Being good pays

IN A small classroom four teenage boys laugh and roll their eyes at each other’s wisecracks. The instructor, sometimes speaking in Spanish, encourages them to think about their futures. For his family, one says, “I want to buy a big-ass house.” Another wants to work with cars. A third thinks a family reunion would be great. The classroom is on Rikers Island, New York City’s biggest jail. The teens are participating in the Adolescent Behavioral Learning Experience (ABLE) programme, which helps them focus on personal responsibility through cognitive behaviour therapy. The programme’s goal is to cut the re-incarceration rate among the youngsters, and it is funded using social impact bonds (SIB).

A SIB is an experimental financing method which connects financially-stressed municipalities with private investors to fund public projects at no initial cost to taxpayers. Also known as pay-for-success contracts, these schemes began in Britain’s Peterborough prison in 2010. Unlike most funding for social projects, which tend to pay for inputs, SIBs rely on results. New York is the first city in America to try one. Unlike in Britain, which had do-gooder sorts finance its social projects, New York has Goldman Sachs, a Wall Street institution. It is funding the programme to the tune of $9.6m over four years. This is not a charitable donation. Alicia Glen, head of Goldman’s Urban Investment Group, says “it is a real loan.”

If re-incarceration rates for the teens at Rikers drops by 10%, Goldman gets its money back. If they fall further than 10%, Goldman will see a tidy profit. But if rates do not fall by the set target, Goldman stands to lose money. Michael Bloomberg, New York’s billionaire mayor, is a big supporter, so much so that his philanthropy group, Bloomberg Philanthropies, is guaranteeing $7.2m of the loan.

Meeting that goal will be hard, in part because the teens are not behind bars for very long. Many are awaiting trial or transfer, so most stays on the island are of just a few months. This means the non-profits, MDRC, Osborne Association and Friends of Island Academy, who are charged with overseeing and implementing ABLE, do not have much time with each adolescent. Still, Dora Shriro, the Corrections Commissioner, is confident rates will fall by more than 10%.