Goldman Sachs Hopes To Profit By Helping Troubled Teens Goldman Sachs has invested $9.6 million in a new initiative for juvenile offenders in the New York City prison system. While the Department of Corrections needs the money, some wonder if private investment has a place in government agencies.

Goldman Sachs Hopes To Profit By Helping Troubled Teens

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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.

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