On August 2, New York City Mayor Michael Bloomberg announced the launch of a new social impact bond-financed, 4-year project to reduce youth recidivism in the city. The program will target young males aged 16-18 exiting a facility on Rikers Island. Nearly 50 percent of youths in this group that exit the facility currently return to the criminal justice system within a year.
The project will receive $9.6 million in up-front financing from Goldman Sachs ($2.4 million per year for four years), which will provide project funding through a nonprofit intermediary, MDRC. This funding will underwrite the costs of providing evidence-based services by two local service providers, the Osborne Association and Friends of Island Academy.
If the project meets its designated targets for reducing re-incarceration, the city Department of Corrections will reimburse MDRC on a sliding scale. MDRC will, in turn, reimburse Goldman Sachs, which stands to earn a small profit if recidivism rates are reduced by more than 10 percent.
However, if the project fails to achieve a 10 percent reduction in re-incarceration, the project could receive half the $9.6 million cost — or nothing if the reduction is less than or equal to 8.5 percent.
To guard against this possibility, Mayor Bloomberg’s personal foundation, Bloomberg Philanthropies, will provide a $7.2 million loan guarantee to MDRC to absorb some of the potential downside losses. Under the arrangement, Goldman Sachs still stands to lose up to $2.4 million. The project’s results will be independently evaluated by the Vera Institute of Justice.
According to a report in The New York Times, city officials hope to expand the use of social impact bonds to finance new programs on homelessness, foster care, special education, or health care.