New York City mayor Michael Bloomberg has announced that Goldman Sachs will provide a $9.6 million loan to a nonprofit overseeing a four-year program aimed at reducing the rate at which young men incarcerated at Rikers Island re-offend after their release — and could profit from the investment if the program exceeds certain benchmarks, the New York Times reports.
The loan from Goldman will be used to finance a program called Adolescent Behavioral Learning Experience (ABLE) as part of the Bloomberg administration's $127 million, multi-sector Young Men's Initiative. Run by the Osborne Association and Friends of Island Academy, and overseen by MDRC, the program will offer counseling and education to more than three thousand incarcerated adolescents annually.
Backed by a $7.2 million loan guarantee from Bloomberg Philanthropies, the investment is the first example of a social impact, or pay-for-success, bond, in the United States. According to the Times, if the program succeeds in reducing recidivism among young offenders by at least 10 percent, Goldman will be paid back in full by the city, and MDRC can apply the Bloomberg loan guarantee to other such deals. If the recidivism rate does not drop by at least 10 percent, MDRC can use the Bloomberg funds to repay Goldman, which could lose as much as $2.4 million. If the rate drops by more than 10 percent, Goldman could earn as much as $2.1 million in profit from the deal.
Such bonds have been used in Britain, but the one on which the New York program is modeled is still years away from being fully evaluated, the Times reports. Even so, a number of states and the federal government are looking to develop similar arrangements as part of a larger effort to address persistent social problems while reducing public-sector costs.
"This promising financing model has potential to transform the way governments around the country fund social programs," said Bloomberg, "and as first in the nation to launch it, we are anxious to see how this bold road map for innovation works."