Goldman Sachs to invest in NYC jail program

Goldman Sachs will invest nearly $10 million in a New York City jails program, using an innovative financial instrument through which private investments fund public social services, Mayor Michael Bloomberg said on Thursday.

Goldman will create one of the nation's first "social service bonds" to help fund a city program that aims to lower the 50 percent recidivism rate among youthful offenders jailed at Rikers Island.

Unlike similar proposals being developed elsewhere, most of Goldman's "Rikers bond" will be guaranteed by Bloomberg Philanthropies, the mayor's philanthropic group, which will back $7.2 million of the $9.6 million investment the bank plans.

Bloomberg called juvenile offender recidivism in New York City an entrenched problem. "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," he said in a statement.

The four-year program, in which private nonprofit groups will provide education and intensive training and counseling to at-risk incarcerated youths, must reduce the recidivism rate by at least 10 percent for Goldman to recoup the investment.

If the recidivism rate drops further, Goldman could profit up to $2.1 million beyond its original investment, according to Samantha Levine, a spokeswoman for the city. If the program fails to reduce recidivism by 10 percent, Goldman could lose $2.4 million.

Social impact bonds partner local governments with nonprofits and private investors in deals that require a government to pay out only if a social services group can meet a specified performance goal.

It is unclear how popular philanthropic bonds will be, given that profits depend on societal improvements. But the notion of social impact bonds is politically attractive: cash-strapped municipalities risk little on innovative social programs and investors benefit from being seen as socially conscientious.