THE SACRAMENTO COMPREHENSIVE ALCOHOLISM TREATMENT PROGRAM:
A COST-BENEFIT ANALYSIS

Erin Riches

PPA 220A, Applied Economic Analysis I, Fall 1998
Graduate Program in Public Policy and Administration
California State University, Sacramento
Professor Rob Wassmer

December 17, 1998

I. INTRODUCTION

This paper will examine the cost-effectiveness of the recent investment by the City of Sacramento in a new Comprehensive Alcoholism Treatment Center (CATC), a program to address the problem of public inebriation.

Background

Public drunkenness has been on the rise in American cities since the 1970s. During that decade, public inebriation was "decriminalized" through the repeal and overturning of local "order maintenance" ordinances, under pressure from civil rights activists who argued that arrests were not solving the problem (Smith, 1994). However, at the same time, funding for social services was dwindling. Moreover, the individuals in question were not taking advantage of the rehabilitation services that were available. This lack of utilization of services resulted in situations such as the one in Sacramento, where a supposed detoxification center turned into a mere dry-out facility; an individual brought in by police in the morning was often back out on the streets by nightfall.

Sacramento’s new detoxification program, however, is targeted at actual rehabilitation. The CATC focuses on connecting individuals to the services they need in order to try to get back into the social mainstream. A recent article in the Sacramento Bee cited positive response from the City, County, and downtown merchants, who argue that the number of hostile drunks and aggressive panhandlers has significantly decreased since the opening of the CATC (McCarthy, 1998).

Economic Significance

Public inebriation carries many costs to society. For years, numerous studies have documented the link between alcohol and violent behavior; more recently, scholars have begun to focus upon the connection between alcohol and criminal behavior. According to a recent report by the National Center on Addiction and Substance Abuse (1997), 21% of state prison inmates and 11% of federal inmates incarcerated for violent crimes were under the influence of alcohol (and no other substance) when they committed their crime. Aside from the human costs of homicide, suicide, and disease, alcohol consumption also imposes dollar costs upon society; according to the State Department of Alcohol and Other Drug Programs (1997), problems associated with alcohol and other drugs cost this state almost $20 billion annually (i.e., crime, social welfare programs, lost productivity, etc.).

Government Failure

The government intervention represented by the CATC can be justified in both market and normative terms. One could argue that the existence of public inebriation and related problems is the result of a government failure – specifically, the negative externalities produced by a social services system that does not serve all eligible individuals. These externalities are both fiscal and normative. On the fiscal side, downtown merchants’ business is adversely affected when people avoid shopping downtown because they don’t want to deal with the public drunks outside the stores. The opportunity costs of police resources used to deal with public inebriates and panhandlers must also be considered; resources that are tied up with these individuals are diverted from handling more serious criminals. On the normative side, people who live and work downtown dislike the blight caused by public inebriation; in many cities, these problems have started the chain of inner-city abandonment. Finally, there is an altruistic argument that society at large is hurt by such individuals, who are usually homeless, because our society does not believe that people should live on the streets; the "human dignity" or "equality of economic outcomes" arguments would dictate that society should provide for these individuals.

Standing

The City of Sacramento invested $1.25 million for the first year of the CATC program; further funding is expected to be approved early next year. The significance of this investment is clear when compared to the budget for the old detoxification center, which was approximately $286,000 per year (Blumberg, 1998). Most of the initial funding came from redevelopment tax increment funds that the City had been setting aside for several years; supplemental funding is targeted to come from County general fund and block grant monies. Clearly, the City has a large stake in the success of the program. This paper will focus on the cost-effectiveness of the program from the city angle, since public inebriation is most prevalent within city limits; most inebriates taken to the CATC are picked up downtown (34%) and in midtown (24%) (Saunders and Blumberg, 1998).

