Arizona groundwater and water supply for AI data centers

In short

The 1980 Groundwater Management Act controls groundwater use in Arizona’s Active Management Areas (AMAs). A.R.S. Title 45, Chapter 2 The Phoenix AMA aims for safe yield, a management goal of balancing annual groundwater withdrawals with annual recharge in the AMA. A.R.S. § 45-562(A), A.R.S. § 45-561(12) A developer who divides land into six or more lots for sale or lease in an active management area must obtain a Certificate of Assured Water Supply (CAWS) or a written commitment of water service from a provider with a Designation of Assured Water Supply. A.R.S. § 45-576(A) In 2023, the Arizona Department of Water Resources (ADWR) stopped issuing new CAWS that rely on groundwater in the Phoenix AMA. ADWR Phoenix AMA Groundwater Supply Updates An industrial use groundwater withdrawal permit can allow an AI data center to self-supply outside a city’s service area without a CAWS. A.R.S. § 45-515, A.R.S. § 45-576(G) Cities such as Phoenix, Chandler, and Tucson have added their own large water user rules that directly affect AI data centers. State tax incentives for AI data centers face political pressure over water scarcity. DCD, Jan. 2026

What is the main law governing water supply for new development in Arizona?

Arizona regulates groundwater under the Groundwater Management Act, enacted in 1980. A.R.S. Title 45, Ch. 2 The Act created Active Management Areas (AMAs) where groundwater pumping is actively managed. Outside an AMA, most groundwater use follows the reasonable-use doctrine and has few state permits. Stanford Water in the West

For an AI data center developer, the key is whether the site falls inside an AMA. Almost every major AI data center project in the Phoenix area sits inside the Phoenix AMA, so the full AMA regulatory system applies.

What is an Active Management Area and why does it matter for an AI data center?

An Active Management Area is a geographical area designated for active groundwater management. A.R.S. § 45-402(2) The Phoenix AMA covers most of Maricopa County and extends into Pinal County and encompasses the Phoenix metropolitan area including Phoenix, Mesa, Chandler, Goodyear, Buckeye, Avondale, and Surprise. ADWR Phoenix AMA, ADWR HMS No. 35, ADWR Phoenix AMA 4MP

The statutory management goal for the Phoenix AMA is safe yield by January 1, 2025. A.R.S. § 45-562 Safe yield means a management goal of balancing annual groundwater withdrawals with annual recharge in the AMA. A.R.S. § 45-561(12) The Phoenix AMA did not meet that goal, so the rules for new water uses are tighter today than the statute originally envisioned.

What is the Assured Water Supply program and does an AI data center need it?

Arizona law requires most new subdivisions in an AMA to prove they have a water supply that will last 100 years. A.R.S. § 45-576(A) That proof is a Certificate of Assured Water Supply (CAWS). Alternatively, the developer can rely on a written commitment from a city, town, or private water company that already holds a Designation of Assured Water Supply.

Subdivision or subdivided lands means land, improved or not, divided or to be divided into six or more lots for sale or lease. A.R.S. § 32-2101(59) So an AI data center park that creates separate parcels for multiple tenant buildings, even under a ground lease structure, likely meets the definition and triggers the CAWS requirement.

The assured water supply must meet three tests.

• enough groundwater, surface water, or effluent of adequate quality continuously available for 100 years
• projected groundwater use must be consistent with the AMA management plan and management goal
• the applicant must show financial capacity to build the delivery, storage, and treatment works. A.R.S. § 45-576(N)

The rules also set a physical availability limit. In the Phoenix AMA, the 100 year projection cannot show water levels falling below 1,000 feet below land surface. A.A.C. R12-15-716(B)(2)(a) That limit was a direct factor in the 2023 moratorium, described below.

There is an important exemption. The CAWS requirement does not apply for sales of land subject to a mineral extraction and metallurgical processing permit or an industrial use permit under §§ 45-514 and 45-515. A.R.S. § 45-576(G) An AI data center that obtains a general industrial use permit under § 45-515 can therefore avoid the CAWS requirement entirely, even if the land is subdivided. That path is common for projects outside a designated water provider’s service area.

What happened in 2023 that changed groundwater availability for new AI data centers in the Phoenix area?

On June 1, 2023, ADWR released an updated groundwater model for the Phoenix AMA. The model projected about 4.86 million acre-feet of unmet groundwater demand over the next 100 years, roughly 4 percent of total demand. ADWR, June 2023, ADWR FAQ

In response, ADWR announced that the State would no longer approve new determinations of Assured Water Supply within the Phoenix AMA based on groundwater supplies. ADWR Phoenix AMA updates Similar moratoriums had already been imposed in the Pinal AMA in 2021 and the Hassayampa Subbasin earlier in 2023. ADWR Hassayampa sub-basin model announcement, January 2023, Arizona Republic, July 2021

The 2023 decision does not stop every project. It does not affect any of the following.

