Washington State has been in fiscal gridlock because a recent court case Ð the Hirst Decision (Hirst)— would require counties to show legal availability of groundwater to issue permits for new rural residential wells that would be in connectivity with surface water. Many argued that this requirement would halt rural residential development in the state. This article examines the context and potential consequences of Hirst through an economic lens. For context, the characteristics of exempt wells and recent legal precursors are discussed. A qualitative assessment of the likely impacts of Hirst and the conditions that might alleviate its effects is provided, followed by potential institutional innovations that may emerge because of or in response to Hirst. These developments in Washington State illustrate some of the complexities of exempt wells common to many of the Western United States.