Goldman Sachs to Invest $10M in NYC Jails Program

New York will be the first American city to use "social impact bond" in private-public partnership

Thursday, Aug 2, 2012  |  Updated 2:43 PM EDT
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Goldman Sachs to Invest $10M in NYC Jails Program

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Goldman Sachs will invest almost $10 million in a New York City jail program that will allow the investment firm to profit if it can reduce recidivism rates, city officials announced Thursday.

The move makes New York the first city in the nation to test "social impact bonds" that enlist private entities in an effort to save governments money over the long term.

Under the Goldman Sachs-funded initiative, inmates aged 16 to 18 will receive education, training and counseling intended to reduce the likelihood of them reoffending after their release.

"New York City is continually seeking innovative new ways to tackle the most entrenched problems, and helping young people who land in jail stay out of trouble when they return home is one of the most difficult — and important — challenges we face," Mayor Bloomberg said. "As the first city in the nation to launch a social impact bond, we are taking our efforts to new levels and we are eager to see the outcome of this groundbreaking initiative."

Goldman CEO Lloyd Blankfein added, "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."

City officials said Goldman would provide a $9.6 million loan to pay for the program at the Rikers Island jail complex. If recidivism drops by 10 percent, the firm will get back the $9.6 million. If it drops even more, Goldman could make as much as $2.1 million in profit. If recidivism doesn't drop by at least 10 percent, Goldman will lose as much as $2.4 million.

Nearly half of the adolescents who leave city jails currently return within one year.

Social impact bonds, also called pay-for-success bonds, were first used in Britain and are being explored in Australia and in the U.S.

Massachusetts is negotiating with two nonprofit groups to finance juvenile justice and homelessness programs with the promise of repayment only if the programs work.

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