The Week in Public Finance: The Cost of the Opioid Epidemic, Connecticut's Budget and a Disaster Relief Bond

A roundup of money (and other) news governments can use.
by | November 3, 2017
It's hard to put a number on the cost of the opioid epidemic to states. (Shutterstock.com)

The Opioid Epidemic’s Toll on State Finances

There's no doubt that the opioid epidemic has impacted state spending over the past decade. But putting a price tag on the crisis is difficult, mainly because states aren't specifically tracking its costs or reporting them in a comparable way. Nevertheless, a report this week by S&P Global Ratings takes a stab at quantifying those expenses.

One of the ways it does this is by looking at Medicaid, which is one of the few available state-by-state measurements on the opioid crisis. The report notes that 3 in 10 nonelderly adults on Medicaid struggled with opioid addiction in 2015 -- double the rate of 2010. West Virginia, for example, told S&P analysts that the total number of substance abuse patients in its Medicaid population more than tripled in just two years to 100,209 last year.

The Centers for Disease Control and Prevention estimate that the provisional 2016 drug overdose death toll of 65,094 is up 19 percent from 2015. That’s more deaths in a year than the 58,000 U.S. soldiers who died during the entire Vietnam War.

The Takeaway: Beyond health care, the report says that states' efforts at breaking out opioid-related costs for social services, law enforcement and criminal justice aren't done in a way that's comparable.

Additionally, the report warns that there are indirect costs. Working age populations have been the most effected. “Nearly half of prime working age men not in the labor force were taking pain medication,” the report says, “which may be a reason for the stubbornly high percentage of the potential labor force that remains out of the workforce despite the currently low unemployment rate.”

As opioid death rates climb, so does the cost of combating the crisis. Kentucky, New Hampshire, Ohio, Rhode Island and West Virginia, which have recorded some of the nation’s highest overdose death rates, are likely to see the biggest influence on finances.

All told, costs may be manageable for now, the report says, but even small increases are “an unwelcome development for states straining to retain structural budget balance.” Federal grants may help cushion the blow, it adds, but only to some degree.

 

Connecticut Ends Budget Standoff

After operating for 123 days without one, Connecticut finally has a budget. Gov. Dannel Malloy this week signed a two-year, $41.3 billion state budget bill that ends the longest stalemate in the state’s history.

The bipartisan bill has a little something for everyone. It fully funds state pensions, restores many of the cuts to the state university system, creates a new educational cost-sharing formula that provides money to all 169 cities and towns, and contains spending restrictions such as a constitutional spending cap on expenses and a bonding cap on construction projects.

The budget also ends speculation -- for now -- about a potential Hartford bankruptcy by providing an additional $40 million in state aid to the struggling city.

The Takeaway: Connecticut’s municipalities were left extremely vulnerable without a state budget, so having certainty for the remainder of the fiscal year is welcome news. Most important, the new budget does not pass on the annual $400 million cost of teacher pensions to municipalities, as had been threatened.

But it still leaves most cities with some kind of loss, as virtually all local governments will see some reductions in state aid. Only a few -- those with the greatest economic challenges -- will see flat year-over-year state aid. It's an open question, though, whether the state will be able to fully make good on its promised aid amounts in the first place. “Since new state revenue measures would have less than a year to be collected," S&P Global Ratings notes, "this may leave the state without the available resources to fully appropriate for these intergovernmental revenues."

Hartford Mayor Luke Bronin called the budget a “sustainable solution” because, in addition to helping the city with its immediate cash flow problem, the document provides the city with a path to avoid Chapter 9 bankruptcy by calling for concessions from city employees and bondholders. Moody’s Investors Service, which earlier this month had warned Hartford could soon default on its debt, says that particular danger has been avoided for now. “However,” says analyst Nick Lehman, “Hartford continues to have very high credit risk with significant long-term structural issues that need to be addressed.”

 

A New Type of Bond for Disasters

Congress is considering authorizing a new type of tax-free municipal bond that would help finance localities’ disaster rebuilding. The Give A HAND Act was introduced this week by representatives from districts in California, Massachusetts and New Jersey. The act would codify and make permanent programs that have up to now offered ad hoc federal tax relief and rebuilding help to residents, businesses and municipalities in the immediate aftermath of a natural disaster.

The Takeaway: Notably, the bill creates so-called qualified disaster area recovery bonds, a new category of permanent, tax-exempt private activity bonds that would help finance rebuilding in designated disaster areas. Private activity bonds are tax-exempt and issued by or on behalf of a government for a project built by a private company. This new category could give governments more flexibility in their tax-free bonding capacity and help spur faster rebuilding. It’s modeled after the Gulf Opportunity Zone Act of 2005 that Congress created for Alabama, Louisiana, and Mississippi in the wake of Hurricane Katrina.

Unlike the $36.5 billion aid package Congress passed last week, this act would provide tax relief to people and localities affected by the wildfires in California. It would also provide retroactive tax benefits to those who suffered from past natural disasters, including New York and New Jersey residents still recovering from Superstorm Sandy five years ago.

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