Purpose of this Study

This paper is intended to study the cost-effectiveness of Sacramento’s investment in the CATC program. First, a brief literature review will be provided to survey other cost-benefit analyses performed in this issue area. Next, policy alternatives will be discussed. Third, impacts of the program will be calculated. Fourth, a sensitivity analysis will be performed to help account for uncertainties in the calculations. Finally, the conclusion will discuss the findings of this study and will make recommendations for proposed action.

II. LITERATURE REVIEW

While the cost-benefit and cost-effectiveness studies reviewed below are much more detailed, technical, and narrowly focused than this paper, they highlight some of the different aspects that should be considered in an economic study of public inebriation programs. Some of the studies provide models for calculation techniques and examples of components, which can be used in those calculations, both of which would prove quite helpful in a more in-depth analysis than this one.

Drugs and Crime

Gropper (1984) analyzes existing data to determine the total combined costs to society of drug-related crime. The study monetizes the following components: "returns to crime" (cash obtained through drug crimes); "economic impacts on victims and society" (annual losses based on the retail value of stolen goods); "freeloading" (costs of tax evasion, public transfer payments, provision of shelter and meals, and cash ‘loans’); and the contributions that drug-related crime makes to the "underground economy." The author explains that his total does not include variables which are more difficult to measure, such as the lost productivity of these individuals, criminal justice system expenses to process them, and intangibles such as the suffering of crime victims and societal fears.

Gropper’s study clearly demonstrates that, in this case, the marginal social costs (the costs to victims and to society in general) are much greater than the marginal private benefit (to the criminals), providing a strong justification for government intervention. Gropper’s monetization techniques, as well as his conclusions, would prove quite useful in a more detailed analysis than this paper.

Alcohol Treatment

Cisler, et al. (1998) analyze "not just how much a treatment costs, but also why it costs what it does and what options may be available for minimizing treatment costs while maintaining effectiveness." The authors examine two types of costs: clinical research costs and community replication costs. The study presents tables demonstrating how costs were calculated, total clinical research costs over three years, average cost per participant over three years, and replication cost estimates. The average total replication costs include both direct clinical costs and indirect costs. Finally, the authors lay out their conclusions, in which they examine the costs which were calculated and speculate on the applicability of their findings.

The authors concluded that this form of treatment is costly, but made several caveats, including (1) the study was performed on a small population, eliminating the possibility of "economies of scale" to reduce the cost of treatment per client and (2) the treatment was performed in individual therapy sessions, while most community alcohol treatment is done in a group setting. The authors point out that when outcomes are measured by frequency and intensity of drinking in a given period, there is little difference between the community program they focused upon and other programs. However, they make so many caveats, and highlight so many areas which need further study, that it is difficult to tell if this study is a reliable assessment of the program. Some of the cost calculation techniques used by Cisler, et al, would be helpful in a more ambitious study than this paper.

Social Costs of Crime

Skogh and Stuart (1982) argue through a rather convoluted logic that the resources used by offenders to commit crime, as well as the resources used by potential victims to prevent crime, are both social costs. The study calculates social aggregates for total crime, total punishment, and total resource costs of crime, concluding that

. . . the sum of the marginal resource savings of all individuals, in the form of changes in private expenditures on preventing and committing thefts, as well as punishment costs, will equal the marginal cost of collective protection. This is analogous to the condition for the efficient allocation of a pure public good.

The authors argue that looking at aggregate statistics is not useful in formulating policy alternatives; policy makers should instead look at victimization and crime prevention resource costs. They further argue that since no single victim has an incentive to change his or her level of self-protection in response to changes in the level of collective measures, criminal justice cost-effectiveness studies should only take into account the relationship between the system’s marginal costs and the social marginal costs of committing crimes which the judicial system deters. This study is extremely hard to follow and appears to make some rather controversial assumptions and conclusions; it is not entirely helpful for purposes of this paper.

Crime and Property Values

Hellman and Naroff (1979) argue that:

Changes in the utility derived from living in certain sections of urban areas, or urban areas in general, caused by variations in the crime rate can affect property values and thus property tax revenue.