• existing CAWS already issued, covering roughly 80,000 lots
• developments that get a written commitment from a Designated water provider, such as the cities of Phoenix, Chandler, Mesa, Scottsdale, Glendale, Tempe, Gilbert, Peoria, Goodyear, Avondale, Surprise, El Mirage, and several private water companies
• developments that can show an alternative non-groundwater supply. Water law analysis, June 2023

The practical effect for AI data center developers is that a pure groundwater CAWS is unavailable in the moratorium area. But projects served by a city with a Designation, or projects using an industrial use permit instead of a CAWS, can still move forward.

What is the Alternative Path to Designation of Assured Water Supply?

In October 2024, ADWR proposed ADAWS rules, finalized and approved by the Governor’s Regulatory Review Council in November 2024. ADWR rulemaking package, ADWR approved rules

The ADAWS framework allows a new type of designation that combines a limited volume of groundwater with new alternative supplies. Those alternative supplies can include non-AMA groundwater, reclaimed effluent, surface water, Central Arizona Project (CAP) water, or transported groundwater. The ADWR model does not have to show physical availability of all the groundwater, as long as the overall supply meets the 100 year test.

In 2025, the Arizona Legislature introduced HCR 2039, a concurrent resolution stating that the ADWR Director does not have authority to deny a CAWS or a Designation based on other users’ well depth or unmet demand if the applicant can otherwise show enough water for 100 years. HCR 2039 The resolution signals legislative resistance to the moratorium, but it does not change the Director’s current practice.

For an AI data center developer, ADAWS offers a path when a groundwater CAWS is not available. A project that can combine groundwater with CAP water, effluent from a nearby treatment plant, or water transported from another basin may qualify.

How can an AI data center get water outside a city water provider’s service area?

A developer outside a city’s service area applies for a general industrial use groundwater withdrawal permit under A.R.S. § 45-515, but must first request service and be denied if the site is within three miles of a city. A.R.S. § 45-515 The process works like this.

1. If the proposed well is within three miles of a city, town, or private water company’s service area, the applicant must first request service from that provider.
2. If the provider denies service at the customary rate in the customary manner, and the applicant meets the other statutory criteria, the ADWR Director must issue the permit.
3. The permit is valid for up to 50 years, subject to renewal.

Because the CAWS requirement does not apply to the sale of lands for developments subject to a § 45-515 general industrial use permit, a developer can sell subdivided lands for that industrial use without obtaining a CAWS. A.R.S. § 45-576(G) A standalone industrial groundwater user that self-supplies outside a provider’s service area generally falls outside the principal replenishment mechanism, the CAGRD, which by statute serves subdivisions (member lands) and municipal water providers (member service areas). A developer relying on a § 45-515 permit should still confirm any replenishment or conservation conditions attached to the permit directly with ADWR. Kyl Center report, Fall 2019

Real world example. Tract’s 2,069 acre AI data center park in Buckeye. The site was previously zoned for a 9,700 home subdivision. Tract will drill its own wells and later transfer the water system to the city. A city planning document says if potable water demands are small (such as AI data center and warehousing uses) and total potable and industrial process water demand does not exceed 2,000 acre-feet per year, private onsite wells may serve the first parcels and Planning Unit 2 as long as appropriate groundwater withdrawal rights are in place. Buckeye Tech Corridor Community Master Plan, December 2023, Circle of Blue, 2025

What city ordinances restrict AI data center water use in Arizona?

Even when state law allows a water supply, cities can impose their own limits. Three cities illustrate the trend.

Chandler

Chandler adopted one of the first municipal AI data center water policies in 2015. It capped water use at 115 gallons per day per 1,000 square feet. Circle of Blue, 2025 That rule applies to new AI data center developments inside the city.

Phoenix

In March 2024, the Phoenix City Council unanimously passed a large water user ordinance. 12News, March 2024 The ordinance sets two thresholds.

• Any new user that would use more than 250,000 gallons per day must submit a water conservation plan.
• Any new user that would use more than 500,000 gallons per day must obtain at least 30 percent of its water from recycled or conserved sources.

Tucson

In August 2025, Tucson adopted its own large volume water user ordinance. Kyl Center report, Sept. 2025 Earlier, in December 2024, the Town of Marana prohibited its water department from supplying potable water for AI data center cooling or humidity control. Kyl Center report, Sept. 2025 These local rules can be more restrictive than state law, and they affect site selection directly.

How does the Central Arizona Groundwater Replenishment District fit into this?

