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Are there limitations to using z-values in a geometric network that participates in the Local Government Information Model?
No, there are no limitations to using z-values in a geometric network that participates in the Local Government Information Model (LGIM). On the contrary, the addition of z-values allows for three-dimensional modeling of the connectivity of point and line features.
However, the z-values must be enabled when creating a geometric network, and all feature classes participating in the geometric network must support z-values. Any existing geometric network must be re-created in the LGIM. To do this in ArcMap, refer to the following documentation, ArcGIS Help: Building a geometric network from existing simple feature classes.