Clearly, the level of crime that may be associated or perceived with the presence of street inebriation can have a fiscal effect upon a local government; i.e., affecting the resources available to combat crime and other urban problems. This study provides a relatively useful model for cost-benefit analysis of city police expenditures. The study points out that crime perceptions of city residents must be taken into account in any analysis; i.e., do crimes against people weigh more heavily than property crimes. While the Hellman and Naroff study is again much more technical than this paper, it makes the important point that rising crime rates (or perceived rises in crime) lead to households migrating out of the central city, which results not only in erosion of a city’s tax base, but also in even greater crime rates.

III. Portfolio of Alternative Projects

As referenced above, this paper will focus solely upon the cost-effectiveness of the latest effort in Sacramento to combat the problem of public inebriation. For purposes of context, however, some policy alternatives being implemented in other cities are discussed, as well as a more detailed look at the Sacramento program.

What’s Working in Other Cities

More and more urban communities are stepping up responses to public inebriation and related problems, such as low-level crime, panhandling, and general blight. In Portland, for example, the state Liquor Control Commission and local police worked with downtown merchants who sold low-cost, high-alcohol wine and beer to remove such liquor from store shelves (Erb, 1997). In Los Angeles, the city police department is using a grant from the state Department of Alcoholic Beverage Control to educate and clean up problematic liquor establishments, using techniques such as limiting window advertising, maintaining lighting in parking lots, rapid removal of graffiti, and prohibition of loitering or alcohol consumption on store premises (Parks, et al., 1997). Roseville police are working with liquor establishments to create a "do not sell to" policy for identified chronic public inebriates (Saunders and Blumberg, 1998).

Frustrated Efforts

Cities that have gone on the attack against liquor store owners, accusing them of being responsible for problems such as public inebriation rather than working together on a comprehensive effort, have been less successful. Efforts in Oakland to limit liquor licenses and increase fines on problem establishments, for example, have been slowed by several lawsuits (Williams, 1997). Sacramento is considering most or all of the efforts listed above as components in its overall program, and other cities have contacted Sacramento to learn more about its efforts. The Sacramento Downtown Partnership, which represents downtown business and property owners, has been very active in the establishment of the CATC; Sacramento’s efforts to combat public inebriation probably have a much higher chance of success because of such collaboration.

The Sacramento CATC

In December 1997, Sacramento opened a new detoxification center that is significantly larger than the old center and provides a much higher level of service. The CATC requires a 72-hour "mandatory hold" for all individuals brought in; during that period, the individuals are cleaned up, given medical attention, sobered up, and are given a "hard sell"— counselors strongly encourage them but can not force them— to enter rehabilitation services. CATC staff connects individuals with job training services, public assistance, mental health counseling, or whatever else is needed. As referenced above, the old center was basically a temporary dry-out shelter; the new center aims to get at the heart of the problem.

Further Sacramento Efforts

Concurrent efforts are also being piloted: (1) Sacramento City police plan to copy the Roseville effort of banning sales to chronic public inebriates; (2) Greyhound has agreed to increase security at its downtown bus depot, the largest downtown source of police calls; (3) the County has obtained authority to house an additional 500 inmates at the downtown county jail for misdemeanor offenses, such as panhandling; and (4) downtown merchants who sell alcohol are beginning to post signs prohibiting loitering or alcohol consumption on the premises. It is hoped that this comprehensive, multi-pronged effort, will be an effective response that will produce results.

IV. Impacts

Cataloguing Impacts

Sacramento has invested a significant amount of time and money to start up a comprehensive program to combat public inebriation. The projected general costs and benefits of the new program are summed up in the following table:

Predicting Quantitative Impacts

For purposes of this paper, I will assume that the program will last five years. I will also assume that annual costs are equal to startup costs; in reality the city and county plan to invest more in the second year to continue getting the program off the ground, but I assume the funding will level off or drop off at some point. Another costs that should be considered is the loss of consumer surplus for inebriates who are coerced into entering the program against their desire. Finally, since the program releases 74% of its intakes to homeless shelters, the fiscal impact on those services should be accounted for.

