After the worst year on record for overdose deaths in New York, Governor Kathy Hochul wants to level off investment in addiction treatment.

Under Hochul’s proposed financial plan, the total budget for the agency that orchestrates the state’s addiction treatment strategy would increase by 0.8% next year, then decline by 6.6%, or $66.3 million, by 2028.

This budgeting approach would offset addiction treatment costs with a controversial tactic: tapping into the state’s opioid settlement funds, the money recovered in court from opioid crisis profiteers.

“The main thing that’s been going on in the governor’s budget overall is the use of the opioid settlements as the sole funder of increases of program funding in this area. That is not its purpose,” said Assemblymember Phil Steck, chair of his chamber’s committee on alcoholism and drug abuse.

Since 2021, major drug producers, distributors, and their advisors, from Johnson & Johnson to Walmart, have paid the state hundreds of millions of dollars in an attempt to right a public health catastrophe driven by the sale of prescription opioids. After settling their court cases, the companies cumulatively owe New York $2.6 billion to be paid out through 2040.

The state passed a law in 2021 stating that the settlement money cannot be used to supplant, or replace, other funds for combating substance use disorders. Yet while Hochul plans to cut next year’s contributions to the Office of Addiction Services and Supports from the general fund by $47.4 million, she wants to boost spending from the opioid settlement funds and the state’s tax on opioids by about the same amount.

The budget switch-up comes amid an increasingly dire opioid crisis. Driven by the emergence of fentanyl, annual statewide overdose deaths have nearly doubled since 2019, breaking all-time records four years in a row.

And OASAS is falling behind. As overdose deaths soared, admissions to its certified treatment programs for opioid use fell by nearly half from 2016 to 2022. The agency administers much of the funding for recovery programs across the state, and providers say they desperately need more resources. They’re incensed by the governor’s budget move.

“This is what sort of is black and white in front of us in the budget. So they can say, ‘of course we’re not supplanting the budget,’ but it’s hard to draw another conclusion,” said Allegra Schorr, president of the Coalition of Medication-Assisted Treatment Providers and Advocates.

In response to questions for this story, a spokesperson for Hochul’s Division of the Budget said the settlement funds will not replace existing funding and will only be used to “support new initiatives or expand ongoing programming.” The spokesperson added that the cuts can largely be explained by a comparison to a one-time expenditure that occurred last year, when the state recouped money from some health insurance plans and funneled it toward OASAS.

This isn’t the first time a governor’s use of the settlements has sparked controversy. In 2021, then-Governor Andrew Cuomo’s administration diverted $20 million of the settlement money into the state’s general fund, prompting the legislature to pass the law protecting the settlement funds from such redirection — what co-sponsor Senator Peter Harckham calls “a settlement fund lockbox.”

The settlement funds helped fuel a large increase in OASAS’ budget last year, accounting for about 15% of the agency’s funding. But to many observers, Hochul’s proposal this year looks like she’s raiding the lockbox, potentially teeing up another battle with the legislature.

“As overdose deaths continue to plague our communities, we should not turn away from our responsibility to provide necessary help,” Harckham said in a statement. “Settlement funds should supplement the state’s budgetary commitment to helping residents with substance use disorder, not supplant it.”

The governor has repeatedly taken heat from critics who argue that the state is not taking the opioid epidemic seriously enough.

“In the face of rising overdoses, why wouldn’t you put funding into this crisis?” Schorr said. “It just seems pretty obvious that this is getting worse, not better. Why aren’t we focusing on this? People are dying.”

Ken Girardin, Director of Research at the Empire Center, a conservative think tank in Albany, said it’s a “rhetorical argument” whether Hochul’s proposal qualifies as supplantation. Advocates and legislators may want “the settlement to do more on top of what the state was already doing,” he said, but its purpose was partially to offset costs the state had incurred as a result of the opioid crisis.

Not everyone agrees. The Bloomberg School of Health at Johns Hopkins University released a set of principles to guide spending for the opioid settlement funds, the first of which says that the funds should supplement existing spending, not replace it.

Either way, Girardin cautioned against using the settlement fund to power long-term investment in treatment.

“You always have to be careful with a limited pool of one-time cash and using it to fund recurring programs. That’s more a problem for the out-years, when they run out of settlement money, but I’d be remiss if I didn’t mention that,” he said.

Both the budget department and OASAS have attributed the long-term cuts to lower expected receipts in the state’s opioid settlement funds. According to the schedule of payments, New York will have already received its largest shares of the expected settlement funds by the end of March — roughly $413 million of the $1.3 billion that will be paid into state coffers through 2040. Another $1.2 billion will go straight to local governments.

The flattening OASAS budget may reflect the governor’s attempt to rein in spending across state government. In September, her budget director warned agencies not to exceed their previous year’s enacted budget when drafting their requests.

The agency itself, meanwhile, says it doesn’t really need more money.

“All of OASAS’ mission critical services are fully funded in the Executive Budget,” OASAS spokesperson Evan Frost said in a statement. “Reductions were made to non-critical services that are already offered in different ways throughout the service system.”

Alternative ideas to fund drug treatment have largely fallen flat. The dropoff in OASAS spending almost exactly matches the shortfall from the state’s opioid excise tax — a sales tax on opioids sold in New York. The tax was supposed to generate $100 million annually, before a challenge in federal court that forced state legislators to rewrite the law. In 2023, it brought in just over a quarter of its original estimated revenue. As opioid prices fall, it is projected to slide even further.

The state’s tax on recreational marijuana sales, from which OASAS receives a 20% cut, has also underperformed. A 2018 report from the New York City comptroller estimated that marijuana sales taxes could “conservatively yield” up to $1.3 billion a year, $436 million going directly to the state. The governor’s budget projects just $70 million in taxes from recreational sales this year, but remains hopeful it will cumulatively generate $1.1 billion in revenue from 2025 to 2028.

Without additional funding, providers and workers in the addiction field are likely to get squeezed. While the consumer price index rose 3.4% last year, the governor’s budget proposes a 1.5% cost of living adjustment.

In effect, providers are expected to do more with less, said John Coppola, co-ceo of treatment provider coalition InUnity Alliance.

“How are you supposed to do that with essentially less money than you had before?” said Coppola. “It’s just so far beyond the realm of the understandable.”

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This story originally appeared in New York Focus, a non-profit news publication investigating how power works in New York state. Sign up for their newsletter at https://tinyurl.com/368trn9p.