Innovative Idea: New York Unveils ‘social-impact’ bond

14 Oct, 2012

New York City will try to reduce the recidivism of young male convicts housed on Rikers Island with a four-year program run by non-profits and financed by Goldman Sachs Group Inc.

The bank will invest $9.6 million through a so-called social-impact bond, meaning it will profit only if the plan achieves its goals. New York officials said the program is the first of its kind in the US.

“In this new model, private investors fund the intervention through a non-profit contractor and the government pays the contractor only if the program meets its goals,” Mayor Michael Bloomberg’s office said in a statement.

For Goldman Sachs to earn a profit, the program will need to reduce recidivism by at least 10%. City payments to MDRC, a non-profit social-policy group created by the Ford Foundation that will monitor and run the program, also will be based on its degree of success. The Vera Institute of Justice will independently assess the program’s effectiveness, said the mayor’s office.

Goldman Sachs will fully fund the four-year program, called the Adolescent Behavioral Learning Experience, through a loan to New York based MDRC. Bloomberg Philanthropies, the mayor’s private charity, will provide $7.2 million to MDRC to back a portion of Goldman Sachs’ loan. There will be a cost to the city only if the program succeeds, the mayor’s office said.

“This investment paves the way for a new type of instrument that enables the public sector to leverage upfront funding from the private sector,” Lloyd Blanfein, Goldman Sachs’ chief executive officer, said in a statement.

The program’s targets are inmates ages 16 to 18, whose recidivism rate is now about 50%. Inmates will receive education, training and counseling to improve personal responsibility skills, including decision-making and problem-solving.

Two other New York based non-profits, the Osborne Association and Friends of Island Academy, will also deliver recreational activities “to reduce idleness, promote team-building and afford opportunities for adolescents to practice what they are learning in a variety of settings and circumstances,” the mayor’s office said.

The program is part of the Bloomberg administration’s privately supported $30- million Young Men’s Initiative, which seeks ways to improve productivity and reduce risk of poverty for young males.

It is also part of a national search by Bloomberg’s foundation to find innovative policies and practices to deal with difficult urban problems, the mayor’s office said. To further that effort, the mayor offered $9 million in prizes to US cities through the foundation in a competition for ideas that local governments can use to solve problems.

Source: Bloomberg News 

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