Your browser is unsupported

We recommend using the latest version of IE11, Edge, Chrome, Firefox or Safari.

Blessing or curse? State and Local Government Opioid Settlements

July 25, 2023

By Dean Michael Mead, Partner at Carr, Riggs & Ingram, CPAs and Advisors

State and local governments are receiving billions of dollars from nationwide lawsuits against the manufacturers, distributors, and retailers of prescription opioids. Some may see this influx of cash as a cause for celebration, but it may turn out to be a massive migraine.

Consider the painful lessons governments are learning from the tidal wave of pandemic-era financial assistance that many were unprepared to track and utilize. Or think about governments recovering from hurricanes and wildfires who have been challenged by the tasks of dispensing much-needed financial aid efficiently and effectively as well as demonstrating accountability.

This article answers four questions about opioid settlements and key factors that will influence governments’ ability to achieve valuable outcomes with the settlement money and to subsequently account for it.

What are the opioid settlements and how much money is involved?

The 2021 National Opioid Settlement resolved lawsuits involving 46 states and the District of Columbia against a manufacturer of opioids and three opioid distributors. It ultimately will direct $26 billion to governments. Settlements in 2022 with pharmaceutical companies, pharmacy chains, and others will add another $19 billion.

Which governments will receive settlement payments and how?

The settlement awards are allocated to the states based on a formula intended to reflect the impact of the opioid epidemic considering factors such as overdose deaths, quantity of opioids delivered, and prevalence of substance abuse. Each state allocates its award between itself and its county and local governments. Although the allocation must adhere to settlement guidelines, states are able to alter it through legislation or agreements. Consequently, the state-local split varies substantially, ranging from 85/15 to 15/85.

The methods states have chosen for distributing the local shares also vary. In a few states, local governments will receive their allocation directly or passed through their state. Most states are administering the local payouts like grant programs, some providing localities a block grant and others requiring localities to apply first to a state-designated entity. States are either appointing existing agencies or creating new boards to decide where to send the money and for what uses.

Consequently, each state’s plans for distributing and spending are unique. If you’ve seen one plan, you’ve seen just one plan.

Are there limitations on how governments can use the money?

Yes, and they are fairly restrictive compared with past windfalls. The 1998 settlement of state lawsuits against tobacco companies contained few restrictions on how the money could be used. As a result, virtually all of the tobacco company payments have been used to balance budgets and fund infrastructure projects, with less than 3 percent going to smoking prevention and cessation. Although the pandemic grant programs—such as those authorized by the Coronavirus Aid, Relief, and Economic Security (CARES) Act and the American Rescue Plan Act (ARPA)—were accompanied by extensive spending guidelines, governments had considerable leeway.

By contrast, at least 70% of the opioids settlements must be spent on “opioid remediation efforts” such as expanding access to programs, prevention, treatment for pregnant women, and treatment for jail and prison inmates. Another 15% can be used for administrative and legal costs related to the lawsuits or to reimburse governments for past opioid-related expenses. At most, 15% can be used for any purpose, though few states are allowing that.

The opioids settlements require significant accountability and transparency. Governments must report to the administrator of the settlement fund any spending other than for remediation efforts. As of this writing, 31 states have established reporting requirements for themselves and their governments. Nearly 80% of states have created a website or dashboard to report how funding is being allocated and spent.

Are local governments prepared to spend their shares?

That depends on the government. Larger cities and counties are more likely to have existing programs to combat opioid addiction or departments of health or mental health with the experience necessary to administer new programs directly or via contract with not-for-profits. But the opioid crisis is equally dire in smaller locales and rural areas without the capacity to run an opioid remediation program or award funding to NFPs.

Consequently, there is considerable potential for misuse of the money, either through inexperience or fraud. The latter is a concern anytime large sums are received rapidly and expected to be spent expeditiously. A U.S. Government Accountability Office report estimated that nearly one-fourth of the $6 billion in Federal Emergency Management Agency aid for hurricanes Katrina and Rita were improper or fraudulent. Potentially unparalleled levels of fraud related to the trillions of dollars of federal COVID-relief funding are just beginning to become apparent.

Governments may benefit from their recent experience with the scrutiny of their use of COVID funding. As a result of funding from relief programs such as the Coronavirus State and Local Fiscal Recovery Fund—and despite provisions to ease the burden on smaller governmentsa surge is expected in the number of governments required to file federal and state single audits, thousands of which may not have done so before. The previously mentioned state reporting requirements also should help to ensure that sufficient records are maintained regarding how the settlement money is used. None of that reporting and review, however, is likely to indicate whether the spending was economical or effective in combating the opioid crisis.


The contents of this blog post reflect those of the author, and not necessarily those of the GFRC.