Even though the legislature adjourned last week without a solution to the 2016 Supreme Court Hirst decision or passage of a capital budget, lawmakers are continuing stakeholder discussions in an attempt to reach agreement. In the meantime, banks are left to decide whether or not to lend to homebuilders in affected areas of the state, and several planned construction projects are left unfunded.
Hirst effectively halted development in rural areas of the state for landowners wishing to build on properties relying on potable water. In response, several counties issued emergency building moratoriums. Affected Washingtonians, homebuilders, realtors and bankers all feared the decision would make large investments in those plots of land useless until a legislative fix can address the ruling.
“Any of the loans we’ve had out on development loans where they did not have permits in place prior to the Hirst decision coming into play have been halted, and there’s no development in those areas,” said Andy Mesojednik, vice president and commercial lender for Aberdeen-based Bank of the Pacific, told Lens.
Sponsored by State Sen. Judy Warnick (R-13), SB 5239 would have addressed Hirst by allowing cities and counties to once again rely on Department of Ecology (DoE) guidelines for complying with Growth Management Act (GMA) watershed level requirements.
During the legislative session, the Senate approved the measure four times, while the House failed to bring it to the floor once. A striker to Warnick’s bill was also introduced which would have warranted agreement across both chambers while considering proper stream mitigation techniques.
On June 30, the House passed its capital budget spending plan in a 92-1 vote, with five excused. The Senate approved their own spending plan on March 30, however that plan included a $20 million allocation for mitigation and instream cleanup to address Hirst.
State Rep. Jim Walsh (R-19) said most of the budget was already agreed on and would have been ready for approval by both chambers as early as July 1. The only changes needed would have been for allocations within the budget for fish restoration as part of the striker bill for Warnick’s Hirst fix. House Democrats, however, failed to bring Warnick’s bill to a vote, and the capital budget was never approved.
On July 20, Governor Jay Inslee expressed his displeasure that Senate Republicans had used their “my way or the highway” approach to tie the Hirst fix to capital budget negotiations.
“I think Washingtonians rightfully should feel disappointed that the legislature did not produce a construction project that is so important for building schools, adding classrooms, taking care of our mental health facilities and building community facilities across the state…” Inslee told reporters at the final press conference of the special session.
The $4 billion 2017-19 capital budget includes a record $1 billion for new school construction to help address the Supreme Court’s McCleary decision to fully fund education, and it also includes allocations for state and community mental health facilities, higher education projects and affordable housing funding.
Walsh, however, said his caucus’ leadership was under the impression there was agreement across the aisle on the capital budget and Hirst, and that both could have been settled before the end of session.
“The speaker indicated at least to our leadership that we were ready and had a deal,” he continued. “The speaker’s caucus got out from under him somehow.”
House Democrats introduced another solution for Hirst as a temporary fix until lawmakers could agree to a permanent solution.
That proposal, HB 2248, would allow landowners to present well water reports as proof of adequate water supply for developments reliant on potable water for the next 24 months. Also, lawmakers must meet with stakeholders and develop a report for addressing the Hirst fix to the legislature within 18 months.
“That temporary fix is absolutely no good,” said Walsh, deeming it a “nonstarter.”
“If you are borrowing money on a mortgage to build on a well property and you can’t be sure if you are going to have an unenforceable water right 24 months from now, you will have a hard time finding financing,” said Walsh.
“I don’t know that we necessarily see it as a viable solution,” said Mesojednik. “It’s just kicking the can down the road a couple years.”
Mesojednik said his bank deals with multi-year development projects with clients which are set based on its “absorption period,” that is, the timeline over which an appraiser believes the lots will be sold. This measurement is often estimated to be longer than a 12-or 24- month period, he added.
The temporary fix would have subjected banks to “a level of uncertainty” where a client with 20 to 30 lots with a three-year absorption period may have sold 20 by the time the temporary fix runs out, he added.
“We would then have to effectively value those last 10 lots as zero because there’s no certainty we would be able to assist our client in developing those lots,” said Mesojednik.
In response, banks will decline giving out loans on properties affected by the decision because landowners lack the necessary building permit, he added.
According to Mesojednik, one group of legislators was set on holding developers hostage, while the other tied up the capital budget.
“If their goal is to provide affordable housing and meet the best interest of the community and the people they represent, they need to come to some sort of agreement and get some sort of permanent fix.”
Without a fix, people who want to build their homes, along with lenders and developers, are all left with ambiguity, he added.
“You hear a lot in policy circles how uncertainty is a killer,” said Walsh. “In this case, we have a good example… we need a clear decision on how it is going to be for water rights.”
Inslee said he would be able to call lawmakers back for a one-day special session to pass the capital budget and a Hirst solution.
“I believe there are people operating in good faith and trying to get this fixed as soon as we can,” said Walsh. “I think most of the four corners want this done. I think it’s a vocal few who are trying to throw barriers up, and I don’t want to let that few hijack the process.”
Walsh added that he expects lawmakers to wrap up negotiations with stakeholders within the next 30 to 45 days before being called back to vote on the session’s loose ends.