Sometimes, a Vampire Squid gets tired of dealing with only "muppet" clients. Today, it's announced that Goldman Sachs is investing millions in a jail program at Rikers Island to turn around recidivism. The NY Times reports, "If the program reduces recidivism by 10 percent, Goldman would be repaid the full $9.6 million; if recidivism drops more, Goldman could make as much as $2.1 million in profit; if recidivism does not drop by at least 10 percent, Goldman would lose as much as $2.4 million."
The investment firm's move marks the first such Social Impact Bond issued in the country. Here's the official press release from NYC:
As part of the Young Men’s Initiative, this investment will support a new evidence-based program for young adults on Rikers Island. The program - the Adolescent Behavioral Learning Experience (ABLE) - focuses on personal responsibility education, training and counseling, with the goal of reducing the likelihood of reincarceration. In this new model, private investors fund the intervention through a nonprofit contractor and the government pays the contractor only if the program meets its goals. Goldman Sachs will provide financing, Bloomberg Philanthropies will provide grant support for the effort and MDRC, a leading non-profit, will oversee project implementation.
The city also emphasizes that this won't cost taxpayers any money—Deputy Mayor Linda Gibbs said, "Social impact bonds create the opportunity for social policy to evolve because they are designed to raise private money to support programs and services that advance the public good and help move the government towards outcome-based contracts."
More about Bloomberg Philanthropies' involvement: The foundation is guaranteeing a $7.2 million loan to MRDC, and the Times explains, "If the jail program does not succeed, MDRC can use the Bloomberg money to repay Goldman a portion of its loan; if the program does succeed, Goldman will be paid by the city’s Department of Correction, and MDRC may use the Bloomberg money for other social impact bonds, said James Anderson, director of the foundation’s government innovation program." Footnote: Goldman Sachs leases thousands of Bloomberg terminals!
One expert express some concern: Professor Mark Rosenman told the Times, "I’m not saying that the market is evil, but I am saying when we get into a situation where we are encouraging investment in order to generate private profit as a substitute for government responsibility, we’re making a big mistake."
Anyway, here's what Goldman CEO Lloyd Blankfein said: "We’re proud to work with Mayor Bloomberg and his team on this innovative approach to harness private sector financing for important public initiatives. We believe this investment paves the way for a new type of instrument that enables the public sector to leverage upfront funding from the private sector."
