Economic Effects of Removing the Permit Exemption for Domestic Wells

Water scarcity in the western United States has forced elected officials and water resource managers to reconsider the appropriateness of exempting “de minimus” water withdrawals from state permitting processes. A number of western states have attempted to either remove or significantly restrict the permit exemption in recent years, mostly with limited success (Bracken 2010, 2012). Through a case study of Kittitas County, Washington, this article assesses common criticisms of removing the exemption, namely that the policy makes the price of acquiring water unaffordable, drives the rate and location of local development, and redistributes the property tax burden. I report descriptive statistics of transaction costs and gross selling prices for over 230 county water right transactions since 2006. Gross selling prices paid for previously permit-exempt water ranges between $5900 and $11,000 per estimated residential unit (approximately 0.17 acre-feet). On a per acre-foot basis, this is high relative to prices observed for agricultural-to-urban water transfers in the western United States. I also forecast property tax redistribution through use the Assessor’s Property Database and a public records request for 711 Petitions for a Reduction in Assessed Value filed by county residents following rule adoption. Redistribution effects depend on the scale and type of public service provision for each of the county’s 56 tax code areas. Sensitivity analysis is conducted on the effect size, which varies from as little as 2.0% for some countywide services with greater and more variable effect sizes found for individual tax code areas in the Upper County. A Difference-in-Difference model examines the policy’s impact on development, measured through approved applications for (1) new wells and (2) new building permits since 2006. This is one of the first ex post analyses of the economic effects of removing a permit exemption for “de minimus” water withdrawals.