Under federal law, permits remain valid until the renewal application is decided. The USFS lacks resources to review applications in a timely manner, so it priorities the ones that are actually important (which, honestly, Nestle's is not).

So they can't simply say "hold off until we check this out", because that's illegal; the permit is valid until they process the renewal. Nor could they simply deny out of hand every application they don't have resources to review; that would also be illegal.

The real answer would be to overhaul the entire system, streamline it, and see that it has proper funding (probably via some hefty application fees). But that's not going to happen any time soon.

(See also: Every other god damn branch of government. Although the patent office is experiencing an especially similar issue.)

They can't "simply prohibit it." National Forests by law are managed for multiple uses including resource extraction. The USFS faces a very large downside because reviewing a permit like this would trigger an environmental impact statement, likely result in lawsuits, and tie up limited staff resources that then can't be used to review 50 (completely arbitrary number) other less controversial permits.

A large lawsuit that chews up time and money for delaying a business critical permit that Nestle would unnecessarily stack a large sum per day of lost income for the water rights.

Remembering its a review of the permit to decide whether they can continue, not a cessation of operations. The only reason that Nestle haven't taken the regulator to court at the moment is that the review process failed open allowing business to continue. If they voluntarily close it and take forever to complete the review, Nestle has grounds for compensation on the waiting time.

The USFS is getting not sued out of the current arrangement and continued barebones operations, thats about it. :/