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Sun March 24, 2013

Goldman Sachs Hopes To Profit By Helping Troubled Teens

Originally published on Sun March 24, 2013 7:07 pm

In the New York City prison system, the outlook for juvenile offenders is bleak. They're falling through the cracks, being arrested repeatedly, and being re-released onto the same streets only to be picked up again.

The criminal justice system is failing these 16- and 17-year-olds, says Dora Schriro, the commissioners of the city's Department of Corrections.

"Just about half of them are going to return to jail in less than a year of their release from our system," she says. "And so that means right now one out of two is failing. They're being rearrested, charged with new crimes, and coming back."

So last year, the New York City Department of Corrections did something no other city in America has ever done — it asked for private, corporate investors. Goldman Sachs opted to invest $9.6 million in the Adolescent Behavioral Learning Experience program, a new curriculum that seeks to bring down the number of youth offenders going back to prison.

Social Impact Bonds

Alicia Glen, the director of the Goldman Sachs Urban Investment Group, says the company is investing the money over four years. It's what's called a "social impact bond." Glen says it's a a new way of thinking about financing social goods.

"Essentially what it is, is saying we can use private capital to finance a government-sponsored program," she says. "So you have the private sector paying for the service, and then the government saying if the service works, we will pay you X dollars based on the level of impact that's achieved."

New York's program is the first one in the U.S. Schriro says the city hopes that by teaching kids basic coping mechanisms, the city can reduce by 10 percent the number of kids getting rearrested.

Glen says if recidivism rates can be reduced, Goldman Sachs stands to see a return on investment. But there's still a financial risk, she says.

"If this program doesn't work at all, the city will not be repaying back our loan," she says. "So we hope and expect the program will work, and if we in fact ... are right, that they can achieve a real reduction in recidivism, Goldman Sachs stands to make $2.4 million on their investment."

Who Should Take Responsibility?

Not everyone is comfortable with the idea of a big bank making a profit off a government program. Mark Rosenman, who directs the nonprofit Caring to Change, which helps nonprofits and charities decide how to get funding, says this move might be detrimental to nonprofits working on these issues.

"I think it is building a new industry of intermediaries — of consultants, of lawyers, of accountants — lots of people who are going to be involved in structuring these bonds and who will drain off resources that would otherwise go to nonprofit organizations," Rosenman says.

He also says letting private companies invest in social programs undercuts the role of government.

"We're substituting private profit for public responsibility," he says. "We are in effect saying that the market can support these activities and make a profit and allowing government to walk away from supporting the activities."

Scarce Resources Makes For New Partners

But Schriro says the Department of Corrections isn't walking away from its responsibility — the agency just can't afford to be picky when it comes to funding.

"There are scarce resources, and correctional systems and other public service agencies look to partners in the philanthropies. But those are fixed resources," she says. "We're very very excited about the possibilities that the social impact bond provide."

It will be a little more than three years before the success of New York's social impact bond experiment is clear. In the meantime, other U.S. cities, including Boston and Fresno, Calif., are considering similar proposals.

Schriro says it is only fitting that big companies should invest in making their communities better.

"We all benefit from safe and secure communities," Schriro says. "To have a viable criminal justice system is just as critical to those who work in a community as to those who live there."

Copyright 2013 NPR. To see more, visit http://www.npr.org/.

Transcript

DON GONYEA, HOST:

It's WEEKENDS on ALL THINGS CONSIDERED from NPR News. I'm Don Gonyea.

Coming up in the show, the story of one New Jersey town, a chemical company and a cancer epidemic.

But first, the New York City jail system has a problem: juvenile offenders. Kids are falling through the cracks, being arrested over and over and being re-released onto the same streets only to be picked up again. The problem is made worse by two laws.

DORA SCHRIRO: New York state is one of just several states left in the country where you are directed to the adult criminal justice system if you commit a misdemeanor or felony crime at 16 years of age or older.

GONYEA: Dora Schriro is the commissioner for the New York City Department of Corrections.

SCHRIRO: There's an overlap between individuals of compulsory school age 16 and 17 in New York with the criminal laws of the state. So the New York City Department of Education operates a high school on Rikers Island for young adults of public school age.

GONYEA: A school for jailed kids, many of them violent, but all of them still young enough that the school system owes them an education. And Schriro says right now, the Rikers Island system is failing them.

SCHRIRO: Just about half of them are going to return to jail in less than a year of their release from our system. And so that means right now, one out of two is failing. They're being rearrested, charged with new crimes and then coming back.

GONYEA: So last year, the New York City Department of Corrections did something no other city in America has ever done: They asked for help from private corporate investors. They wanted to know would a company consider helping them reduce the number of rearrests among the Rikers Island kids. If it worked out, the company could make a profit. The answer surprisingly was yes.

SCHRIRO: Golden Sachs is investing $9.6 million over four years.

ALICIA GLEN: Essentially what it is, is saying that we can use private capital to finance a government-sponsored program.

GONYEA: Alicia Glen directs the Goldman Sachs Urban Investment Group.

GLEN: You have the private sector paying for the service, and then the government saying if the service works, we will pay you X dollars based on the level of impact that's achieved.

GONYEA: It's called a social impact bond, investing private money in a public good. New York's program is the first one in the U.S. that nearly $10 million invested by Goldman Sachs will fund a curriculum in the Rikers Island high school that everyone hopes will help kids stay out of jail. In many ways, it's more like parenting than like schooling.

SCHRIRO: Beyond the hard skills that you learn in the classroom, there are all sorts of other challenges that this population faces: how to make good decisions, how to problem solve without your fist, how do you develop higher senses of reasoning that go beyond meeting your own needs and begin to contemplate what the needs are of others, and what your responsibilities to others are.

GONYEA: Commissioner Schriro says the city hopes that by teaching kids basic life skills, then the city can reduce the number of kids getting rearrested by 10 percent. Alicia Glen of Goldman Sachs hopes so too.

GLEN: We actually will get no return of our capital back at all unless the city achieves at least a 10 percent reduction in recidivism. So if this program doesn't work at all, our loan - the city will not be repaying back our loan. And if we, in fact - as we all collectively - are right that they can achieve a real reduction in recidivism, Goldman Sachs, you know, stands to make $2.4 million on their investment.

GONYEA: Not everyone is comfortable with the idea of a big bank making a profit off a government program. Mark Rosenman directs the nonprofit Caring to Change, which helps nonprofits and charities decide how to get funding.

MARK ROSENMAN: I think it is building a new industry of intermediaries - of consultants of lawyers, of accountants - lots of people who are going to be involved in structuring these bonds and who will drain off resources that would otherwise go to nonprofit organizations.

GONYEA: Plus, he says, letting private companies invest in social programs undercuts the role of government.

ROSENMAN: We are substituting private profit for public responsibility. We are, in effect, saying that the market can support these activities and make a profit and allowing government to walk away from supporting the activities.

GONYEA: Commissioner Dora Schriro says New York's Department of Corrections isn't walking away from its responsibility. The agency just can't afford to ignore such a potential source for funding.

SCHRIRO: There are scarce resources, and correctional systems and other public service agencies look to partners in the philanthropies. But those are fixed resources. We're very, very excited about the possibilities that the social impact bond provide.

GONYEA: Schriro says it's only fitting that big companies should invest in making their communities better.

SCHRIRO: We all benefit from safe and secure communities. And to have a viable criminal justice system is just as critical to people who work in a community as for those who live there.

GONYEA: The success of New York's social impact bond experiment won't be clear for several years. In the meantime, other U.S. cities, including Boston and Fresno, are considering similar proposals. Transcript provided by NPR, Copyright NPR.