Bank of America Merrill Lynch says it has raised $13.5 million from 40 private and institutional clients for a reform initiative for former New York state inmates, Barron’s reports. The proceeds will provide training and employment programs for 2,000 newly released ex-cons in hopes of reducing recidivism. If successful, the state would save millions in incarceration and criminal justice system costs; a portion of those savings would be paid to BofA's investors, a market-rate financial return for those who helped finance the program. Social-impact bonds, or “pay for success bonds,” raise private investor dollars to fund social programs that reduce public sector costs, aids society in some way, and generate fixed income-like payouts to investors.
Barron’s calls the BofA/New York partnership the most significant social-impact bond to-date globally. New York is the first state to launch such a project. If the program reduces recidivism by at least 8 percent and/or increases the former prisoners' post-release employment by five percentage points, then investors get their money back. Further drops in recidivism or employment gains, could, in the best case, earn returns of up to 12.5 percent annually over the project's five-and-a-half years. The state would in that optimal case realize up to $7.8 million in savings, even after investors walked away with their cut. The Center for Employment Opportunities, a nonprofit focused on finding jobs for ex-prisoners, was selected by New York State for the project.