NYC, Goldman Sachs Partner Up for NYC Jail Program

Thursday, August 02, 2012

Stock prices whiz by on a ticker near the Goldman Sachs booth on the floor of the New York Stock Exchange April 16, 2010 in New York, New York. (Chris Hondros/Getty)

Goldman Sachs will invest almost $10 million in a new program aimed at reducing the recidivism rates of teenagers entering Rikers Island. It makes New York the first city in the nation to test "social impact bonds," which allow private investment in social service programs, which are typically funded by the government. 

This is an effort to save governments money over the long term.

Under the Goldman Sachs-funded initiative, called ABLE, male 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 Michael 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 Sachs will fully fund the ABLE program over four years, structuring its $9.6 million investment as a loan to MDRC, a social services group that will run the program. MRDC will contract with the city, but if the program does not meet its targets for reducing reincarceration, the city will not pay anything. 

If the program reduces reincarceration by 10 percent, Goldman will break even on its investment.  It can earn even more, as much as $2.1 million, if the reincarceration rate drops more than 10 percent. But on the flip side, if the rate doesn’t drop by at least 10 percent, the company could lose as much as $2.4 million.

Goldman Sachs CEO Lloyd Blankfein said, "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."

This is the first time social impact investing of this kind is being used in the country, according to Deputy Mayor for Health and Human Services Linda Gibbs. “This is a great deal for government because there’s no risk essentially. The risk is born on the private investor’s side and the government pays only if the tax payers actually achieve savings,” she said.

Bloomberg Philanthropies will commit $7.2 million to the MDRC during the same four-year time period of the Goldman investment to guarantee the loan.

Gibbs admitted the charities backing of the funding is a unique and innovative component of this whole initiative. “It could be five, ten years down the road you don’t need as much as of security to this,” she explained, but as this is the first time, “it allows us to test this financing model and it reduces some of the risk that investors have.”

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

“There’s no silver bullet. You have to continually adapt,” said Kendra Chiu of Outreach, a non-profit that serves youth involved in the criminal justice. Chiu said a lot of the success is dependent on outside factors like family involvement, coordination with the court system, probation officers and schools.

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.

Soffiyah Elijah is the Director of the Correctional Association and advocates on behalf of inmates at Rikers Island and thinks if the money can help expand programs during a time when the government is cutting back, the investment is good. But Elijah acknowledged that private money funding public sector programs could be problematic. “That’s the kind of concern that we see with the privatization of prisons, but as I understand we will not have the private sector being the service provider,” she said.

Goldman Sachs will have no control over how the programs are run.



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Comments [8]

Soledad Socorro

Wow. This is Age discrimination at its best. If GS & Bloomberg truly want to put their money where it belongs - Than they should be buying themselves a clue. It's common knowledge NYC has a very horrendous senior citizen and middle aged criminal demographic (mostly hardcore drug addicts & dealers). All this does is placing a band-aid on a massive wound. The "old timers" with vast felonies (I'm talking about double digit felonies convicts who are walking the streets, and trust there are plenty) are the ones corrupting and exasperating this awful problem. WHAT NEEDS TO BE ADDRESSED ARE THE "ALTERNATIVE TO INCARCERATIONS", aka "A.T.I."s that are proving time after time over again, that they DO NOT work. These are major bidding contractors who are using the rotating door individuals as cash cows. THIS IS BLATANT AGEISM

Aug. 25 2012 12:48 AM

These posts sound to me like some commentators are confusing anger over what Goldman has done in the past (and for which it should be held accountable)with a creative way to test innovative solutions to an intractable problem that the city does not have the resources to address itself. Note that Goldman's investment is actually at risk - they can lose money. Hopefully the criteria by which success will be measured were extremely closely negotiated by the city to minimize the possibility of gaming the evaluation. Also note that what is learned from this program may prove extremely useful to NYC and other governments dealing with juvenile crime. And to the commentator in the story who said that GS should have made this investment purely because it could benefit society, I point out the obvious - GS is not responsible for curing society's ills (although I do wish that most corporations were more thoughtful about the social impacts of their business actions)and corporations do not make such investments. This new mode of engaging private resources in helping to solve public problems is called "impact investing" and could potentially mobilize badly needed resources for the public good. So don't let the Goldman name distract you from what can be learned here about both preventing recidivism and drawing badly-needed resources to solving public problems.

Aug. 03 2012 09:23 AM
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Aug. 03 2012 05:46 AM

You are all correct. I find it funny that everyone here has an issue with this but no one cares that this is being done to our public schools as well.

Aug. 02 2012 10:02 PM
Sean from New York

No further proof needed that we've lost our moral compass. A company well known for fleecing its clients and the investing public will now invest in turning around wayward youths? Is this a scared straight program turned on its head? "Hey kid, stay out of trouble. Get a suit. Come work for us. Sell Facebook shares to our muppet clients and laugh your ass off as they lose money and we go to the Hamptons for the weekend."

Aug. 02 2012 05:05 PM
James from Queens

Really? Goldman Sachs couldn't just give the city the money? Lloyd Blankfein has $10 million in the cushions of his couch! This just feels like another expansion of the prison industrial complex - another way to make more money on the backs of young men in prison. Not a good look...

Aug. 02 2012 03:23 PM
johnson from New York

I can see it now, Goldman Sachs thugs going to newly released prisoners threatening to break their legs if they go back to prison. Can't lose any money you know.

Aug. 02 2012 02:22 PM

Yeah...this won't end well.

Aug. 02 2012 11:25 AM

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