The Central Arizona Groundwater Replenishment District (CAGRD) is a program that allows developers to use groundwater as part of an assured water supply. The developer pays CAGRD to replenish renewable water elsewhere in the same active management area, offsetting the groundwater the project pumps. The replenishment does not have to happen in the same location. Kyl Center report, Fall 2019

CAGRD membership has grown fast. By the end of 2024, it projected nearly 383,000 member-land homes enrolled, with a replenishment obligation reaching about 113,000 acre-feet by 2114. Kyl Center report, Fall 2019 The cost to developers has also increased. The Phoenix area assessment rate rose from $154 per acre-foot in 2002 to $727 per acre-foot by 2019. Kyl Center report, Fall 2019

CAGRD was built for residential subdivisions, but an AI data center developer who seeks a CAWS through CAGRD membership could use it. The long-term obligation and rising costs are commercial risks to evaluate.

How do Arizona’s AI data center tax incentives interact with water?

Arizona offers a computer data center tax relief program under A.R.S. § 41-1519. A.R.S. § 41-1519 A qualifying AI data center gets a transaction privilege tax (TPT) and use tax exemption on certain equipment. The minimum investment is $50 million in Maricopa or Pima County and $25 million in other counties. Arizona Commerce Authority CDC program As of 2025, 64 AI data centers had received the exemption. Circle of Blue, 2025

The political conversation has shifted. In 2025 Governor Hobbs proposed eliminating the tax exemption entirely and in January 2026 described it as a $38 million corporate handout. DCD, Jan. 2026 H.B. 2893 was introduced to redirect revenue from expired exemption periods to a water conservation grant fund and an on-farm irrigation efficiency fund. H.B. 2893 The bill would take effect for the 10 years after an AI data center’s qualification period ends.

Another bill, H.B. 2756 (2026), would require the Arizona Corporation Commission to adopt rules ensuring that AI data center grid-connection costs are not shifted to other retail customers. MultiState, Feb. 20, 2026 State policymakers are linking tax incentives to water and energy impacts.

As of May 2026 the computer data center tax exemption remained in place under current law. H.B. 2893 and the Governor’s proposal to end the exemption signal mounting political pressure, but neither had repealed it.

What are real examples of AI data center water projects in Arizona?

Several projects show how the legal framework plays out in practice.

• Tract Buckeye Technology Park (Buckeye, AZ), 2,069 acres, up to 40 AI data centers, 1.8 GW at build out. The city imposes a 2,000 acre-feet per year groundwater cap. The developer will drill its own wells and later transfer the system to the city. Circle of Blue, Tract
• Project Blue / Beale Infrastructure (near Tucson, AZ), Originally linked to Amazon, this project faced community opposition over water and electricity. The Tucson City Council unanimously rejected city involvement in August 2025. After public pressure, the developer switched to closed loop air cooling. In May 2026, a contractor was found to have taken about 650,000 gallons of city water to the site for dust control without permission. Fortune, May 13, 2026
• CyrusOne Chandler campus (Chandler, AZ), Eight AI data center facilities that do not use water for cooling. Total annual water use is roughly 180,000 gallons, solely for humidification. All new CyrusOne facilities from 2024 forward use zero water cooling. Circle of Blue, 2025
• Microsoft (Goodyear and El Mirage, AZ): Microsoft’s Goodyear facility uses an estimated 56 million gallons of potable water per year, roughly equal to 670 households. APM Research Lab, Feb. 27, 2025 Microsoft announced a zero-water evaporative design starting in 2026, with Phoenix-area projects as pilots. Reuters, Dec. 16, 2025
• Meta (Mesa, AZ), Meta’s Arizona campus sits in Mesa, where neighborhood groundwater concerns pushed the company to secure a 25 year supply through the Gila River Water Storage system instead of local groundwater, with a permitted draw of up to roughly 4 million gallons per day. APM Research Lab, Feb. 27, 2025
• Google (Mesa, AZ), Broke ground in 2023. APM Research Lab, Feb. 27, 2025
• Edged (Phoenix/Mesa, AZ), Deploying a waterless cooling system. Reuters, Dec. 16, 2025

Statewide, AI data center water consumption for 2025 is projected at roughly 905 million gallons (2,777 acre-feet), less than one tenth of one percent of Arizona’s total annual water use, equal to nearly 10,000 homes in the Phoenix area. Circle of Blue, 2025 But individual campuses can concentrate demand in a single sub-basin, so the groundwater model and city ordinances are critical for each project.

