News

New York follows UK with ex-offenders social impact bond

Finance | Vibeka Mair | 3 Aug 2012

America has announced its first social impact bond programme - a scheme to cut re-offending which mirrors the UK’s first social impact bond scheme in Peterborough, which is also seeking to cut recidivism.

The scheme will take place in New York City (NYC), and was announced by NYC's Mayor Bloomberg yesterday. The social impact bond will see the New York City government pay investors a return if re-offending is cut to agreed targets.

Unlike Peterborough’s social impact bond, where a group of mostly charitable foundations have invested, global investment bank Goldman Sachs has financed NYC's social impact bond.

Goldman Sachs will provide $9.6m in finance for the scheme and MDRC, a non-profit, will manage the project. The four-year programme, in which MDRC and other organisations will provide education, training and counselling to young ex-offenders, must reduce the recidivism rate by at least 10 per cent for Goldman to recoup its investment.

If the recidivism rate drops further, Goldman could profit up to $2.1m beyond its original investment, according to Samantha Levine, a spokeswoman for the city.

Bloomberg Philanthropies will make a $7.2m grant to MDRC over that same four-year period, which will be held by MDRC in a guarantee fund to back a portion of Goldman Sachs’ investment to MDRC if the programme fails to reduce recidivism by 10 per cent. With the support of this grant, if the programme does not meet government targets, Goldman will lose $2.4m of its original $9.6m investment.

Mayor Bloomberg said: "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."

“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 chairman Lloyd Blankfein said his firm hopes to drive more private investors toward similar public-private philanthropic partnerships.

"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."