Private Funding to End Return Visits to Jail

PBS News Hour recently aired an interesting piece on a social impact bet Goldman Sachs placed on a New York City jail program run by the highly respected MDRC and underwritten by Mayor Michael Bloomberg’s personal foundation Bloomberg Philanthropies.

In a nutshell, Goldman Sachs is investing $9.6m (risking $2.4m with Bloomberg Philanthropies underwriting the other $7.2m), with the hope that an MDRC-administered program can measurably reduce prison recidivism rates for male youth that are processed through New York City jails. More detail can be found in the New York Times story by David Chen, and it’s worth reading. Goldman can make as much as $2.1m on the deal if the program proves effective, and there is potentially substantial benefit to the prison system, at risk youth, and those committed to these never ending battles to help jailed young men get themselves right with the law.

There has been some valid criticism of the deal. Goldman is not risking much compared to the potential reward, and it might not be replicable since Bloomberg Philanthropies and other such organizations can not possibly continue underwriting such investments as they are brought to scale. Moreover, if governments actually do the underwriting to this extent, then that would rightly be interpreted as another instance of socializing costs and privatizing benefits.

There are other issues – payoff depends on measures of success, which can be skewed in advance to favor a particular result. A related issue is corruption: MDRC and the City of New York want money for the program, Goldman Sachs will only provide the money if measures of success make it likely to result in the promised return, and Bloomberg Philanthropies wants to avoid having to cover a failed investment. There is no one here whose interest is to skeptically determine whether the MDRC programs receiving the investment actually made a difference.

All that said, we like the fact that New York City is trying this. We like the fact that Goldman Sachs is risking something here, and we hope they continue working with others to shape double bottom line investments that deliver both a financial and a social return on investment. We hope that others will follow this example. It’s important that financial services companies make these kinds of contributions.

We’ve all got to try new things to stop poverty and crime and other societal ills. We’ve all got to be open to ideas and approaches that others bring to the table. Sure it could fail… but it could also succeed.

Good for you Michael Bloomberg! Good for you Goldman Sachs! Good for you MDRC! We’re rooting for your success! That success will be worthwhile indeed if the jailed youth served by the programs, benefit as much as the people executing the financial transaction.

What do you think?

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Finance & Operations, Funding - Earned & Contributed, Institutes and Associations, Justice, Health & Human Services, Programs & Policy