Goldman Sachs Looks to Turn a Profit on a Program to Fight Recidivism

http://www.thenation.com/article/169472/goldman-sachs-looks-turn-profit-program-fight-recidivism

City officials say social impact bonds are a smart way to raise revenue. But government watchdogs worry about creeping corporate influence.

Earlier this month, New York Mayor Michael Bloomberg announced the first-ever “social impact bond” in the United States. The bond, between the city of New York and investment giant Goldman Sachs, will finance a behavioral treatment program for incarcerated adolescents on Rikers Island. Unlike a traditional revenue bond, a social impact bond will pay a dividend only if the target outcomes are met—in this case, that the recidivism rate among the youth treated falls by 10 percent. If it does even better, Goldman Sachs will turn a small profit—with the city footing the bill.

The initiative is based on a program in Peterborough, England, which used a social impact bond to fund a program that also sought to reduce recidivism. But there is one big difference between the Peterborough program and Bloomberg’s. In Peterborough, the investors were a group of individuals and charitable organizations, including the Rockefeller Foundation. (The results of the Peterborough experiment remain inconclusive). In New York City, the investor is a profit-driven private company that has a track record of making huge returns on other people’s financial troubles. To sweeten the deal for Goldman Sachs, Bloomberg has arranged for his foundation to guarantee most of the bond, allowing Goldman Sachs to face almost no risk. “This is not coming out of Goldman’s foundation, this is coming out of the investment side of their house. When they approached this, they looked at it from the perspective of meeting their standards of entering into an investment,“ Deputy Mayor Gibbs said.