Water Projects and Colorado’s 1041 Regulations

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by Amy Stengel, Assistant Attorney General
Natural Resources & Environment Section, Colorado Attorney General’s Office1

Background:
Colorado House Bill 1041, also known as the Areas and Activities of State Interest Act (“the Act”), was enacted in 1974 and allows local governments to regulate a variety of development activities with guidance from the state. See 24-65.1-101 et seq., C.R.S. The purpose of the Act is to describe and designate areas and activities which may be of state interest and to encourage local governments to establish criteria for the administration of these areas and activities.2 Generally, development may only proceed if consistent with the environmental and developmental goals of the local communities as outlined in their 1041 regulations. Once an activity has been designated as a matter of state interest, any person desiring to conduct that activity must file an application for a permit with the local government of the area in which the activity is to take place. § 24-65.1-501(1)(a), C.R.S. The local government may then either approve or deny the application based on whether the proposed activity complies with the local government’s regulations and guidelines. § 24-65.1-501(6), C.R.S.

Application of 1041 Regulations to Water Projects:
Of particular concern to many local governments are the multitude of impacts from the construction and operation of large-scale municipal and industrial water projects. The Act authorizes local governments to designate as activities of state interest the site selection and construction of major new domestic water and sewage treatment systems, major extension of existing domestic water and sewage treatment systems, site selection and development of new communities, and efficient utilization of municipal and industrial water projects. § 24-65.1-203(1), C.R.S. Local governments may not pass regulations that are completely prohibitive of the building of municipal water facilities and expansion of existing projects; rather, the Act allows the locality to require a permit with designated conditions prior to construction. See City of Colorado Springs v. Board of County Commissioners of Eagle County, 895 P.2d 1105, 1116 (Colo. 1994). The existence of previously decreed water rights does not provide an exemption for the developer from regulation under the Act; so long as the regulations do not serve to undermine these established water rights they are a valid exercise of authority. Id.

As criteria for the administration of activities of state interest, new domestic water and sewage treatment systems must be constructed in areas which will result in the proper utilization of existing treatment plants and responsible development of domestic water and sewage treatment systems of adjacent communities. § 24-65.1.204(1)(a). Municipal and industrial water projects must emphasize the most efficient use of water, including, to the extent permissible under existing law, the recycling and reuse of water. Urban development, population densities, and site layout and design of storm water and sanitation systems shall be accomplished in a manner that will prevent the pollution of acquifer recharge areas. § 24-65.1-204(8).

The 1041 permit application process is extensive and includes the submission of detailed specifications concerning the affected environment and impacts of the proposed development. Applicants proposing a municipal water project must submit descriptions of the location of and operational regime for wells, diversion structures, reservoirs and storage structures including the rate and the amount of water to be pumped or diverted from each facility. While the exact criteria and requirements differ, most counties require an applicant to demonstrate that the net effect of the proposed project will not significantly deteriorate air and water quality in the impact area, floodplains, wetlands and riparian areas, terrestrial and aquatic ecosystems, threatened or endangered animals and plants, noise levels, soil and geologic conditions and existing land uses and services, amongst others. Applicants must typically mitigate environmental impacts to wetlands, floodplains and other areas as part of the permit conditions. Municipal projects that will serve areas of the county, including unincorporated areas, must meet additional criteria to demonstrate existing demand and efficiency of use.

1041 Case Studies and Discussion:
In the context of municipal and industrial water projects, the initial use of 1041 regulatory powers centered on limiting the effects of trans-mountain diversion proposals. In 1994, the Colorado Court of Appeals upheld the use of 1041 regulatory powers when the cities of Aurora and Colorado Springs wanted to divert water from the Eagle River basin for the Homestake II Reservoir near Minturn. After a series of public hearings, Eagle County denied the cities a permit because the project failed to comply with the county’s 1041 regulations. The cities appealed the denial in district court and the Colorado Court of Appeals ultimately held that evidence supported Eagle County’s denial of permits based on the cities’ failure to satisfy county regulatory criteria concerning wetlands protection and nuisance abatement, amongst other issues. City of Colorado Springs v. Eagle County, 895 P.2d 1105, 1115 (Colo. App. 1994). In a similar case involving Denver’s proposed transmountain water projects in Grand and Eagle Counties, the Supreme Court held that a county may regulate the construction and development of municipal water diversion projects even if the end users of the water are not located within the county. City and County of Denver v. Board of County Commissioners, 782 P.2d 753, 760 (Colo. 1989). This holding is particularly significant as it provides a mechanism for local governments to regulate large municipal water projects which may not serve the demand needs of their own constituents but are likely to have significant impacts on the local environment where the project is constructed.