Key takeaways

• Almost every major Phoenix-area AI data center sits inside the Phoenix Active Management Area, where groundwater law requires a 100 year water supply showing for most subdivisions.
• A developer who subdivides into six or more lots, even for lease, likely needs a Certificate of Assured Water Supply unless the project qualifies for the industrial use permit exemption under A.R.S. § 45-515.
• Since June 2023, ADWR will not issue new groundwater based CAWS in several Phoenix AMA sub-basins, but projects served by a Designated city water provider or those using alternative supplies can still proceed.
• The ADAWS rules, finalized in November 2024, allow a mix of limited groundwater and alternative sources like CAP water, effluent, or transported groundwater to meet the 100 year standard.
• A general industrial use permit under § 45-515 can let an AI data center self-supply groundwater outside a city service area, potentially avoiding the CAWS requirement altogether.
• Local ordinances in Chandler, Phoenix, Tucson, and Marana impose their own water use limits on AI data centers, often more restrictive than state law.
• CAGRD offers a replenishment mechanism but carries rising assessment costs, now $727 per acre-foot in the Phoenix area.
• Arizona’s AI data center tax exemption program faces legislative proposals to redirect its revenue to water conservation or to eliminate the exemption entirely.

Frequently asked questions

Q:Does an AI data center need a Certificate of Assured Water Supply?

A:It depends on the project structure. A subdivision of six or more lots for sale or lease in an AMA needs a CAWS, unless the developer gets a written commitment from a water provider with a Designation of Assured Water Supply. A.R.S. § 45-576(A) An AI data center park with multiple parcels often meets the subdivision definition. However, if the developer obtains an industrial use groundwater withdrawal permit under A.R.S. § 45-515, the CAWS requirement does not apply. A.R.S. § 45-576(G)

Q:Can an AI data center drill its own well in the Phoenix AMA?

A:Yes, through a general industrial use permit under A.R.S. § 45-515. If the site is within three miles of a city provider, the developer must first ask for service. If the use is within three miles of a city, town, or private water company’s service area and the provider denies service at the customary rate in the customary manner, ADWR must issue the permit if the applicant meets the other criteria. A.R.S. § 45-515

Q:What is the 1,000 foot well depth limit and why does it matter?

A:The physical availability rule for the Phoenix AMA says the 100 year groundwater projection must show that water levels will not drop below 1,000 feet below ground surface. A.A.C. R12-15-716 The 2023 model showed that in the Phoenix AMA, the water table would exceed that limit over 100 years, causing ADWR to stop issuing groundwater-based CAWS there.

Q:How much water does a typical AI data center use in Arizona?

A:The total statewide data center water consumption is small, about 2,777 acre-feet in 2025. Circle of Blue, 2025 Individual facilities vary widely. A campus with evaporative cooling can use tens of millions of gallons per year. A facility with closed-loop cooling can use under 200,000 gallons per year. The water impact is site specific.

Q:Did the 2023 moratorium stop all AI data center construction?

A:No. It stopped new groundwater-based CAWS in the Phoenix AMA, but projects that are served by a Designated city provider, that use alternative water sources, or that rely on an industrial use permit instead of a CAWS can still proceed. Water law analysis, June 2023

Q:What is the difference between a Designation of Assured Water Supply and a Certificate?

A:A Designation is held by a water provider (a city, town, or private water company) and shows that the provider itself has an assured water supply. A Certificate (CAWS) is issued to a developer for a specific subdivision. A developer with a commitment from a Designated provider does not need its own Certificate. A.R.S. § 45-576(A)

Q:Are there water conserving technologies that AI data centers use?

A:Yes. Several operators in Arizona have switched to closed-loop air cooling or zero-water evaporative designs. CyrusOne’s Chandler campus uses no water for cooling, only a small amount for humidification. Microsoft plans to pilot zero water designs in Phoenix in 2026. Reuters, Dec. 16, 2025

Q:Can a city refuse to provide water to an AI data center?

A:Yes, cities have the authority to set their own service policies. Marana prohibited its water department from supplying potable water for data center cooling. Tucson adopted a large-volume user ordinance. Phoenix requires a conservation plan at 250,000 gallons per day and 30 percent recycled water at 500,000 gallons per day. Kyl Center report, Sept. 2025

Q:How does the Central Arizona Project water relate to AI data centers?

A:Some AI data centers draw from CAP water, which is Colorado River water delivered to Arizona. Any CAP water used by data centers comes out of Arizona’s annual allocation. APM Research Lab, Feb. 27, 2025 A city or private water company that holds a CAP subcontract must meet certain delivery thresholds before it can use groundwater transported from another basin into an initial AMA. A.R.S. § 45-557(A)

Q:What is the relationship between the AI data center tax incentive program and water regulation?

A:The computer data center tax relief program under A.R.S. § 41-1519 offers TPT and use tax exemptions but has become politically linked to water use. In 2025, lawmakers proposed redirecting revenue from expired exemptions to water conservation funds, and the Governor proposed ending the exemption entirely. H.B. 2893, DCD, Jan. 2026

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Junde Liu, JD, LL.M. (Taxation) candidate at UF Law. Originally published on Compute Law Blog. This article is general information and does not constitute legal advice. Reading it does not create an attorney client relationship. The reader should not act on the basis of any content here without first consulting a licensed attorney in the relevant state. Last reviewed for accuracy May 23, 2026.