Fiscal Impacts of the Opioid Crisis on State and Local Governments

• Author: Robert Bifulco,Iuliia Shybalkina
• DOI: http://doi.org/10.1177/00027162221137171
• Published date: 01 September 2022
• Date: 01 September 2022

324 ANNALS, AAPSS, 703, September 2022

DOI: 10.1177/00027162221137171

Fiscal Impacts

of the Opioid

Crisis on State

and Local

Governments

By

ROBERT BIFULCO

and

IULIIA SHYBALKINA

1137171ANN The Annals of the American AcademyFiscal Impacts of the Opioid Crisis

research-article2022

Adverse effects of the opioid crisis on individuals influ-

ence the need for state and local government expendi-

tures and erode their tax bases. Systematic estimates of

the magnitude of such fiscal impacts are lacking. We

estimate the magnitude of the effect of the opioid crisis

on state and local expenditures and discuss approaches

that might be taken to evaluate the impact of the crisis

on revenues. We find that the fiscal impacts of the opi-

oid crisis on state and local governments are modest for

the U.S. as a whole but are likely to be greater in states

with particularly high rates of opioid-use disorders. Our

analysis aims to encourage and guide more in-depth

studies in the future. Such studies can inform intergov-

ernmental aid policies designed to offset the fiscal

impacts of opioid misuse and can also contribute to

assessing damages in opioid lawsuits.

Keywords: opioid epidemic; state and local govern-

ment; fiscal impact; economic cost; health

care expenditures; criminal justice expen-

ditures; income tax revenue

Introduction

Public officials report that opioid epidemics

have strained state and local government budg-

ets. In places affected by the crisis, interviews

with local officials suggest higher costs for child

removals, hospitals, emergency calls, medical

examiner and coroner services, jails, courts,

and homelessness assistance. Other impacts,

such as reductions in tax revenue due to lost

Robert Bifulco is a professor in the Public Administration

and International Affairs Department at the Maxwell

School, as well as a senior research associate in the

Center for Policy Research and the Education Finance

and Accountability Program (EFAP). His prior teach-

ing experience was at University of Connecticut, where

he received the Distinguished Professor Award.

Professor Bifulco has taught courses on public budget-

ing, state and local finance, economic analysis, educa-

tion policy, research methods, quantitative analysis,

and program evaluation.

Correspondence: rbifulco@syr.edu

FISCAL IMPACTS OF THE OPIOID CRISIS 325

economic productivity, are less directly observable by local officials, but no less

troublesome. In response, officials indicate that they have been forced to use

contingency funds, cut opioid response efforts, reduce spending on other govern-

ment priorities, and increase taxes (Farmer 2018; NACo and ARC 2019; Seligson

and Reid 2017). State and local governments have brought numerous lawsuits

against opioid manufacturers, distributors, retailers, and doctors in recent years,

based in part on the fiscal damages caused by the crisis (Hoffman 2021).

There are few systematic estimates of the magnitude of the fiscal impacts that

the opioid crisis has had on state and local governments, however, and this article

helps remedy that lack of knowledge. First, we lay out a definition of fiscal

impacts to guide such estimates, suggesting that opioid-use disorders (OUDs)

can influence the fiscal health of governments by affecting the need for public

services, the cost of providing those services, or the capacity of governments to

raise revenues. Second, we review existing evidence regarding the fiscal impacts

of the opioid crisis and related studies that have estimated broader social costs.

Third, we draw on studies that have assessed social costs to estimate the magni-

tude of the impact of the crisis on the expenditure needs of state and local gov-

ernments and discuss approaches that might be taken to estimate impacts on

revenue raising capacity. We also ask how large the fiscal impacts might be in

states with particularly high rates of OUDs. In our conclusion, we discuss the

possible implications of our findings for legal cases against opioid manufacturers

and distributors and for intergovernmental aid programs.

Our results indicate that the total fiscal impact of the opioid crisis on state and

local governments across the U.S. is not large. For instance, in the period 2016

through 2019, estimated impacts on expenditure needs range from $39 to $66 per

capita per year, or about 0.4 to 0.7 percent of total direct general expenditures by

state and local governments. There are reasons to believe that these estimates of

the effects of opioids on expenditure needs are less than the full impacts, and

these estimates do not include impacts on state and local government revenues,

which another study has estimated to be between $4 and $5 per capita in 2016

(Segel etal. 2019). We do not, however, find reasons to believe that the full fiscal

impacts for state and local governments have been large, on average.

Several qualifications of these conclusions are worth noting. First, fiscal

impacts are only a fraction of total social costs, as the latter include costs incurred

by private individuals as well as government agencies and have been estimated to

be as high as $622 billion (or nearly $2,000 per capita) in 2015 (Council of

Economic Advisors 2017). Second, the notion of fiscal impact used in this study

differs from the concept of the “cost of abatement,” which is often used in legal

claims against opioid manufacturers. The cost of abatement is typically inter-

preted to include the cost of new as well as existing programs needed to eradicate

Iuliia Shybalkina is an Assistant Professor at the Martin School at the University of Kentucky.

She specializes in the intersection of public budgeting / financial management and public man-

agement by studying public participation in local finance, property and sales taxes, economic

development, intergovernmental relations, and challenges in state and local finance. Her work

has been published in Public Budgeting and Finance, Economic Development Quarterly,

Public Administration, and Journal of Behavioral Public Administration.