Last October in Whatcom County v. Hirst, the Washington Supreme Court held that each county must ensure that there is an adequate water supply before it approves a project permit. The Hirst decision upset the existing process by which a county would assume an adequate water supply, including for projects served by “permit exempt wells,” so long as the Department of Ecology had not closed the area in which the project is located to all water uses. After Hirst a county must independently conclude that water is available before it issues a permit for single family or small development construction, which often rely on permit exempt wells as a water source, regardless what Ecology says about water availability.

Hirst places a substantial and costly burden on counties and, ultimately, permit applicants for single homes and small developments. The practical result is that before obtaining a permit in areas that rely on wells, an applicant will very likely need to obtain a water availability study, and the county will have to evaluate the adequacy of that study. This burden will be felt by applicants who have relatively small water needs, making the burden proportionately significant when compared to the size of the project. It is conceivable that neither the average borrower nor the average county has the resources to undertake those tasks.

Counties are still in the process of adjusting their practices to comply with Hirst, and the response has been far from uniform. Whatcom County initially stopped issuing permits for projects that rely on permit exempt wells. Whatcom County’s moratorium was recently replaced by an ordinance that identifies additional permit requirements, including technical reports for projects located in Ecology’s “closed” areas. Spokane County responded by limiting areas in which new wells may be drilled. Clark County has determined that no action is necessary. Now that the legislative session has started, we are tracking a variety of proposed legislation intended to address the issue.

The impact of Hirst on construction, including construction lending, is potentially significant. Current lending practices may be insufficient to ensure the value of the security that supports construction financing. A planned project, whether it is a new project or redevelopment of an existing project, may ultimately prove valueless if there is no water available to support the permit. It may be a good time for financial institutions to review existing practices and related agreements to ensure that a borrower’s obligation to obtain permits, clear of any legal challenges, occurs before any funds are disbursed under lending arrangements, as well as enhance the institution’s ability to require proof of water availability and provide training about the consequences of Hirst.