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Water rule slows development in Kittitas
Mitch Williams, a builder in Kittitas County and a principal in a new for-profit water bank, says the people in his area are now learning the ropes in dealing with a Department of Ecology-approved water management plan.
"In the upper county, people are cognizant of the issue," Williams said. "No one buys land until they have water."
The Kittitas Rule, which covers much of northern Kittitas County, is very similar to the Dungeness Water Management Rule that Ecology plans to put into place in WRIA 18 East, which covers much of rural eastern Clallam County.
With the rule in place, those who want to build in the Upper Kittitas are no longer eligible for "free" water through the state's permit-exempt well law. Instead they must purchase water rights from a senior water rights holder.
The Dungeness Rule contains the same requirement.
Ecology officials say both rules are based on studies that show that drawing water from a well takes water from nearby streams.
The rule is intended to protect the interests of senior water rights holders, Williams said. Their water is "effectively, by interpretation of law, stolen" by those with wells, he said.
The Kittitas rule, established in 2009, was driven by the Endangered Species Act, by local American Indian tribes and others, he said.
Williams notes that the system in Upper Kittitas is based on the "single molecule legal theory." Under that legal interpretation, no one is allowed to take as much as a single molecule of water that belongs to a senior water rights holder.
Shirley Nixon, an attorney with extensive experience in water law, said the same legal theory underlies the new Dungeness Water Management Rule.
An immediate moratorium
When the rule was imposed in Kittitas, there were no water rights available, which led to an immediate moratorium on new development. To avoid a similar outcome in WRIA 18 East, Ecology included in the Dungeness rule a new system of water "reserves" that can be used by those who buy land within the area as the planned "water bank" develops an inventory of water rights.
Currently in Upper Kittitas only Suncadia, the vast resort development in Cle Elum, is in the water business. Other banks are being developed.
The cost of an Equivalent Residential Unit (ERU) — the amount of water needed by a homeowner — is "trending up," Williams said. Early in the process an ERU might have been purchased for as little as $4,000 plus processing expenses. Today an ERU ranges from $7,500 to $12,500.
Much of the expense lies in transaction costs, Williams said. "It's a relatively time-consuming and expensive process."
The Washington Water Trust (WWT), which through a contract with Clallam County is establishing a water bank for WRIA 18 East, has estimated the cost to purchase water rights for a home will range from $500 to $3,500.
Williams said WWT's estimate was most likely "a wish, a prayer and a guess."
WWT spokesman Amanda Cronin disagreed, saying, "Our preliminary estimate for the costs of mitigation in the Dungeness is an estimate but it was certainly not pulled out of the blue. We have completed extensive economic analysis on the costs of various projects that would be suitable as mitigation."
She added, "The most important thing to know about water markets is that they are all local. The primary reason that water bank mitigation is so much higher in Kittitas is that they are run by private law firms and attorneys that are profiting from the sale of mitigation credits."
WWT is a nonprofit corporation.
Cronin said the transaction costs for each sale in the Dungeness basin will be individually calculated. "They are the actual costs that it takes to get a deal done including identifying sellers, negotiating the deal, completing water right due diligence, shuttling the deal through Ecology, addressing any concerns with the transfer, etc."
Williams said estimating the cost of water is difficult because the the pricing is so dynamic. It's "whatever the market will bear," he said.
For example, Williams said, someone with a water right for sale can ask for $20,000. If no buyers are forthcoming, the price drops.
Once the water is purchased, the right is permanent, Williams noted. "It goes with the well."
'Drama, frustration and waiting'
Williams said those who hope to build in the Kittitas area "are engaged in drama, frustration and a waiting game."
"They are mired in the same process as was historically used for large water users — irrigators," Williams said.
These days, he said, "a mom and pop" may seek water, put six months into the task and have no success.
"They'll go somewhere else to build their new home," he said. Williams noted that may mean a nearby municipality, "where you know water's available."
Those who want rural land, he said, "have to go through the process. Otherwise you've bought an expensive camping site."
Williams provided a thumbnail sketch of the process in Kittitas, saying buyers are first required to hire an attorney to create a purchase agreement for the water rights.
The agreement establishes the volume and price of the water and the amount of the down payment.
The seller's work is complicated, Williams said, and begins with preparing and filing in Olympia a "request for transfer." The request is then sent to the regional Ecology office. In Upper Kittitas, that means Yakima.
"Then the process begins," Williams said.
Ecology prepares a "Report of Examination" (ROE), which takes two to four months, at which point the ROE is returned to the buyer and seller for review. A formal hearing is then scheduled before the Water Transfer Working Group, which meets once a month.
At the hearing the agreement is discussed informally with "about 15 to 30" interested parties present, including representatives of local tribes, Ecology officials and attorneys.
If the working group gives the sale a thumbs up, Ecology issues an order of confirmation and acceptance of the transfer. The buyer and seller then open an escrow account and the parties schedule a closing, where money changes hands.
"Its just like a home sale," Williams said.
The sale is then recorded.
But the right isn't perfected, Williams said, until the buyer drills the well and puts the water to beneficial use and issues a statement of such to Ecology.
If the Water Transfer Working Group denies the sale, "you're pretty much screwed," Williams said.
Williams said most buyers of land are waiting until the water transfer is accomplished before closing on a purchase. "You're not gonna sell your dirt on the promise of water because water isn't available in many of these areas," he said.
Reach Mark Couhig at email@example.com.