A ruling this week by the state Court of Appeal involving a 2,500-home development in Santa Clarita, and a settlement in a separate case the same day, could end the controversial practice of building subdivisions that rely on state water supplies that may not exist.
Both actions gave new hope to slow-growth activists who are afraid that many California developments are being approved by local governments based on the rosiest of water projections, called "paper water," even as the state faces the possibility of diminished supplies from such traditional sources as the Colorado River.
"What the courts are worried about is that we're building projects that might not have the water to supply them," said Antonio Rossmann, an attorney who represented environmental groups in a lawsuit against the state Department of Water Resources. "What we've got to plan for, of course, is the multi-year drought scenario."
That suit, brought by the Sacramento-based Planning and Conservation League in 1996, was settled Thursday, with an agreement by the Department of Water Resources to begin reporting more accurately the amount of state water available to local planning agencies.
Also Thursday, the California 2nd District Court of Appeal rejected the environmental report for a Santa Clarita Valley subdivision.
The court found that Los Angeles County relied on overly optimistic water projections in approving the West Creek project, which was proposed by the powerful Newhall Land & Farming Co.
The environmental report for the subdivision must now be revised to show that it can find enough water.
The unanimous decision by the three-judge panel was not the first to reject an environmental report based on "paper water" projections.
But water experts say the tartly worded ruling -- combined with Thursday's settlement agreement with the Department of Water Resources -- will force developers and local governments to be more specific when it comes to identifying new water sources.
"The dream of water entitlements from the incomplete state water project is no substitute for the reality of actual water the [state] can deliver," the ruling stated.
For years, environmentalists have complained that the department was creating an unrealistic picture of water availability by encouraging government agencies to focus on the estimated amount of water that would be available only during the best possible conditions.
The critics contend these optimistic projections can never be achieved because the state water project was never built to full capacity.
They also note that deliveries on the 600-mile system vary from year to year, depending on rainfall, snowpack, storage and pumping capacity.
"That water doesn't exist," said Carol Lee Krieger, of the California Water Network. "Except in documents -- as a wish."
In recent years, experts say California has become more serious about the demands of development on the water supply.
Courts have become more aggressive about making builders and local governments prove they have enough water for big projects.
And a state law passed in 2001 forces local water agencies to show that enough water exists to serve new subdivisions of 500 or more homes.
"That old paradigm of build it and the water will follow worked for the 19th and most of the 20th century, but things changed over the last 25 to 30 years," said Randele Kanouse, a lobbyist for the East Bay Municipal Utility District in northern California.
"We're not building more reservoirs like we used to. And you can't ask [water users] to tighten their belts much more," he said.
This new focus on water and development concerns some building industry forces, who are skeptical of additional roadblocks in a state that constructs only half as many new houses as needed each year, according to some estimates.
In 2000, a Kern County Superior Court judge forced the Newhall Land company to rewrite its water plans for the largest subdivision ever approved in Los Angeles County, Newhall Ranch.
At the time, California Building Industry Assn. President Tim Coyle called it "an indication of what we're going to face in the future."
"If we don't increase the capacity of California to grow," he said, "it's going to be a litigator's dream."
Newhall's original plans for the 21,600-home Newhall Ranch project relied on some of the state water project's "paper water" projections. To avoid legal hassles, the company completely avoided all state water in its latest environmental documents, preferring instead to buy water from private water suppliers in Kern County, spokeswoman Marlee Lauffer said. The Los Angeles County Board of Supervisors will review that revised document on March 25.
Now the company must go back to the drawing board for the West Creek project. Lauffer said she was confident Newhall could prove that the water was available. "We're disappointed that they took the position they did, but we know the facts are on our side," she said.
Rossmann said Thursday's actions could give ammunition to opponents of projects that are in the early planning stages.
Times staff writer Nancy Vogel contributed to this report.