Recently, some counties on the eastern plains have adopted 1041 regulations requiring a permit for the removal of irrigation water from land which has historically been irrigated. Water, Growth and Land Use, Headwaters, Colorado Foundation for Water Education, Summer 2004, at 4-5. These regulations address the environmental impact of agricultural dry-up, topsoil loss, noxious weed invasion and the resulting loss of habitat. The regulations typically also require re-vegetation and wildlife mitigation plans as permit conditions for the proposed projects. For those water projects in which large numbers of mutual ditch company shares are being changed from agricultural to municipal use, the dry-up of irrigated land required by a water court decree may sometimes involve tens of thousands of acres. Clearly, the large-scale removal of irrigation water from historically-irrigated land has substantial effects on surrounding terrestrial and aquatic ecosystems and the dry-up must be addressed and mitigated through the permitting process.

In July of 2009, Colorado Springs and Pueblo County reached an agreement to dismiss a lawsuit over Pueblo’s 1041 regulations. In 2005, Colorado Springs Utilities filed suit in district court in Pueblo County challenging the applicability of Pueblo’s 1041 regulations to the proposed Southern Delivery System (“SDS”), a $1.4 billion water storage and delivery system that will convey raw water from Pueblo Reservoir by pipeline to Colorado Springs, Pueblo West, Fountain and Security. The SDS project proposes construction and installation of a 7-mile pipeline from Pueblo Dam. As part of the 1041 permitting process, Pueblo raised numerous concerns in regards to both the construction and operation of the pipeline, including water level fluctuations and draw-downs in Pueblo Lake, impacts to Fountain Creek resulting from increased SDS return flows, reduced flows in the Arkansas River below the dam and the resulting impacts on the fishery, riparian environments, recreational uses and downstream agriculture.

In 2007, Chief District Judge Dennis Maes ruled in favor of Pueblo County’s position that its 1041 regulations were applicable to SDS. Colorado Springs argued that the regulations were not applicable because the project was not substantially different than existing utility projects in the county. Colorado Springs appealed the decision, but the appellate court did not issue an opinion and both parties ultimately requested the appellate court remand the appeal to the district court. Pending a decision from the appellate court, Colorado Springs continued with its application for a 1041 permit in 2008 and received the permit this past April. As part of the July dismissal and settlement, Colorado Springs agreed not to challenge Pueblo County’s authority to regulate SDS in the future through its 1041 permitting process and accepted all of Pueblo’s conditions for the SDS, including a $50 million payment to the newly formed Fountain Creek Watershed Flood Control and Greenway District. Additional payments will also be allocated towards various mitigation and flow maintenance programs on Fountain Creek.

It is clear that the law relating to the application of 1041 land use regulations to water projects in Colorado is continuing to develop as more counties attempt to address and mitigate the impacts to local watersheds and communities from large-scale water development projects. Thus far, Colorado courts have upheld the authority of local governments to regulate municipal and industrial water projects through their 1041 regulations. Although these projects must also meet the requirements of both state and federal environmental laws, including the Clean Water Act’s 404 permitting process, the ability of local governments to have an additional measure of control over these projects is compelling as more Front Range municipalities pipe water great distances to meet the demands of their growing constituencies. By enacting land use regulations pursuant to HB 1041 that are reflective of the unique environmental characteristics and goals of a community, local governments have greater authority in developing mitigation measures that are consistent with these goals.

Reference List:
“Springs, county to settle lawsuit”, Chris Woodka, The Pueblo Chieftain, July 30, 2009.
Southern Delivery System: Coalition of conservation groups favor more study of alternatives, Chris Woodka, The Pueblo Chieftain, June 22, 2009.
Local Government Regulation Using 1041 Powers, Joseph B. Dischinger, Government and Administrative Law News, 34 The Colorado Lawyer 79 (December 2005).
Water, Growth and Land Use, Headwaters, Colorado Foundation for Water Education, Summer 2004, at 4-5.

Footnotes:
1 The opinion expressed herein is that of the individual author and does not reflect the opinion of the Attorney General.
2 The Act provides that “it is the intent of the general assembly that land use, land use planning, and quality of development are matters in which the state has a responsibility for the health, welfare and safety of the people of the state and for the protection of the environment of the state.” § 24-65.1-101(1)(c), C.R.S. The concept of “state interest” developed out of the general assembly’s intent to address land use and land use planning as a matter of public interest.