On the benefit side, merchants and citizens in the area will enjoy a reduced level of blight and low-level crime; this would be reflected in the taxpayer dollars which fund the program. Police resources are supposed to be saved when the center’s vans pick up inebriates; in reality, however, so far the vans are only making 5% of the pickups. Finally, assuming that some percentage of this inebriate population is integrated back into society and succeeds in obtaining minimum-wage jobs, society gains back some lost productivity.

Monetizing Impacts

In calculating dollar estimates, the main cost to consider is the city’s investment in the program - $1.25 million. It is impossible to estimate a dollar amount for the consumer surplus loss for public inebriates, but this should generally be taken into consideration. Clearly, the program has a big impact upon homeless shelter services which must be included. For the sake of this analysis, I will estimate some "shadow prices;" these prices will help provide an idea of costs and benefits since market prices for these components are not available. First, I will assume that each person taken into a homeless shelter costs local government an average of $50 for a typical three-night stay. The CATC takes in an average of 5500 people a month, or 66,000 per year; 74% of these, or 48,840 individuals, are released to shelters. This comes to a total of $2,442,000 per year. Since shelters do not accept people who are drunk, no risk exists of double counting.

The benefit side is much more difficult to monetize. For example, what is the dollar value of citizen’s desire to get inebriates off the streets? For purposes of this paper, I will assume that it is worth an average of two dollars per person per year to get rid of this problem (obviously this value would be much higher for some persons and much lower for others). The population of the city of Sacramento is approximately 385,000, bringing us to an annual benefit of $770,000. It is also difficult to estimate the percentage of merchants’ business that is affected by public inebriates; I will not attempt to do so in this study. Assuming that the CATC vans continue to be tied up with transporting inebriates to medical and other services, instead of relieving police by picking up inebriates off the street, there is only a 5% reduction in police calls. For purposes of this paper, I will assume that each police response costs the city an average of $50. Assuming that the 66,000 intakes per year all come in through police calls, and the CATC vans take care of 5% (3,300) of those calls, the police department (and therefore the city) is saving $165,000 per year.

The monetized costs and benefits over the assumed 5 years are as follows:

Discounting Costs and Benefits

The dollar estimates outlined in the table above must be discounted for time; i.e., future costs and benefits must be translated into current dollars. This study will assume that all benefits and costs accrue at the end of each year, over a five-year period, and will assume a 3% interest rate. The discounted figures are as follows:

Net Present Value of the Program

The next step is to determine the net present value of the program. This is done through a simple formula: NPV = PV(B) – PV(C), with NPV representing net present value, PV representing present value, B representing benefits, and C representing costs. Using the calculations above, this equation is determined as follows:

NPV = $4,282,026 - $16,908,279 = -$12,626,253.

Since the net present value is negative, a strictly economic point of view would argue that the program should not be undertaken (or in this case, continued). However, there are other factors which must be considered; these are discussed below.

V. Sensitivity Analysis

Sensitivity analysis is an important part of any cost-benefit analysis. Sensitivity analysis helps demonstrate the amount of uncertainty in calculations; sometimes, varying a particular figure or calculation can significantly change the final numbers. For example, in the above calculations, the costs ended up being much greater than the benefits. However, if the numbers on the benefit side are changed – i.e., if public desire for cleanup and police savings is assigned greater amounts – the net present value might come out quite differently. Numbers on the cost side are not completely concrete either; it is entirely possible that I have vastly overestimated or underestimated the impact of the program upon homeless shelters. Clearly, in a more extensive study I would need to do further research to ensure that my dollar estimates are at least somewhat accurate.

