Article I, section 22 of the Utah Constitution states that “private property shall not be taken or damaged for public use without just compensation.” A taking is “any substantial interference with private property which destroys or materially lessens its value, or by which the owner’s right to its use and enjoyment is in any substantial degree abridged or destroyed.” Governmental entities may regulate what a property owner can do with their property and may have a significant impact on the utility or value of the property, but compensation is only required when governmental action goes too far and is a taking. As always, the issue is how far is too far. A taking will not occur where a government imposes reasonable restraints and regulations necessary to “protect and promote public health, public safety, morals, and general welfare.” Regulation that inconveniences a property owner is not a taking.
The first inquiry in a takings analysis is whether the claimant possesses “a protectable interest in property that is taken or damaged for a public use.” If the party does not have a protectable interest, there cannot be a taking. Because water rights are largely determined by state law, courts will look to state law in determining whether a party has a protectable interest in water rights.
In Utah, a water right is a real property interest. Both the amount of the appropriation and the priority of the appropriation is a property interest. The place of use, purpose of use and point of diversion are also essential characteristics of a water right. Perfected water rights (certificated rights, judicially decreed rights, diligence claims, and adjudicated water users claims) are protectable property interests. Protectable property interests can also include personal, intangible, incorporeal property rights such as contracts and all property rights protected under the Fifth Amendment of the United States Constitution. This could include water shares or water supply contracts.
However, a water right is not a property interest like real property; it is subject to hydraulic variability, reasonable and beneficial use requirements, and priority. All the water of the state belongs to the public, and a water right holder has a right to use the water, as permitted and administered by the State Engineer. A water right holder takes water rights subject to certain constraints and increasing federal and state regulation. For example, all water rights are constrained by forfeiture and beneficial use requirements and municipalities’ water rights are constrained in that they may not “lease, sell, alien or dispose of any waterworks, water rights, or sources of water supply . . .”
A party can establish a taking to all the water that no longer reaches its lands because of governmental action upstream; the taking will not the water that would never have reached the downstream users because of seepage and evaporation. Government action depriving the water user of the use of water can be a taking.
There are many water takings cases that illustrate situations that will not constitute a taking—most cases are unsuccessful and only physical takings of water have been successful in Utah. A water right holder does not have a right to illegally use water; the State Engineer may curtail or cease any illegal diversion without causing a taking. The State Engineer may adjust the priority date of a water right that has not been certificated—this right is considered inchoate—and the applicant did not timely file proof. A landowner does not have a protectable interest in prohibiting upstream water diversions to maintain high river flows to maintain a high water table on land abutting river and acting as a barrier to prevent subsoil drainage back into the river. A taking will not occur where a city requires irrigation company shareholders to dedicate water shares to connect to the city’s secondary water system, but allows non-shareholders to pay money to connect. A party does not have a protectable interest in a particular level of soil saturation. A property owner has no protectable property interest in using their property in a manner that is “per se injurious or obnoxious or a menace to society.”
Development exactions, including water dedication requirements, must be roughly equivalent to the impact they cause, meaning the exaction must be related both in nature and extent to the impact of the development. In Utah, for a taking to occur under a zoning ordinance, the property owner must be deprived of all reasonable use of the property. “Mere diminution of in property value is insufficient to meet the burden of demonstrating a taking by regulation.”
As illustrated above, most of the water takings cases are decided in favor of the government—against there being a taking. The most likely situations where a taking of water rights could occur in the future would be if the State Engineer reduced the priority of a perfected right. A taking could occur if the State Engineer or other state agency curtailed a perfected right to dedicate water to fish flows. If a groundwater management plan reallocated water rights or reduced water rights in a manner other than on priority, this could also be a taking.
If a taking does occur, damages will be in money, and property cannot be substituted in lieu of money unless the condemnee agrees. The amount of compensation should be based on the “inherent value of the property” at issue and its highest and best use, not just the use to which the party put the use historically.