Breaking News: Project Blue Groundwater

When a City’s “No” Isn’t the Last Word: Groundwater, Data Centers, and the Limits of Local Control.

Last August, the Tucson City Council encountered a public outcry over water and power consumption for Project Blue, a data center proposed on the city’s southeast edge. Faced with this opposition, the council voted unanimously to reject the project, including its access to city water.

Ten months later, the project has its water anyway. In May 2026, the Arizona Department of Water Resources (ADWR) approved wells for an entity tied to the project’s developer to pump groundwater for the facility. For anyone who builds, plans, or advises on development in Arizona, the gap between those two events is worth understanding because it shows how much (and how little) a city’s land-use decisions actually control water.

How it happened

Project Blue was never entirely Tucson’s to approve. Before the council vote, the Pima County Board of Supervisors had already approved the rezoning and the sale of roughly 290 acres of county land for the project. When the city declined to annex the parcel, the developer kept going under county jurisdiction, and the fight shifted from “will the city allow this?” to “where will the water come from?” That question sharpened this spring, when Tucson Water revoked a temporary construction-water meter after concluding the project’s contractor had drawn city water the council had refused to provide.

The answer arrived through groundwater. ADWR approved the two wells based on three existing grandfathered groundwater rights that authorize withdrawals of about 96.5 acre-feet of groundwater per year within the Tucson Active Management Area.

The legal plumbing

To understand why Tucson’s refusal didn’t settle the matter, it’s important to understand how Arizona regulates groundwater. The 1980 Groundwater Management Act created Active Management Areas (AMAs) in the places where overdraft was most severe. The Act restricts new pumping inside of AMAs. But it also grandfathered in rights tied to groundwater uses that predated the AMAs. Some of those rights—like the ones tied to Project Blue’s wells—can be bought and sold apart from the land, and, with ADWR’s approval, the holder can pump from a new well location within the same AMA.

And this is just one mechanism a project can use to assemble a water supply where a municipal connection isn’t available. In approving the wells, ADWR’s only role was to confirm they satisfied applicable well regulations and were backed by valid rights, not to weigh the project’s broader merits.

One distinction matters here, and it trips people up. Arizona’s assured-water-supply rules—i.e., the “100-year supply” people associate with the current housing fights—only apply to subdivisions (generally the platting of six or more homes). A commercial facility supplying itself with its own grandfathered groundwater right is on a different track and doesn’t run that gauntlet.

Why it matters

The practical lesson is about leverage, and where it sits. Annexation, zoning, and the decision to extend or withhold municipal water are real tools, but they are not a complete veto. A project that can secure county land-use approvals and acquire existing groundwater rights can proceed without a city. And the developer’s path here ran straight through Arizona’s grandfathered-rights system.

A few caveats keep this in proportion. The wells’ volume is capped by the underlying rights, and the developer says the facility will use far less than the rights would permit. Permitted volume is not projected use.

But for local governments and private developers dealing with water-intensive developments, the takeaway is to act early and at the right lever: zoning and annexation conditions, county-level review, and a clear-eyed understanding of how grandfathered rights and well permitting interact. By the time the question becomes “whose water,” many of the decisive choices have already been made.

This article was written by G&B Attorney Sean F. Krieg

You can reach Sean directly at 602-256-4499

SKrieg@GBLaw.com

Click Here for Sean’s Bio

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