The simplest form of sensitivity analysis is to vary the projected interest rate when calculating costs and benefits. For the above calculations, I assumed a 3% interest rate; however, it is realistic to assume an interest rate anywhere from 2.5% to 4%. Merely varying the interest rate slightly can have a significant effect upon net present value. For this study, however, I will hold the interest rate at 3% and vary the other amounts; in a study with less uncertainty in the dollar estimates, varying the interest rate would be essential.

Uncertainty in Measurable Units of Impacts

Many of the quantitative impact predictions made above were simply rough estimates that are clearly subject to sensitivity analysis. For example, I assumed a five-year life for the program and that the level of funding would remain constant. I assumed that the percentage of inebriates released from the CATC to homeless shelters would remain constant at 74% and that the percentage of inebriates picked up by the CATC instead of the police would remain constant at 5%. Finally, I assumed that public desire to clean up the streets would remain constant.

One way to perform sensitivity analysis would be to vary some or all of these figures, perhaps providing a range for each to demonstrate how changing these measures affects the final net present value. An example of such sensitivity analysis is laid out below:

Clearly, these are very rough estimates; a more thorough study would require me to talk to representatives of the resources involved, and to look at other studies, in order to obtain realistic estimates.

Uncertainty in Monetized Impacts

A great deal of uncertainty also exists in my monetized estimates of program impacts. For example, I assumed that police responses cost approximately $50 per call and that each person taken into a homeless shelter costs the shelter an average of $50 per person. I also assumed that the public desire for cleanup was equal to $1 per person. The sensitivity analysis below varies some of these dollar amounts to demonstrate the uncertainty involved.

Again, these are very unscientific dollar estimates; in a more extensive study, I would interview representatives from homeless shelters and the police department to determine accurate per-person costs, and I would examine other studies to help determine an accurate estimate for the public desire to get rid of the public inebriation problem.

To determine the new range of new net present values, we must again discount:

As referenced above, the equation to determine net present value is NPV = PV(B) – PV(C). Our new range of net present values is as follows:

Sensitivity analysis demonstrates the importance of obtaining accurate measures and accurate dollar amounts, as varying the amounts can determine whether the net present value of the program is positive (implying the program is cost-effective) or negative (implying that the program is not cost-effective). In this case, since all the net present values are negative, sensitivity analysis indicates that the program is producing more costs than benefits.

VI. Conclusion

Net Present Values Under Sensitivity Analysis

Clearly, an effective study of the CATC program would require a great deal more research than time permitted in this study. Performance of a brief and rough sensitivity analysis shows that, on the surface, the program produces a net loss. This could, however, vary if more accurate estimates of costs and benefits were obtained.

Revisiting Our Purpose

The purpose of this paper, as stated in the introduction, was to assess the cost-effectiveness of the CATC program. Time constraints limited the extensiveness of the study; clearly there are many other components that could have been included when measuring cost and benefit impacts of the program. For example, this paper did not address the alcohol-violence connection, assess costs to society in terms of the lost productivity of the inebriate population, or examine any change in property values associated with the presence or absence of the inebriate population.

Further Study Needed

As referenced above, more study is needed to determine accurate measures (in both units and dollars) of program impacts. It would also be interesting to conduct an ex-post analysis several years down the road to assess the accuracy of these predictions. Finally, it would be helpful to run some cost-benefit studies of programs in other cities to determine if there are significant differences in net present values.

Importance of Normative Components

Any study done to justify the effectiveness of a program for political purposes would take into account the normative effects of the program. It is difficult to measure and monetize such components as public desire to clean up the streets, and desire of city officials to have a pleasant atmosphere downtown to attract tourists and shoppers. While on the surface, the negative net present value results obtained in this study would dictate that the program is not cost-effective, weighting such normative components more heavily, as would probably be done in a political study, could significantly change the end results. For now, since the program is brand new, people appear to be looking at the visible benefits (such as less inebriates on the street) resulting from the program, rather than costing it out; down the road, however, especially if general urban fiscal troubles continue, people may want to see more "bang for their buck."

