NYC Tests Social Impact Bonds as Goldman Sachs Invests in Jail Program


New York City will be first in the U.S. to test “social impact bonds,” also called pay-for-success bonds, says the New York Times. Embracing an experimental mechanism for financing social services that has excited and worried reformers around the world, the city will allow Goldman Sachs to invest nearly $10 million in a jail program, with the pledge that the financial services giant would profit if the program succeeded in significantly reducing recidivism rates.

First used in Britain and now being explored in Australia, the bonds are capturing the imagination of some U.S. public officials. Yesterday, Massachusetts announced that it was completing negotiations with two nonprofit groups to finance juvenile justice and homelessness programs, with the promise of repayment only if the programs work. The federal government, Connecticut, New York State and Cuyahoga County, Ohio, among others, are at various stages of considering using the bonds to harness new funds for human-services programs. New York Mayor Michael Bloomberg says Goldman Sachs will provide a $9.6 million loan to pay for a four-year program intended to reduce the rate at which adolescent men incarcerated at Rikers Island reoffend after their release.

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