In a unanimous decision on September 12, 2012, the Arizona Supreme Court ruled that the state of Arizona could not claim federal reserved water rights on its "State Trust Lands." In Re General Adjudication, Case No.WC-11-0001-IR (September 12, 2012). This decision helps to resolve a very significant source of uncertainty with regard to water rights in Arizona, as the claims that could have been brought by the state under a reserved rights theory could have disrupted the water rights of tens of thousands of other public and private claimants. Federal reserved rights claims brought by Native American tribes, US federal parks and preserves, and other federal reservations have been a major factor in ongoing water rights adjudications throughout the Western US and, as such, this decision will have major significance in otherWestern states as well.

The federal reserved water rights doctrine (commonly known as the “Winters Doctrine”) was first recognized in Winters v. U.S., 207 U.S. 564 (1908). In Winters, the US Supreme Court found that while Congress had not explicitly reserved water rights for an Indian reservation, the reservation of those water rights was implied by Congress because they were necessary to sustain the reservation community. The Court later applied the doctrine to other federal lands, and in Cappaert v. U. S., 426 U.S. 128 (1976), the Court explained that a federal reservation of water rights requires that the land must have been withdrawn from the public domain and reserved for a public purpose, with an intention that appurtenant, unappropriated water was to be reserved for that public purpose.

Arizona acquired more than 10.5 million acres of land from the federal government upon statehood, pursuant to the Arizona-New Mexico Enabling Act of 1910 (Enabling Act), for the express purpose of supporting various public institutions including the public school system. As in most otherWestern states, these State Trust Lands are now held in trust by the state and are managed and disposed of for the benefit of those institutions. Relying on the logic of Winters, Cappaert and other federal reserved rights cases, the Arizona State Land Department had long argued in the Gila River and Little Colorado River adjudications that by virtue of the nature of this land grant, State Trust Lands qualified as a federal withdrawal or reservation serving a federal purpose of providing income for public schools and other public institutions.

Had this argument been upheld, the Arizona State Land Department could potentially have claimed millions of acre-feet worth of reserved surface water and/or groundwater rights throughout Arizona, giving its lands a priority for access to water for farming, ranching, industry and future development dating back 100 years or more. As such, federally reserved water rights would give State Trust Lands throughout the state – even where such lands were remote or previously undeveloped – considerably more value than similarly situated lands held by non-federal claimants that are required to prove up rights to water under the state’s regular prior appropriations system.

In its decision, the Arizona Supreme Court indicated that it was not persuaded by the state’s application of the facts to the Cappaert test. First, the court found that State Trust Lands were never withdrawn from the public domain due to the fact that withdrawal would have prohibited the federal government from conveying the lands to the state in the first place. Second, the court found that the federal government did not reserve those lands for a federal purpose of funding specific public institutions; rather, the court noted that while funding public institutions is a noble endeavor that serves the public interest, it does not rise to the level of a federal purpose. The court went on to point out that even though the federal government retains some oversight of the State Trust Lands for the purpose of enforcing trust obligations on the state, it does not have authority to make policy and management decisions over the State Trust Lands, much less retain any ownership rights. And in any case, said the court, Congress could have explicitly withdrawn and reserved the State Trust Lands for a federal purpose but chose not to. The court concluded that there was no evidence that Congress had ever intended to reserve water rights for the State Trust Lands and, in fact, chose to compensate Arizona for the “relatively low value” of the land by granting additional land, not by reserving federal water rights.

For Arizona, this decision confirms that the state must rely on the regular prior appropriations doctrine under state law to prove up water rights on State Trust Lands in the two glacially paced water rights adjudications in Arizona. It also opens the door to water rights claims on State Trust Lands being deemed invalid due to non-use.While the decision is clearly not what the state was hoping for, it should assist the state in planning for future dispositions of State Trust Lands and help guide the acquisition of alternative water sources to serve State Trust Lands that have uncertain water rights claims. For other parties, it’s one less senior priority water right holder to be concerned with.