Client Response

This paper was reviewed by Clenton Irby, Director of the CATC. Mr. Irby was extremely helpful in providing both substantive and anecdotal information about the program and offered his continuing assistance if I decide to incorporate the program into a thesis. He told me that he "really enjoyed" reading the paper. The only major thing that he thought was missing was a comparison of how the program offsets incarceration costs, which I now realized is an important point and could make a significant difference in the cost-benefit comparison. Unfortunately I received this feedback too late to include it in my calculations, but it would clearly be an important component to include in a more extensive study. Finally, Irby also agreed with my assessment that comparative studies of programs in other cities would be useful.

A Final Word

Although this is a very rough cost-benefit analysis, it provides a general overview and direction of how an effective analysis should be performed. As discussed above, a more extensive analysis would require research in order to calculate more realistic measures and monetary values of program impacts. Other components should also be included in further analysis, such as a comparison between program costs and incarceration costs, the effect of the reduced inebriate population upon downtown business, and the impact on the downtown crime rate. The "nonuse value" benefit should be considered; specifically, the general public benefit to reducing public drunkenness. Finally, there are larger normative issues to take into account, such as the fact that the CATC program is connecting individuals with social services that they were not benefiting from prior to the program. Even this brief look at the costs and benefits of the Comprehensive Alcoholism Treatment Center program, however, provides a great deal of insight as to how the program works and how it affects the citizens of Sacramento.

REFERENCES

Blumberg, Paul. Senior Management Analyst, City of Sacramento. Phone Conversations, November 1998.

Cisler, Ron, Harold D. Holder, Richard Longabauch, Robert L. Stout, and Allen Zweben, "Actual and Estimated Replication Costs for Alcohol Treatment Modalities: Case Study from Project MATCH." Journal of Studies on Alcohol, September 1998, v. 59, no. 5, p. 503 (9).

Erb, George. "Portland Shows Street Alcoholics Can Be Controlled." Puget Sound Business Journal, 8 September 1997.

Gropper, Bernard H. "Probing the Links Between Drugs and Crime." NIJ Reports/SNI 188, November 1994, p.4 (4).

Hellman, Daryl A., and Joel L. Naroff. "The Impact of Crime on Urban Residential Property Values." Urban Studies, February 1979, v. 16, no. 1, p. 105 (8).

Irby, Clenton. Program Director, Comprehensive Alcoholism Treatment Center. Interview, November 13, 1998 and Phone Conversation, December 16, 1998.

McCarthy, Mike. "Downtown Drunks Growing Scarce." Sacramento Bee, 5 October 1998.

National Center on Addiction and Substance Abuse. 1997. "Behind Bars: Substance Abuse and American’s Prison Population." New York: Columbia University.

Parks, Chief Bernard C. and Sergeant Kris E. Pitcher. "Operation ABC: A Multi-Agency Approach in Los Angeles." The Police Chief, October 1997, v. 64, no. 10, p. 119 (4).

Saunders, Wendy and Paul Blumberg. October 30, 1998. "Status of Sacramento’s Comprehensive Alcohol Treatment Center (CATC)." Sacramento: City of Sacramento, California.

Skogh, Goran, and Charles Stuart. "An Economic Analysis of Crime Rates, Punishment, and the Social Consequences of Crime." Public Choice, v. 38, no. 2, 1982, p. 171 (8).

Smith, Wesley R. 1994. "Don’t Stand so Close to Me: Judges are Giving Neighborhoods a Bum Rap." Policy Review, fall 1994, no. 70, p.48 (7).

State of California. Health and Welfare Agency. Department of Alcohol and Drug Programs. June 1997. Alcohol and Other Drugs Databook. Sacramento: Department of Alcohol and Drug Programs.

Williams, Diana A. "New Age of Enforcement: Oakland Launches Concerted Attack on Liquor-Store Loitering." New Frontiers in Alcoholic Beverage Nuisance Abatement Management: November 1997. League of California Cities: Sacramento, California.

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