By 2008, the partnership managed to cut the deficit from about 12,000 acre-feet per year to 4,500 per year by buying and retiring farmland, recharging treated sewage effluent into the ground and encouraging water conservation. The deficit has since crept back to 6,000 acre-feet, partly due to drought.  County officials say they can regain most of that loss by building stormwater basins and upgrading the city's sewage-treatment plant. They also argue that the impact of rural wells has been overestimated.

But the Tribute project has pushed things to a tipping point. Last spring, while the state was considering the subdivision's application, the BLM began sticking up for its San Pedro water rights, much to the surprise of many observers. And that push came from the top of the agency. "The key concern we have is continuing consumption of groundwater affecting riparian areas, affecting the San Pedro," says Robert Abbey, the agency's since-retired, conservation-oriented chief. "One project may not have a long-term effect on the conservation area, but the cumulative effect of many projects over time does have some consequences."

Abbey ordered BLM's Arizona office to write the state water agency, pointing out that federal senior water rights are entitled to broader protection than state-granted rights. Under a 1976 U.S. Supreme Court decision, a senior water-rights holder can stop a junior water-rights holder from pumping water if it would hurt the senior party's rights. The letter concluded that Arizona shouldn't award Tribute an "adequate" water ruling until the Gila River adjudication was complete and the water-rights question settled.

Then, in late August, the BLM joined the Center for Biological Diversity and the Huachuca Audubon Society in filing appeals of the state's approval of Tribute.  "This is a very positive sign," says University of Arizona law professor Robert Glennon. "BLM is no longer willing to be passive in waiting for progress in the Gila River Adjudication to protect its water rights in the San Pedro."

The BLM and other federal agencies have taken on Western ranchers, loggers and state agencies over water rights many times in the past, but current and former BLM officials agree that it's making a harder push than before -- inspired by former Director Abbey's leadership as well as the pressures on the region's watersheds caused by drought and climate change.

Elsewhere in Arizona, for instance, the BLM recently installed a handful of stream gauges on the Agua Fria river northwest of Phoenix, to kickstart the process of asserting its water rights there. In the past year, it has also asked the state water agency   so far unsuccessfully -- to get moving on longstanding applications for three instream-flow designations in western Arizona, which would strengthen the BLM's legal standing to fight proposed diversions from those rivers. The agency is also trying to secure instream-flow rights for the Upper Missouri Breaks National Monument in Montana.

Some environmentalists privately expect the Tribute appeals to fail because the final decision, due early in 2013, lies with the state water agency, which has rarely challenged development. Then, they hope, the BLM will go to federal court to seek a more sympathetic ruling on the scope of its water rights.

The attorney for the developer's water company, Pueblo Del Sol, meanwhile, has challenged BLM's view of the Gila River adjudication, arguing that the state has no right to say Tribute's water supply is inadequate until the Gila River adjudication is finished and the water-rights argument is resolved.

If the federal agency does prevail, some local well users fear they'll lose the right to pump. The BLM has said that it could sue owners of wells drilled since 1988 to stop or limit their pumping. But city and Cochise County officials believe new studies will show that these wells' water use has been significantly exaggerated.

Other critics have been quick to accuse the BLM of overreaching. The Goldwater Institute, a Phoenix-based conservative think tank, called the agency's action -- along with the Forest Service's refusal to allow the nearby city of Tombstone to quickly replace water infrastructure damaged in a 2011 wildfire -- a federal assault on state sovereignty. The actions "throw a noose around Arizona's neck, for which water is life," wrote Nick Dranias, chair of the institute's Center for Constitutional Government. Republican State Sen. Gail Griffin denounced the BLM's approach as a blatant attempt to steal Arizona's water.

But conservationist Ted Mouras, a retired U.S. Army officer living in Sierra Vista, thinks it's absurd to accuse the BLM of waging war on the community. "The BLM has an obligation to accomplish the goals set before it, and one of them is to protect the conservation area," says Mouras. "They are drawing a line in the sand. If you build Tribute, you will only increase the threat to the river."

The BLM has indeed flung down a legal gauntlet, one that will affect the state, Tribute's developer and Sierra Vista's future. The question is an old one: Can or should anyone in Arizona limit growth to protect the San Pedro? After decades in which authorities have said "no," the BLM is seeking a new answer.

This story was made possible with support from the Kenney Brothers Foundation.