Show Us the Water! Real Estate Developments Now Must Show Adequate Water Supply for Entire Project Build-out

by Tom Morris

Getting a large real estate development approved in Colorado just got more difficult, and preliminary development proposals that do receive approval are now more likely to have adequate water supplies at full build-out — at least if a state district court’s interpretation of a recently enacted state law is upheld on appeal.

On August 22, a state district court reversed the Douglas County Board of Commissioners’ approval of a development permit for the $4.3 billion Sterling Ranch real estate development. The development was to cover about 3,400 acres in northwestern Douglas County and include up to 12,050 homes. The basis for the court’s ruling was that the board abused its discretion in approving the permit without requiring the applicant, Sterling Ranch, LLC, to prove that the development, at build-out, would be served by an adequate water supply.

The court applied House Bill 08-1141, the legislative declaration for which states that securing an adequate supply of water for proposed land development has “broad regional impact[s]” so that it is “imperative that local governments be provided with reliable information concerning the adequacy of proposed developments’ water supply to inform local governments in the exercise of their discretion in the issuance of development permits… .”

The central requirements of this law are that: (1) a local government can’t approve an application for a development permit unless it determines that the applicant has demonstrated that the proposed water supply will be “adequate”; and (2) the local government may make that determination “only once” during the development permit approval process. §29-20-303 (1), C.R.S.

Significantly, “adequate” is defined to mean a water supply that will be “sufficient for build-out” of the proposed development. The county commissioners had approved Sterling Ranch’s appeal of the otherwise-applicable county water requirement, which incorporated the state statute’s requirement of water adequacy. With the successful appeal, Sterling Ranch would have been allowed to show adequacy, not only once for build-out as required by the statute, but several times and only as needed for various specifically defined stages of the development.

The court held that granting the development application based on the approval of the water appeal violated the statute:

The Board must find that a water supply will be adequate in order to approve the development permit. Adequate is defined… as a water supply sufficient for build-out of the development… . The Applicant confesses… that it did not submit proof of a water supply to the Board. Instead, it filed a water appeal that requests deferral of the obligation to establish adequate water supply until the various stages of the subdivision process… . This does not comply with the requirement… that the determination of the adequacy of the proposed water supply be made only once during the development permit approval process. (Order, p. 10; emphasis original.)

The county commissioners have announced that they will appeal the ruling, citing a concern that it will cause sprawl because developers will have to substantially decrease the size of proposed developments due to the difficulty of proving water adequacy for the build-out of large developments.

The case is also of interest because the Colorado Water Conservation Board (CWCB) previously approved Sterling Ranch, LLC’s application to implement a precipitation capture pilot project as authorized by House Bill 09-1129. Before this bill passed, Colorado law required anyone who captured precipitation to replace 100 percent of the amount captured to avoid causing injury to preexisting water rights, thus making precipitation harvesting impractical. This bill authorizes the CWCB to approve up to 10 pilot projects to allow real estate developments to capture precipitation from rooftops and impermeable surfaces for nonpotable uses such as landscaping irrigation. The pilot projects are subject to a reduced replacement obligation of only their net depletion, taking into account the historical consumptive use of water from preexisting, natural vegetation cover on the portion of the development that has become impermeable. Sterling Ranch is the only pilot project approved under this legislation.

There are reports that the General Assembly may be asked during the 2013 legislative session to review the court’s application of House Bill 08-1141. Stay tuned!