Hot Springs Got a $9 Million Sewer Loan. Hill City Got a Grant. Here's the Difference It Makes.

For the better part of a decade, Hot Springs has been running its sewage through a permit that expired in 2017. Not overflowing, not dumping into the Fall River untreated, nothing that shows up as a headline. The city's wastewater treatment plant has simply kept operating on an old discharge permit while South Dakota's Department of Agriculture and Natural Resources reviewed what should replace it. The bigger surprise buried in that same paperwork: the plant's effluent, after treatment, doesn't go to a city-owned facility at all. It's pumped to irrigation ponds owned by a private landowner and sprayed on the land seasonally. The city has been leasing the last stop in its own sewer system.

That arrangement is ending. The private irrigation agreement is expiring, the plant's equipment is past its useful life, and the fix the city has settled on is a new treatment process that discharges directly to the Fall River instead. None of that is unusual for a small town with an aging plant. What's worth understanding if you're weighing a move here is how the state decided to pay for it, because the answer is different than what two of Hot Springs' Black Hills neighbors got for the same kind of problem.

The Loan Came With No Grant Attached

On March 26, 2026, the South Dakota Board of Water and Natural Resources approved a $9.166 million Clean Water State Revolving Fund loan for Phase 1 of Hot Springs' wastewater treatment facility replacement. The terms are 4 percent interest over 30 years. According to the city's own project update page, no grant funding and no principal forgiveness came with it. That distinction matters more than it sounds. A loan is money the utility has to pay back, dollar for dollar, out of the rates residents and businesses pay every month. A grant is money that never has to be repaid at all.

The city's original funding request, filed ahead of a public hearing on the project in the fall of 2025, asked for up to $14.04 million for Phase 1. The state approved $9.166 million as a loan. That gap, whether it gets closed through a later funding round, a scaled-down scope, or additional local revenue, is still an open question as of this writing, and it's one worth asking about at city hall before you commit to a property here.

Compare that to Hill City, about 20 minutes north, which needed similar work on its own wastewater system. In the same statewide funding round, Hill City received a $1,659,000 loan, but it was paired with a $2,000,000 Consolidated Water Facilities Construction Program grant and a $1,000,000 General Fund grant to repair its treatment system and add a second sequencing batch reactor. Roughly two-thirds of Hill City's total award arrived as money it never has to repay. Custer received wastewater funding in the same round as well, part of a statewide package the state's Department of Agriculture and Natural Resources approved at $150.7 million total, but the public breakdown available doesn't itemize Custer's award the way it does for Hot Springs and Hill City.

Here's what that split looks like side by side, using the figures the state actually approved:

Both towns are solving the same category of problem with the same lender at the same interest rate. One is getting three dollars of free money for every dollar it borrows. The other is borrowing the entire amount and paying it back through utility bills, in full, for three decades.

Why the Math Landed Differently

The reasons a state funding board splits grants and loans the way it does aren't published project by project, so this isn't a claim about intent. What's documented is the underlying condition of the Hot Springs plant itself, and it explains why the fix is expensive regardless of how it's financed. The current facility runs headworks screening, a primary clarifier, a trickling filter, a final clarifier, and anaerobic digestion, most of it aging and some of it corroding from hydrogen sulfide exposure. It was sized decades ago in part around flow from the VA medical campus, which historically contributed more than a quarter of the plant's total wastewater load. That contribution has dropped to less than 1 percent of total flow today, which means the plant's original design assumptions no longer match how much wastewater the town actually produces.

The city's engineering firm, AE2S, recommended a Moving Bed Biofilm Reactor system, a compact upgrade that would let Hot Springs discharge treated effluent to the Fall River instead of relying on a private landowner's irrigation ponds. That shift requires a new discharge permit under the National Pollutant Discharge Elimination System, on top of the construction itself. It's a real, necessary fix. It's just one the town is now financing almost entirely on its own.

What This Means for Thirty Years of Your Water Bill

A $9.166 million loan at 4 percent over 30 years doesn't sit in a filing cabinet. Utility loans of this kind are repaid through the rates a city charges for water and sewer service, which means the debt eventually becomes a line item on every household's monthly bill. Hot Springs hasn't published a revised rate schedule tied to this specific loan as of this writing, so there's no number to quote yet. What's already true, based on the city's own project page, is that Phase 1 is only the first installment. The plan explicitly anticipates a Phase 2 with its own separate funding request still to come.

If you're comparing Hot Springs to Custer or Hill City on price alone, that comparison is incomplete. A monthly utility bill is as real a cost of ownership as a mortgage payment, and a town financing a major infrastructure rebuild entirely through debt is going to feel that cost differently than a neighbor that got two-thirds of the same project paid for through grants.

What to Ask Before You Buy in Hot Springs

None of this is a reason to avoid the town. It's a reason to ask specific questions before you write an offer, the same way you'd ask about a septic system or a roof's age on any home. A few worth raising directly with the city or with us:

• What is the current water and sewer rate, and has the city indicated when a rate adjustment tied to the WWTF loan might take effect?
• Has Phase 2 funding been requested yet, and what is the anticipated total project cost once both phases are complete?
• Does the property in question sit inside city limits and connect to municipal sewer, or does it rely on a private septic system regulated by Fall River County instead?

That last question matters more than it might seem. Properties outside city limits on private septic systems aren't tied to this municipal debt at all. If your search includes acreage or rural parcels around Hot Springs, this entire financing question may not apply to the property you're actually considering.

A Few Questions Worth Asking First

Is Custer facing the same situation? Custer received wastewater system funding in the same March 2026 DANR round as Hot Springs and Hill City, but the specific loan-to-grant breakdown for Custer's award hasn't been made public in the same detail. Worth confirming directly with Custer's city office if you're weighing the two towns against each other.

When would a rate increase actually show up on a bill? The city hasn't published a revised rate schedule tied to this loan as of this writing. Utility rate changes typically go through a public hearing and council vote before taking effect, so there should be advance notice once one is proposed.

Does this affect new construction or building permits? The facility plan is about treatment capacity and permitting compliance, not a moratorium on new sewer connections. If you're planning new construction inside city limits, sewer connection procedures haven't changed, but it's worth confirming current status with the city's Building and Development office before you finalize a lot.

Buying in a small town means buying into its infrastructure decisions along with its houses. Hot Springs has beautiful stone architecture, a mineral river running through downtown, and a slower pace that draws people in from out of state every year. It also has a wastewater bill coming due that its neighbors, for now, are sharing with the state. Understanding which side of that line a property sits on is part of doing the math right.

If you're weighing Hot Springs against Custer, Hill City, or anywhere else in the southern Black Hills, Heartland Real Estate can walk through what a specific property's utility history looks like and how it fits into your total cost of ownership. Schedule a free consultation and we'll go through the numbers together before you make an offer.