Opioid cash grab: As federal funding dries up, states turn to settlement money

By Aneri Pattani, KFF Health News

At a recent Nevada legislative committee hearing, lawmakers faced off with members of the governor’s administration over how to fill gaping holes in the state’s upcoming budget.

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At issue: whether opioid settlement money — paid by health care companies that were sued for fueling the opioid crisis and meant to help states abate addiction — should be funneled to two counties for a safety-net program, Temporary Assistance for Needy Families, which is aimed at helping low-income children and families.

Previous funding “will no longer be available after June 30, 2025,” the budget proposal says. By then, billions of dollars in covid-era relief from the federal government — including a set-aside for TANF, which can cover emergency aid, job training, child care, and more — is likely to have expired.

Recognizing both the need for and uptake of this assistance, Republican Gov. Joe Lombardo’s budget proposal directs $5 million in opioid settlement cash to shore up the program in the state’s most populous counties, Clark and Washoe.

The prospect of such trade-offs is smacking many states in the face as they embark on budget season.

Not only is the river of federal pandemic relief that flowed to public health, education, food assistance, child care, and more over the past few years drying up, but a deluge of actions from the Trump administration has thrown into question once-reliable federal funding for a myriad of social services and health care programs. Congressional Republicans have also threatened cuts to Medicaid, a joint federal and state health insurance program for many low-income people.

Together, these financial headwinds have left many states hunting for alternative funds to maintain crucial services.

Opioid settlement money can seem like an attractive option. More than $10 billion has landed in state and local government coffers in recent years and billions more are set to arrive over the next decade-plus.

But recovery advocates, family members who have lost loved ones to addiction, and legal experts say that money has a specific purpose: to address the ongoing addiction and overdose crisis.

Even if $5 million is a small portion of the hundreds of millions Nevada has received, some say spending it elsewhere sets a troubling precedent. Nevada Assembly Speaker Steve Yeager, a Democrat, raised this concern at the February hearing.

“There doesn’t seem to be a direct link to opioids” in the governor’s proposal directing these dollars to TANF, he said. Settlement money should not be used “to backfill budget accounts.”

Richard Whitley, director of the state’s Department of Health and Human Services, insisted at the hearing that this was an appropriate use of settlement dollars. The money flowing through TANF will help “relatives who are raising children whose parents are substance-abusing,” he said.

In addition, Elizabeth Ray, a spokesperson for the Republican governor, told KFF Health News that the money would help families at risk of losing custody of their children due to substance use, with the goal of keeping kids in their homes and “ultimately reducing the need for foster care placements.” Implementing this program through the state’s TANF system would “reduce start-up costs and implementation time,” she wrote in a statement.

But TANF is available to many families living in poverty and it was unclear how these dollars would be targeted to such a subset.

Similar budget conflicts have surfaced in Connecticut — whose Democratic governor, the CT Mirror reports, is asking lawmakers to redirect opioid settlement money to social services that were previously funded through other means, including federal dollars — and Arizona, whose legislature transferred $115 million in settlement money to the state prison system last year to help close a $1.4 billion budget deficit.

National recovery advocate Ryan Hampton expects to see more efforts like this nationwide.

“I have a very high level of fear that states are going to be tapping into these settlement dollars in every creative way they can to fill some of these budget shortfalls,” he said. “It’s a grave misuse of funds and one that is going to have dire consequences.”

Although national overdose deaths have declined recently, tens of thousands of Americans are still dying from overdoses each year. In a few states, including Nevada, such deaths increased in the 12 months leading up to September.

“The intent of these dollars is to save lives right now,” said Hampton, who is in recovery from opioid addiction and founded a Nevada-based recovery advocacy organization. He submitted a public comment opposing the Nevada governor’s budget proposal.

Hampton and other advocates worry that using opioid funds for services that, even if crucial, are only tangentially related to addiction risks a repeat of the tobacco settlement of the 1990s.

At that time, cigarette manufacturers agreed to pay state governments billions of dollars annually. Initially, states spent a chunk of that money on anti-smoking programs, said Meg Riordan, a vice president of research at the Campaign for Tobacco-Free Kids, which tracks states’ spending on tobacco prevention programs.

But over time, states encountered budget crunches and many raided or dissolved trust funds they’d set up to protect tobacco money. Instead, they funneled the cash directly into their general funds and spent it on infrastructure projects and budget shortfalls.

“Once the funds start going somewhere else, there’s a risk that they won’t come back,” Riordan said.

Tobacco use remains a leading cause of preventable death in America.

The opioid settlements have more guardrails than the tobacco settlement did, but KFF Health News’ multiyear investigation found lax oversight and enforcement.

Nevada and Connecticut are among 13 states that have explicitly restricted the practice of supplantation, or using opioid settlement funds to replace existing funding streams.

Whitley, Nevada’s DHHS director, and the governor’s office have insisted that none of their proposed uses of settlement funds are examples of supplanting.

At the February hearing, Whitley repeatedly suggested that the budget proposal was misworded, creating a false impression. “We’ll clean that up with the language,” he said.

But he also emphasized the importance of settlement dollars as federal funding sources diminish. “As ARPA [the American Rescue Plan Act] goes away and other flexible funding goes away to address problems, this becomes one that really we have to rely on,” he said.

That perspective seems reasonable to JK Costello, director of behavioral health consulting for the Steadman Group, a company that he said is helping about a dozen local governments across the country administer the settlements.

Ideally settlement money adds to existing services, he said, but realistically, some safety-net programs, even if they don’t directly address addiction, can be a lifeline for people with opioid use disorder. If major cuts in federal spending imperil those programs, using settlement funds to save them could be worthwhile.

“Getting people into great treatment when their housing voucher is cut isn’t really that helpful,” Costello said. “Treatment isn’t going to work if they’re not able to eat or feed their kids.”

The tricky thing is that many community organizations that work directly on addiction and recovery issues are also feeling the crunch of expiring federal aid and expected federal program changes that would reduce their resources, Costello said. When everyone is strapped, deciding where limited settlement dollars can do the most good becomes increasingly challenging.

Some places presciently set aside opioid settlement funds in “emergency” or “sustainability” accounts that could be tapped for addiction services in case of declining federal aid. South Dakota has such a fund with more than $836,000, according to its 2024 opioid report. None of it has been used yet.

Kristen Pendergrass, vice president of state policy for the addiction-focused nonprofit Shatterproof, hopes states turn to rainy day funds first, before raiding settlement accounts.

Nevada has $1.23 billion in its rainy day fund, more than the national median, according to The Pew Charitable Trusts.

“It would be a slippery slope if we stop paying attention now” and allow settlement funds to be used for anything, Pendergrass said. “The money was won to remediate harms and save lives. It should be used that way.”