
to irrigate with groundwater that the director issues pursuant to subsection O
of this section.
I. A person that
holds groundwater savings credits may assign the person's credits to the
subsequent owner of the acres associated with the relinquishment. A
person that holds groundwater savings credits may pledge the credits to an
assured water supply application that proposes to rely on the credits pursuant
to subsection D or E of this section.
J. After the director issues a certificate of
assured water supply based on groundwater savings credits, if a municipal
provider that serves acres associated with the relinquishment becomes a
designated provider or if the service area of a designated provider is extended
to include the subdivision for which a certificate of assured water supply was
issued, the remaining groundwater savings credits
associated
with the certificate shall be used to support the designation.
K. On acres associated with the relinquishment and
areas within one mile of the acres associated with the relinquishment that use
groundwater pursuant to subsection E of this section, the following
prohibitions apply:
1. A municipal provider or association as defined in
section 33-1802 may not use the groundwater or stored water recovered
outside the area of impact of storage for any of the following:
(a) Application to turf that is not located in a
recreational use area or other space that is regularly used for stormwater
management or for civic, community or recreational purposes, including
playgrounds, sports fields, cemeteries or schoolyards.
(b) Water parks.
(c) Decorative water features, including lakes,
ponds or lagoons, except as provided in section 45-132, subsection B, paragraph
4, subdivision (a).
2. An association as defined in section 33-1802
may not adopt or enforce
any
either
of
the following:
(a) Minimum turf requirements for turf that is not
located in a recreational use area or other space that is regularly used for
stormwater management or for civic, community or recreational purposes,
including playgrounds, sports fields, cemeteries or schoolyards.
(b) Requirements for the installation, filling or
refilling of:
(i) Water parks.
(ii) Decorative water features, including lakes,
ponds or lagoons, except as provided in section 45-132, subsection B, paragraph
4, subdivision (a).
L. The director may adopt rules to implement the
groundwater savings program prescribed by this section for the Tucson active
management area that include an applicable conversion multiplier and necessary
parameters to ensure groundwater savings in the Tucson active management area
if the director determines that all of the following apply:
1. Groundwater withdrawals in the Tucson active
management area over a period of one hundred years will exceed the depth-to-static
water level of one thousand feet or the depth of the aquifer, whichever is
less.
2. A groundwater savings program established in the
Tucson active management area would reduce groundwater use over the next one
hundred years.
3. Expanding the program to include the Tucson
active management area would be in the best interest of that active management
area and of a conservation district.
M. Section 45-114, subsections A and B govern
administrative proceedings, rehearing or review and judicial review of final
decisions of the director pursuant to this section.
N. On application to the director by the current
owner of the acres associated with the relinquishment, the director shall
restore a relinquished irrigation grandfathered right and rescind all issued
groundwater savings credits if the groundwater savings credits have not been
pledged to a certificate of assured water supply or a designation of assured
water supply pursuant to section 45-576, subsection M.
O. A person that applies to
relinquish an irrigation grandfathered right in exchange for groundwater
savings credits may accompany the application with a request that the director
issue a temporary permit to irrigate with groundwater. On
relinquishment of the irrigation grandfathered right, and only if a request
accompanies the application to relinquish an irrigation grandfathered
right, the director shall issue to the holder of the groundwater savings credit
a temporary permit to irrigate with groundwater.
P. The holder of a temporary permit
to irrigate with groundwater issued pursuant to subsection O of this section is
authorized to use groundwater for irrigation on the land that qualified as
irrigation acres under the relinquished irrigation grandfathered right, as if
the right had not been relinquished, subject to all of the following:
1. All requirements and limitations
of this chapter and of the relinquished irrigation grandfathered right that
would apply as if the right had not been relinquished.
2. The applicable management goal and
the applicable management plan for the active management area where the lands
to which the relinquished irrigation grandfathered right was appurtenant are
located, as if the right had not been relinquished
.
3. A farm that is authorized to use
groundwater pursuant to a temporary permit to irrigate with groundwater may not
maintain a flexibility account pursuant to section 45-467, except that if the
amount of groundwater used to irrigate the farm in an accounting period exceeds
the amount of the current irrigation water duty for the farm multiplied by the
water duty acres in the farm, the holder of the temporary permit to irrigate
with groundwater may obtain credits registered to the flexibility account of
another farm pursuant to section 45-467.
4. The temporary permit to irrigate
with groundwater may be leased for an irrigation use with the land that is
entitled to be irrigated under the temporary permit.
5. The temporary permit to irrigate
with groundwater terminates two years after the director issues the groundwater
savings credits unless one of the following occurs earlier, which immediately
terminates the temporary permit to irrigate with groundwater:
(
a
) the
relinquished irrigation grandfathered right is restored.
(
b
) the
associated groundwater savings credits are pledged to a certificate of ASSURED
water supply or designation of assured water supply and the certificate of
assured water supply is issued or the designation of assured water supply is
issued or modified to include the groundwater savings credits.
(
c
)
A person who proposes to offer subdivided lands as defined in section
32-2101, for sale or lease on land that is entitled to be irrigated under
the temporary permit obtains a written commitment of water service for the
proposed subdivision as defined in section 32-2101 from a city, town or private
water company designated as having an assured water supply pursuant to section
45-576.
(
d
) The acres
associated with the relinquishment qualify as member land of a conservation
district as provided by title 48, chapter 22.
6. For the purposes of chapter 3.1 of
this title relating to the storage of water, water that a person delivers
pursuant to a temporary permit to irrigate with groundwater is classified as
water delivered to the relinquished irrigation grandfathered right to determine
the annual or long-term storage credits a permit holder may accrue
pursuant to a groundwater savings facility permit.
O.
q.
