A provision buried in South Dakota's appropriations bill will increase costs for property and service businesses that work with state programs.
Most South Dakota property owners and managers don't realize that HB1326—the state's main appropriations bill for ordinary expenses—contains a provision that will directly affect their bottom line if they contract with state agencies.
The bill, which funds the legislative, judicial, and executive departments, state institutions, and common schools, includes language in Section 4, (0117) Employee Compensation and Billing Pools on Page 4 that applies a 1.4% "discretionary provider inflation" adjustment. This adjustment takes effect July 1, 2026, and runs through the fiscal year ending June 30, 2027.
The 1.4% adjustment applies to state-contracted providers across multiple programs: Medicaid, behavioral health, developmental disabilities, long-term services, children's services, and other state-contracted services. If your business falls into any of these categories—home health agencies, property management for state-licensed facilities, maintenance contractors for state programs, or similar service providers—this affects you.
Here's the practical impact: when South Dakota adjusts what it pays providers, those adjustments typically don't keep pace with actual cost increases. A 1.4% adjustment sounds modest, but it's applied to billing rates, which means your reimbursement for services will increase by that amount. The challenge is whether your actual costs—labor, materials, utilities, insurance—will rise at the same rate.
For property management companies operating facilities that serve state programs, this could mean the state will reimburse you at a 1.4% higher rate starting July 1, 2026. If your operating costs rise faster than that, you'll absorb the difference. If they rise slower, you'll see a modest margin improvement. Either way, it's worth factoring into your budget planning for the next fiscal year.
The bill also includes a separate 1.4% across-the-board compensation increase for state employees themselves, which is relevant context: the state is investing in its own workforce while adjusting what it pays external providers. Understanding both moves helps you anticipate how state contracting will evolve.
If you're currently bidding on state contracts or renewing existing agreements, you need to know this adjustment is coming. It affects the rate environment for the next fiscal year and beyond. Some businesses use provider inflation adjustments as a baseline for their own planning; others see them as a ceiling on what they can expect to receive.
The effective date—July 1, 2026—gives you time to review your current state contracts and model what a 1.4% adjustment means for your margins and operations. If you manage multiple properties under state programs, this compounds across your portfolio.
For property owners leasing to state-contracted service providers, this is also worth monitoring. If your tenants' reimbursement rates are rising at 1.4%, that affects their ability to pay rent and their financial stability.
Source: HB1326, Section 4, (0117) Employee Compensation and Billing Pools, Page 4; effective July 1, 2026, through fiscal year ending June 30, 2027.