Could this investment strategy help keep convicts from returning to prison?
The big idea: Could a financial institution invest in solving some of the nation’s biggest social challenges — and reap a return? This was a question Goldman Sachs faced when approached to invest in a program to reduce recidivism among teenage inmates at New York City’s Rikers Island prison. The program supported cognitive behavioral therapy, which had been shown to significantly reduce recidivism for these inmates, and in doing so, lower operating costs for prisons. If Goldman Sachs invested in the roughly $10 million program, it could reap a return paid from New York City’s operating cost savings, estimated to be in the millions. But there was risk, too — if recidivism didn’t drop by 10 percent or more, the city wouldn’t have to repay Goldman. Bloomberg Philanthropies — which was dedicated to help troubled youth — stepped up to facilitate the public-private partnership. The players agreed to share the risk through a social impact bond, the first in the United States.
Photo courtesy of Steven Depolo.