“The tendency for former criminals to end up back in prison generates over $50 billion every year in corrections costs nationally. After Medicaid, it is the second fastest growing budget item in the US. Three years ago, Goldman Sachs, New York City, and then-mayor Michael Bloomberg’s foundation aimed to do something about this, and inked a $9.6 million deal to reduce the recidivism rate of youth offenders at Rikers Island Prison using cognitive behavioral therapy.
The transaction, known as a Social Impact Bond (SIB), was structured with no upfront cost to the city and let investors (Goldman) and philanthropists (Bloomberg) assume the upfront risk for the social programs provided to current and former inmates, while the government only had to pay back the investors for the programs that actually worked.?