Municipalities, farmers, ranchers, landowners, and conservation groups unite to protect Montana water rights in challenge to exempt well loophole
Today, groups and individuals representing a diverse coalition of municipalities, farm and ranch families, landowners, and conservation organizations filed a legal challenge in Montana state court against the Montana Department of Natural Resources and Conservation (DNRC) and the state of Montana over its continued implementation of the state’s “exempt well loophole,” which allows unregulated groundwater development outside the state’s permitting system. The lawsuit seeks to protect Montana’s senior water rights holders and restore fairness and accountability to the state’s water administration system.
In a state where water is a limited and vital resource, Montana law guarantees that senior appropriators, those with older, established rights, are first in line to use available water. However, the exempt well loophole has allowed developers to drill thousands of new groundwater wells without permits, even in basins that are legally closed to new appropriations. The unchecked proliferation of these wells has reduced streamflows, impaired senior water rights, and undermined the state’s constitutional obligation to manage and protect Montana’s waters for the benefit of its people.
In 2016, the Montana Supreme Court ordered the DNRC to narrow this loophole, which had allowed developers to drill thousands of wells outside the state’s permitting process. Despite that ruling, the number of unregulated wells has skyrocketed over the past decade as the state has failed to adopt meaningful policies to rein in abuse of the exemption, leading to today’s constitutional challenge to the underlying, fundamentally flawed Exempt Well Law itself.
The lawsuit, filed in Lewis and Clark County, challenges § 85-2-306(3)(a)(iii), MCA (the “Exempt Well Law”), on several constitutional grounds. Plaintiffs allege the law:
- Violates Article II, Section 3 and Article IX, Section 3, which protect existing water rights and requires the state to ensure that senior appropriators are not impaired by new water uses.
- Violates Montanans’ rights to equal protection and due process under Article II, Sections 4 and 17, by granting exempt well users preferential access to water over law-abiding senior rights holders.
- Violates the public’s right to know and participate in government decisions under Article II, Sections 8 and 9, by allowing tens of thousands of wells to be approved without public notice, transparency, or review.
The plaintiffs, a coalition including Montana League of Cities and Towns, Association of Gallatin Agricultural Irrigators, Clark Fork Coalition, Montana Environmental Information Center, Montana Farm Bureau Federation, Trout Unlimited, and individual landowners, represent Montanans from every corner of the state whose livelihoods, communities, and local economies depend on fair and sustainable water management. Together, they seek a declaration that the Exempt Well Law is unconstitutional, and an injunction preventing the state from continuing to allow unpermitted groundwater development that harms existing water users.
“The exempt well loophole forces cities and towns to shoulder the consequences of unregulated groundwater use,” said Kelly Lynch, executive director of Montana League of Cities and Towns. “Municipalities are already struggling to ensure reliable water supplies for growing communities. We need a consistent, lawful permitting process that protects existing users, not a system that leaves Montana’s communities and taxpayers to clean up the mess.”
“Farmers and ranchers have followed the rules and invested generations of work based on secure access to water,” said Scott Kulbeck, executive vice president of the Montana Farm Bureau Federation. “Everyone has to play by the same rules. When some folks skip the permit process and pull from a water source that’s already spoken for, it hurts their neighbors. This case is about protecting the way Montanans have managed water responsibly for generations.”
“For irrigators, water is the foundation of our livelihoods,” said Kurt Dykema, board president of the Association of Gallatin Agricultural Irrigators. “When thousands of new wells are drilled with no regard for senior rights, it’s not just a paperwork or data problem, it’s a real-world impact on our ability to grow crops and feed our communities. We’re simply asking the state to follow the Constitution and the prior appropriation doctrine.”
“From rapid growth to ongoing drought, Montana’s water resources and water users are facing unprecedented challenges,” said Andrew Gorder, legal director of the Clark Fork Coalition. “The cumulative impact of over one hundred thousand exempt groundwater wells can no longer be ignored. We’re asking the court to conserve our limited water resources and ensure that the constitutional protections afforded to senior water rights, including instream flow rights, are preserved.”
