A Social Impact Bond is a way to get private investment behind new public programs with the potential to save governments money or otherwise produce a positive social result. This funding mechanism makes the most sense when governments want to adopt large-scale initiatives that are backed by a solid body of evidence. A government entity and a private investor agree beforehand on the types of outcomes that will constitute success, and then the private investor funds the program’s delivery and operation. When a reliable third-party evaluation confirms that the services have delivered the agreed-upon outcome, the government reimburses the investor. The mechanism has been used a few times experimentally in the United Kingdom, but the current MDRC project is the first time it has been tried in the United States.
In this case, the goal is to reduce the recidivism rate among adolescents (those 16 to 18 years old) incarcerated at Rikers Island. Currently, nearly half of these young people return to Rikers within a year of their initial release, and the typical adolescent released from Rikers Island will spend more than 200 additional days in jail over the next six years. Because incarceration is so expensive — costing the City of New York more than $85,000 per inmate per year — cutting the recidivism rate could save the city a great deal of money. It could also reduce crime, improve the lives of those young people, and lessen jail’s corrosive effect on them, their families, and their communities.
The study is evaluating a program called the Adolescent Behavioral Learning Experience (ABLE). It is part of the Young Men’s Initiative launched by former Mayor Michael Bloomberg, which aims to improve the lives of young men of color. Goldman Sachs has put up $9.6 million to fund the program, of which $7.2 million is guaranteed by Bloomberg Philanthropies. If the project reduces recidivism by 10 percent, the city will pay back Goldman Sachs that $9.6 million; if it reduces recidivism by more than that amount, the city will pay an additional return on a capped, sliding scale. Even taking those additional payments into account, reductions that beat the 10 percent target should still save the city significant amounts of money.