Arizona stands to lose at least 760,000 acre-feet of Colorado River water annually beginning in 2027, following a federal decision that finalizes steep cuts for downriver states including Arizona, Nevada and California. The US Department of the Interior settled on the plan in August after the states failed to reach their own agreement, and Arizona absorbs the largest reduction of the three. State officials, city planners and the semiconductor industry are now confronting how the shortfall will affect a region that depends on the river for more than a third of its water.
The 1,400-mile river is Arizona's largest renewable water source, and more than 40 million Americans from Denver to Los Angeles rely on it. The Colorado River Basin has endured what the US Bureau of Reclamation calls unprecedented drought for more than a quarter century, with climate change drying the region further as demand compounds decades of overuse. Arizona has been a chip manufacturing hub since the 1940s, and it is now the site of major expansions by TSMC and Intel, which make advanced chips for AI.
Agriculture consumes more than 70 percent of Arizona's water, while industrial uses including chip fabrication account for about 6 percent. Fabrication plants rely on ultra-pure water for cleaning surfaces and etching chips, and producing it takes more municipal water than the volume ultimately used. TSMC told The Verge its first Arizona fab uses roughly 4.75 million gallons per day, comparable to more than 14,000 homes, and the company recycles 65 percent of its water in the state, a share expected to reach at least 90 percent once a reclamation plant is finished. Intel's Chandler facilities withdrew more than 2.7 billion gallons of freshwater in 2025.
Federal funding has driven much of the expansion. The CHIPS and Science Act, signed in 2022, set aside $52.7 billion for domestic chip manufacturing. Intel received a $7.86 billion grant and plans $32 billion in spending on two new factories and an expansion in Arizona, while TSMC received up to $6.6 billion and decided to build at least six fabs in Phoenix.
Maricopa County, home to the Intel and TSMC fabs, relies primarily on groundwater, though surface water from the Colorado and Salt rivers supplies close to 40 percent. Local leaders say the region prepared for cuts by storing water underground and developing other surface sources. Kathryn Sorensen, research director at the Kyl Center for Water Policy at Arizona State University, said utilities should expect rising bills as new wells and pipes are built, and that Phoenix applies the same water rates to companies and residents alike, meaning TSMC faces the same increases as its neighbors.
Phoenix Mayor Kate Gallego said in an August press release that the federal decision does not provide the fair, basin-wide leadership the crisis demands, adding that the city is prepared because of decades of planning and conservation. TSMC and Intel declined interviews. TSMC deputy spokesperson Nina Kao said in an emailed statement that a stable water supply is critical to chip production and that Phoenix's water situation was one reason the city was chosen for the company's US expansion.
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