“Healthy rivers and thriving fisheries depend on water staying in our streams,” said Pat Byorth, Montana water director for Trout Unlimited. “When thousands of new wells are drilled without accounting for their cumulative impact, it’s Montana’s trout streams, ranchers, and communities that pay the price. This case is about protecting the fairness and integrity of Montana’s water law so that all users — past, present, and future — can depend on a sustainable water supply.”
“Montanans have a right to know how their water is being used and a fair chance to participate in decisions that affect their communities,” said Laura Collins, sustainable communities director at the Montana Environmental Information Center. “For too long, the state has allowed large-scale water use to occur through the exempt well loophole. This case is about restoring transparency, accountability, and the constitutional protections that ensure every Montanan has a voice in managing our most vital resource.”
“Exempt wells facilitate a housing development model and pattern that is unsustainable,” said Mark Runkle, a Montana housing developer. “It transfers many of the developer’s responsibilities to future homeowners and taxpayers. This model undermines responsible development on municipal services with infrastructure completed and undermines the affordability of housing. These pseudo-urban clusters benefit only the few to the detriment of all others.”
“We did everything the law asked of us to protect our water and our neighbors’ water — collecting data, hiring experts, and working hand-in-hand with the state,” said Kevin Chandler, a hydrogeologist who ranches outside of Absarokee. “In our case, it’s frustrating to see a subdivision using dozens of exempt wells get approved, when the same development proposing a single shared community well would have been denied. Those community systems are more efficient and safer, and their use can be measured and monitored. The current policy promotes poorly planned development and passes the hidden costs to future homeowners, counties, and towns.”
Exempt wells do not facilitate affordable housing; they subsidize a development model of low-density housing that removes incentives for on-system, dense development. Reliance on exempt wells since 1973 has not solved the affordability crisis; in fact, in 2024 the National Association of Realtors ranked Montana’s housing market the least affordable nationwide. Eliminating the exempt well loophole in its current form will lead to more affordable homes by increasing density and spreading costs among more system users for more Montanans who are being increasingly squeezed by the housing market.
Responsible growth is possible—and it starts with smart water policies. New homes can and should be served by community or municipal water systems that are more efficient, affordable, and accountable. Developers already have workable tools under Montana law: connecting to existing city water systems, building shared community wells that are properly permitted and monitored, and–when required–developing mitigation plans that offset impacts to other water users and streamflows. These existing solutions promote smarter land use, protect the state’s limited water supplies, and help avoid costly future conflicts over water.
For decades, local governments, water users, and conservation organizations have called on the state to close the exempt well loophole. Today’s lawsuit follows years of legislative and administrative inaction and seeks to ensure that Montana fulfills its constitutional duty to protect senior water rights.
The firm of Franz and Driscoll, PLLP, represents Montana League of Cities and Towns, Association of Gallatin Agricultural Irrigators, Montana Farm Bureau Federation, and Mark Runkle. The Western Environmental Law Center represents the Clark Fork Coalition, Montana Environmental Information Center, and Kevin and Katrin Chandler.
Background:
The exempt well provision was first adopted in 1973 to allow small domestic and agricultural users to drill limited-capacity wells without a permit. In 1987, the legislature clarified that multiple wells drawing from the same source could be considered a “combined appropriation” subject to DNRC permitting. However, a 1993 DNRC rule narrowed this definition, allowing multiple unconnected wells to evade permitting so long as they were not physically plumbed together.
This loophole spurred decades of legal and legislative debate. In 2014, the First Judicial District Court in Clark Fork Coalition v. Tubbs struck down DNRC’s narrow interpretation of “combined appropriation,” holding that it violated legislative intent and enabled large-scale, unpermitted water use. The Montana Supreme Court upheld that ruling in 2016, directing DNRC to apply the exemption strictly and ensure that only truly de minimis uses remain unpermitted.
