AZ SB1386

Requires the Arizona Department of Water Resources director to issue a triennial report assessing the overall health of each watershed in the state, evaluating hydrology, landscape condition, habitat, geomorphology, water quality, biological condition, and threats/vulnerabilities.

Adds "watershed health uses" as a new category of beneficial use for water appropriation, defined as water conserved in a natural watercourse that supports watershed health attributes.

Exempts watershed health use applications from the existing requirement that instream flow applications include five years of continuous streamflow measurement data.

Mandates a preliminary survey by December 31, 2026 establishing ecological water needs standards, identifying watersheds with insufficient water for ecological needs, and recommending statutory changes to support those needs.

Allows transfer of water rights to watershed health purposes without losing established priority, subject to the same limitations and director approval required for other water right transfers.