Promising Impact? Mayor Bloomberg and Goldman Sachs

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John Last 1Sometimes it seems there is an inherent conflict of interest between those who work in the field of juvenile justice and their goal of reducing youth involvement with the system.

Providing a quality program that reduces recidivism, lessens the length of detention, or lowers the overall number of incarcerated youths can, in the long run, lead to the closing of facilities, shrinking allocations, and fewer jobs. Success can lead to obsolescence. There seems to be a built-in reverse incentive structure, where success never goes unpunished.

This is not to say there aren’t a lot of good people doing this work, people who are dedicated to working toward something positive, and a lot of innovative strategies have been developed that seem to be working. Partially it is a question of money. In these days of low tax revenue for states, funding is hard to come by, and without money it is difficult to hire the best people or implement new solutions. Despite claims to the contrary, governments overall do not make money on incarceration.

Some people make money providing services to prisons, and private prison operations like Correctional Corporation of America and others face frequent criticism and accusations of profiteering and having no dedication to rehabilitative goals.

One interesting proposal to fix this problem is known as a social impact bond. An August 2, article in the New York Times outlines a plan put forward by New York City mayor, Michael Bloomberg, to allow Goldman Sachs to invest $9.6 million in the form of a loan to pay for a program aimed at reducing reoffending by adolescent men held at Riker’s Island.

For the city it is an opportunity to test drive an approach that brings private money to public problems. The bonds were pioneered in England, and are being tried out now in Australia. New York is the first city in the United States to use them. If the proposed plan, overseen by social services provider MDRC, reduces recidivism by 10 percent, Goldman gets the investment back. If the recidivism rate is lower it can make a few million dollars; higher, and it loses money.

The model allows for the city to invest in programs with measurable outcomes, and to reward investors who pony up the money needed to implement them. If the program fails it won’t be replicated. The hope of the Bloomberg administration is that the funding scheme will give rise to effective, evidence-based programs, all with little risk to the city’s coffers.

A report written by Jeffery B. Liebman of Harvard outlines the advantages and challenges of this kind of funding, and overall finds that it will streamline the process of implementing effective solutions in a way that can be tracked and quantified. Others, like Mark Rosenman are skeptical, and fear what could happen when government hands over responsibility for funding to investors. Writing last year in The Chronicle of Philanthropy, Rosenman,  a professor emeritus at Union Institute and University in Cincinnati, argues against any efforts to commercialize services to those in need. In his view, the virtues of social action, including compassion and altruism, will be lost if the major motive towards investment is the bottom line.

I wonder though. To me it seems worth a try. In England similar efforts have produced good results, according to an op–ed piece by former Times editorial writer Tina Rosenberg. Programs to reduce the recidivism rates of repeat offenders seem to be working. Perhaps the plan will work in New York as well, and will manage to bridge the gap between the sources of money and the inherent conflict of interest that hampers other funding schemes.



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