Goldman Sachs Invests In Rikers Island
It’s not the first place you’d expect an investment bank to be putting its money but Goldman Sachs is seeking to turn a profit by investing in city jails. It’s an unusual public-private partnership that officials say is the first of its kind in the country. NY1's Bobby Cuza filed the following report.
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An investment banking company is investing in an unlikely place - New York City jails.
It's part of a concept known as social impact bonds. Goldman Sachs, the investment banking behemoth, is essentially making a nearly $10 million loan to fund a program on Rikers Island that aims to reduce the reincarceration rate among youth ages 16 to 18.
“This group does not fare all that well," said Correction Commissioner Dora Schriro. "That’s not a secret. In the course of a year of release, about half return to the department’s custody.”
Goldman Sachs makes money on its investment only if recidivism goes down by more than 10 percent. Any less, and Goldman Sachs loses money.
In the best case, the investment bank could turn a $2 million profit, paid for out of the savings the city achieves by housing fewer inmates. The city is further protected by a $7 million grant from Mayor Michael Bloomberg’s philanthropic organization, guaranteeing Goldman’s loan.
“This is a great deal for government because there’s no risk, essentially," said Deputy Mayor Linda Gibbs. "The risk is born on the private investor side and the government pays only if the taxpayers actually achieve savings.”
The plan builds on the mayor’s Young Men’s Initiative, which seeks to improve outcomes for black and Latino youth. It also reflects his bent for public-private partnerships. While some argue a profit motive has no place in delivering social services, those spearheading the program say cash-strapped governments have to get creative.
“If we’re going to come up with ways to fund innovation and do better in reaching the goals, we do need to find new resources that we currently haven’t tapped,” said program administrator David Butler.
Under the 4-year program, the estimated 3,000 adolescents who do time at Rikers every year will receive training, education and counseling. If the social impact bond program is successful, it could be expanded to other areas of city services that are typically underfunded.