For
the purposes of this section:
1. "Acres associated with the
relinquishment" means land to which the irrigation grandfathered right
that is relinquished in exchange for groundwater savings credits was
appurtenant.
2. "Municipal provider" has the same
meaning prescribed in section 45-561.
3. Stored water recovered outside the area of impact
does not include long-term storage credits issued to the Arizona water
banking authority or held by the Arizona water banking authority at any time.
4. "Well" includes a replacement well as
prescribed in section 45-597 or 45-598.
END_STATUTE
Sec. 2. Section 45-494, Arizona Revised Statutes, is amended to read:
START_STATUTE
45-494.
Withdrawals by irrigation districts in initial active management
areas
In an initial active management
area established pursuant to section 45-411:
1. An irrigation district existing and engaged in
the withdrawal, delivery and distribution of groundwater as of January 1, 1977
shall have the right, subject to section 45-496 and section 45-493,
subsection D:
(a) To withdraw and transport groundwater within its
service area for the benefit of landowners within its service area, and the
landowners are entitled to use the groundwater delivered, provided
that
claims of landowners to irrigation grandfathered rights
,
or
type 1
or
non-irrigation grandfathered rights or
type
2 non-irrigation grandfathered rights
or pursuant to
a temporary permit to irrigate with groundwater issued pursuant to section 45-465.05
shall be subject to article 5 of this chapter.
(b) If legally withdrawing and transporting
groundwater from outside its service area for use within its service area as of
January 1, 1977, to continue to withdraw and transport the amount of
groundwater legally being withdrawn as of January 1, 1977.
2. An irrigation district that was not engaged in
the withdrawal, delivery and distribution of groundwater as of January 1, 1977
shall be limited to the right, subject to section 45-496, to:
(a) Contract for surface water from a multi-county
water conservation district and deliver and distribute such water within its
service area for irrigation purposes.
(b) If, as of January 1, 1983, the district had been
recommended by the director to receive an allocation of municipal and
industrial water from the central Arizona project, contract for surface water
from a multi-county water conservation district and deliver such surface water
to cities, towns or private water companies for municipal, industrial and
domestic purposes, subject to the following conditions:
(i) The cities, towns and private water companies
shall distribute the water within the boundaries of the district in effect as
of the date of validation of the district's central Arizona project
subcontract.
(ii) In contracting for the delivery of such surface
water, the district shall offer the water, first, to cities and towns that
distribute water to land within the boundaries of the district or to land
adjacent or contiguous to the district and, second, if the cities or towns are
unwilling or unable to take and distribute such surface water, to private water
companies within the boundaries of the district that have not been recommended
to receive or have not received an allocation of municipal and industrial water
from the central Arizona project.
(iii) Notwithstanding article 5 of this chapter, the
original owner and any new owner of a type 1 non-irrigation grandfathered right
created pursuant to section 45-469 that is appurtenant to land in the
district to which such surface water is distributed by a city, town or private
water company may use groundwater withdrawn pursuant to that right only on the
land to which the right is appurtenant.
(iv) The district may amend its contract, or execute
a new contract, with the United States secretary of the interior and a multi-county
water conservation district to provide for the conversion of irrigation water
deliveries to municipal and industrial water deliveries as provided by law and
pursuant to the secretary's regulations relating to conversion, but such
amendment may be made or new contract executed only if the amount of municipal
and industrial water for which the district would qualify by conversion of
lands from irrigation to non-irrigation uses exceeds the secretary's initial
express allocation of municipal and industrial water to the district for the
year 2034 and only to the extent of the excess.
(v) Such surface water shall not be distributed by
any city, town or private water company to any land with respect to which an
allocation of municipal and industrial water from the central Arizona project
has been made or recommended for some person other than the district.
(c) Contract to purchase, deliver and distribute
effluent within its service area for irrigation purposes.
(d) Withdraw, deliver and distribute within its
service area the amount of groundwater allowed by the current irrigation water
duty of each member farm multiplied by the water duty acres in that farm
less
, including each member farm authorized
to use groundwater for irrigation pursuant to a temporary permit to irrigate
with groundwater issued pursuant to section 45-465.05, minus
any
portion of such amount withdrawn by individual members.
(e) Continue but not expand any non-irrigation water
service being lawfully provided as of the date of the designation of the active
management area, except as provided in subdivision (b) of this paragraph and in
section 45-497, subsection B.
END_STATUTE
Sec. 3.
Temporary permits
to irrigate with groundwater; time frame; fee; delayed repeal
A. On application by a
holder of groundwater savings credits that were issued before the effective
date of this act, the director of the department of water resources shall issue
to the holder of groundwater savings credits a temporary permit to irrigate
with groundwater that authorizes the use of groundwater subject to the
limitations prescribed in section 45-465.05, subsection P, Arizona
Revised Statutes, as added by this act.
B. The
director of the department of water resources may not issue a temporary permit
to irrigate with groundwater to a holder of groundwater savings credits that
were issued before the effective date of this act if either of the following
has occurred:
1. More than two years have
elapsed after the issuance of the groundwater savings credits.
2. Any condition prescribed
in section 45-465.05, subsection P, paragraph 5, Arizona Revised
Statutes, as added by the act, has occurred.
C. An application submitted
pursuant to subsection A of this section is subject to a new licensing time
frame and application fee.� The licensing time frame and application fee shall
be the same as the licensing time frame and application fee established through
rule for an application to relinquish an irrigation grandfathered right in
exchange for groundwater savings credits under section 45-465.05, Arizona
Revised Statutes, as amended by this act.
D. This section is repealed
from and after January 1, 2029.
APPROVED BY THE GOVERNOR JUNE 22, 2026.
FILED IN THE OFFICE OF THE SECRETARY OF STATE JUNE 22, 2026.