N.Y. to Try Social-Impact Bonds With $10-Million From Goldman Sachs

Trying the “pay for success” model of funding new programs, New York City will take a nearly $10-million investment from Goldman Sachs to support a criminal-justice program, writes The New York Times.

The banking giant’s participation in the four-year effort to reduce recidivism makes New York the first U.S. city to test the approach, also called “social-impact bonds,” in which private entities supply initial financing for human-service programs and can recoup their investment if the efforts show concrete results and cost savings.

Massachusetts announced Wednesday that it has chosen two charities to carry out its first pay-for-success efforts, addressing homelessness and juvenile crime. New York State; Connecticut. Cuyahoga County, Ohio; and the federal government are at various stages of implementing similar tests.

Goldman will be pay $9.6-million to MDRC, a social-service nonprofit, to design and run the New York program and could profit on its investment if recidivism declines by 10 percent or more.

“Social impact bonds have potential upside for investors,” New York Mayor Michael Bloomberg said, “but citizens and taxpayers stand to be the biggest beneficiaries.”