What We’ve Learned So Far About Social Impact Bonds
Date:  01-02-2014

Lessons from New York City which had the first operational SIB in America
George T. McDonald, founder and president, and president of the Doe Fund was quoted in an article posted on July 18, 2012 article by Reentry Central as saying:

“The concept, called a social impact bond, is deceptively simple: private investors put up money to finance preventive social services. The investors, service providers, and government agree on a set of objective statistical measures to assess how well the providers perform. If the organizations achieve the agreed-upon goals, like reducing the number of former inmates who end up back in prison, government pays back the investors out of the cost savings created by the social services. And if the goals are not achieved, the investors do not get repaid and taxpayers are held harmless.”

In a follow-up article posted on August 8, 2012 Reentry Central reported that the first city in America to begin the social impact bond experience:

“New York Mayor Michael Bloomberg announced on August 2 that Goldman Sachs invested $9.6 million in a promising experiment aimed at reducing recidivism and giving young reentrants the support they need to remain free. The loan was given to MDRC, an organization formerly known as Manpower Demonstration Research Corporation, which evaluates the effectiveness of social policies aimed at low income individuals. Bloomberg, through Bloomberg Philanthropy, has given MDRC a $7.2 million loan guarantee for the Goldman Sachs loan.

The funding will be used by the Adolescent Behavioral Learning Experience (ABLE) to keep young men recently released from Rikers Island from recidivating. At the end of four years, if ABLE has been successful in reducing the recidivism rate by ten percent, the New York City Department of Corrections (NYDOC) will pay back the $9.2 million to Goldman Sachs. The money from the NYDOC will come from the savings incurred from having to house less prisoners. If the recidivism rate drops further, Goldman Sachs stands to earn over $2 million in profit. If the recidivism rate falls below ten percent Goldman Sachs will lose $2.4 million. MDRC will also profit if the ABLE program is successful because they will be able to use the $7.2 million given to them by Bloomberg Philanthropy to fund other social impact bonds.”

Lat month MDRC published a new report, “Financing Promising Evidence-Based Programs, Early Lessons from the New York City Social Impact Bond.” The report will prove to be of interest to those wishing to create SIBs in their city or state, as well as those wishing to see social programs achieve outstanding results, or risk losing funding.

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