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Here in the desert southwest (Northern New Mexico, zone 7B, heavy clay soil, 7 inches of annual rainfall), clover doesn't seem to grow well due to lack of enough moisture. What's an alternative that will improve my soil over time the way clover will, but grows on an extremely small amount of water?

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Not exactly a ground cover, but perhaps Mesquite? It is a legume...

New Mexico State University Guide 150

lists a number of cover crops (which may not suit the homeowner's sense of "groundcover") some of which they list as drought tolerant. Among the drought-tolerant Legumes are alfalfa (possibly not a good idea with the septic, speaking of big roots, but one of the better nitrogen fixers; and most root cautions are for trees, not herbaceous plants), Cowpeas, and Yellow Sweetclover (specifically called out for "high drought-tolerance", while red clover is listed as "low drought tolerance.")

Other arms of government consider yellow sweetclover an invasive species and say the sorts of generally unpleasant things that one says when using that characterization. It seems not very much like other clovers in appearance.

Arid legumes mentioned in Indian research were Cowpeas (again), Guar, Moth beans and "Horse-gram"

Many of those are annuals, but will improve your soils - for a perennial alfalfa is about it (yellow sweetclover is listed as "annual, biennial or short-lived perennial) - though it's hard to quantify just how little water alfalfa will put up with, given that most of the water and alfalfa info available is about irrigation. There is some commentary about fields surviving withdrawal of irrigation in the most recent California drought, with the plants more or less going dormant and waiting for rains. If it doesn't plug your pipes it will probably make effective use of your septic effluent...

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The answer may be Falcata Alfalfa--an Alfalfa cultivar that is especially drought-tolerant. I've read 12" minimum rainfall, and we get 7", but maybe I can make it work growing with other native grasses in a moisture-retaining heavy clay soil. I'll update this answer once I've planted some.

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