(Written by Jack Milarch – NMHBA EVP/CEO – Originally published in the August 2013 Housing Journal)

NM Supreme Court Rules on Question of Domestic Wells vs. Senior Water Rights Holders

What is important for our industry?

Finally, the New Mexico Supreme Court has rendered an opinion on the “Bounds Case”. The essence of that case was that the Bounds family, who lives near Silver City and holds “senior” water rights of agricultural origin, challenged the State Engineer for indiscriminately issuing new domestic well permits. This was the classic case of someone who holds water rights trying to stop the “newcomers” from having access to ground water.

You might ask: “Why would the State Engineer continue issuing well permits in the middle of a serious drought?” The answer is because our state law directs him to do so, as it has since the mid-1950s. For many years NMHBA has been involved with this part of our law. Within the legislative arena, NMHBA has a strong reputation for defending that right to drill and use domestic wells. We view this as a basic right to home ownership and also because we see this right as key to us continuing to build homes in many areas of the state. Our NMHBA lobbying efforts have strongly defended that law for many years through a number of serious challenges.

Not surprisingly, this right to water is also viewed by various “no growth” and “no sprawl” proponents as a critical point to attack. These forces often teamed up with folks who want to defend their senior water rights from nearby new domestic wells. This fight often spills over into the Legislature and the courts. Once again water, and access to that water, becomes a battleground in New Mexico and that’s what the “Bounds Case” at our Supreme Court was all about.

Interestingly, most everyone in this debate is declaring that they are at least partially happy with the recent decision. The court said the State Engineer should continue issuing new well permits according to state law, which makes many of us happy because we feared they would be ordered to stop. The court also said, however, that in some areas of New Mexico the State Engineer should restrict or even stop those wells from being pumped in times of water shortage.   I assume that is what made the agricultural/senior water rights holders happy.

One of the “wild cards” in this case is that the court refused to define what “impairment” of an existing water right would be. The court said actual impairment, due to domestic wells usage, was required and potential impairment wasn’t good enough to sway their opinion. “Impairment” would be something where each situation generated its own set of facts to be judged. The court noted that the Bounds did not show actual impairment therefore the court didn’t order any domestic wells to be shut down.

So, what does this mean for our industry? I assume every builder, lot seller, and developer in areas where domestic wells are expected to furnish water will want to consider how they address the water issue with customers. Remembering that many newcomers to rural living may not even think about where the water for their new home originates, some of the following may be relevant. Is the developer guaranteeing water access? If so, for how long? Where does it leave the maker of any such guarantee if the State Engineer demands a major reduction in use, or even requires the well to be idled? Does the builder’s contract specifically address water availability and discuss liability if the well doesn’t work out? What is the value of lots in over-appropriated and drought-impacted areas where domestic wells may be shut down? Does the realtor know if water rights have been “severed” prior to the lot being created (a new law dictates that you CAN NOT use a domestic well on such lots unless water rights are purchased – see the nearby article in this issue regarding new laws)?

The water committees of the Legislature are meeting in Farmington at the end of August and you can bet this ruling and the implications will be discussed at length at those meetings. Staff leaders at the Office of the State Engineer have stated that they will now begin creating new rules and procedures for domestic wells. NMHBA has invited State Engineer Scott A. Verhines, P.E. and Rep. George Dodge (Vice Chair of the Water and Natural Resources Interim Committee) to discuss these issues with us at our NMHBA November 2nd Board meeting.