Despite these rulings, DNRC and the state have not enacted regulatory or legislative reforms to address the continued overuse of the exemption. As a result, thousands of new exempt wells have been drilled in the past decade, particularly in the Gallatin, Bitterroot, Upper Missouri, and Clark Fork Basins — regions already designated as fully appropriated and which have experienced significant declines in streamflows.
Exempt Wells FAQ
What is an “exempt well”?
An exempt well is a groundwater appropriation that is “exempt” from the permitting requirements of the Water Use Act (WUA). See MCA 85-2-306. These wells are limited to 35 GPM/10 Acre-Feet per year. At the time the exemption was put in place (1973) it was intended to be a tool for rural, dispersed water users to obtain a de minimis (negligible) amount of groundwater without having to undergo the burdens of the permitting process.
What exemptions apply to an exempt well?
An exempt well appropriator is exempt from all of the permitting requirements of the Water Use Act, meaning there is:
- No analysis of physical or legal water availability or potential adverse impacts to neighboring ground/surface water users;
- No notice to neighboring water users;
- No opportunity for senior water users to object or otherwise defend their water rights;
- No metering/reporting requirements to quantify use.
What about the cumulative impacts of multiple exempt wells?
The Water Use Act was drafted to address the cumulative impacts of multiple wells by including a permitting requirement for a “combined appropriation,” i.e. two or more wells drilled from the same aquifer that exceed 10 Acre-Feet. See MCA 85-2-306(3).
How will I know if a proposed development relying on one or more exempt wells will impact my surface or groundwater rights?
You won’t. The Montana DNRC will only analyze the potential impacts of a proposed groundwater development on neighboring water users if it qualifies as a “combined appropriation.” If the development falls below the 10 Acre-Feet threshold, no impact analysis is conducted.
Are exempt wells allowed in “closed” basins?
Yes. Many basins in Montana have been “closed” to new appropriations because of over-appropriation. However, the WUA allowance for exempt wells makes no distinction between closed and open basins. DNRC statistics indicate that since 1991, at least 50% of all exempt wells have been drilled in closed basins.
How many exempt wells exist in Montana?
Statistics from the Montana DNRC indicate that over 200,000 exempt wells have been drilled statewide. In fact, 90% of all groundwater wells in Montana are exempt. Since 1991, the DNRC has steadily permitted anywhere from 1,500-4,500 exempt wells per year, with an average of around 2,600 wells per year.
How many exempt wells have been drilled in the Clark Fork Basin?
According to DNRC data, over 52,000 exempt wells were drilled in the Clark Fork Basin between 1973 and 2023. Because no measurement or reporting data is required, it is impossible to know how much groundwater is being appropriated by these exempt wells.
Do exempt wells negatively impact senior water users, aquifers or streamflows?
Collectively, yes. Groundwater and surface water are connected. The more exempt wells that are added to a given aquifer, the more likely it is users will see changes in local or regional hydrology. In the aggregate, Montana’s exempt wells have appropriated (and will continue to appropriate) enormous amounts of groundwater with growing impacts to neighboring ground and surface water users.
Do exempt wells impact land use patterns in Montana?
Yes. The exempt well permitting loophole incentivizes sprawling developments outside of municipal boundaries and further into rural areas, agricultural lands and open spaces. The exemption also incentivizes subdivision of large lots and development of agricultural lands. Removing agricultural lands from irrigation results in loss of return flows, ditch seepage, and aquifer recharge.
Don’t we need exempt wells to provide affordable housing?
According to Headwaters Economics, a primary reason behind the lack of housing affordability is that a large share of Montana’s new homes are being built for affluent real estate buyers seeking large properties in the countryside.1 The exempt well loophole further incentivizes these types of sprawling developments. The exempt well loophole has been in place for over 50 years, meanwhile housing prices have continued to climb. In fact, Montana was ranked the least affordable housing market in the country in 2024. Exempt wells are clearly not the solution to Montana’s affordable housing crisis.