Bank of America Merrill Lynch is using a new financial tool to help fight to keep people from going back to prison.
The bank has raised $13.5 million through Social Impact Bonds hoping to prepare those released from prison with skills that would keep them out of jails and prisons, according to Robert Milburn writing for PENTA Magazine. Social Impact Bonds are investment opportunities that may produce a profit for private investors, if successful.
Tina Rosenberg of the Opinionator first reported on the bonds in Peterborough, London. Government agencies, historically short on cash for social programs, guaranteed private investors a return on investment bonds for programs that produce results, according to Rosenberg.
Investments
Government agencies repay private investors their principle investment, plus a profit as social programs achieve measurable goals. If goals are not reached, the government pays nothing.
Former New York City Mayor Michael Bloomberg was the first to bring the new approach to America, according to Milburn. In 2012, Bloomberg tackled recidivism rates among incarcerated youth with a program introduced at Rikers Island, New York City’s massive jail system.
Bloomberg’s proposal for his ABLE (Adolescent Behavioral Learning Experience) program provided “evidence-based intervention to 16-to-18 -year olds in the Department of Correction’s custody at Rikers Island and after release in the community.”
Bonds
However, the Bank of America deal is thought to be important for the future of Social Impact Bonds in America, according to PENTA Magazine. The financial structure of the Bank of America deal places most of the risk on Bank of America and not on a foundation or the government. This structure makes the deal more like a true investment rather than a charitable donation, according to Milburn.
If the Bank of America Social Impact Bond proves to be profitable, more wealthy investors may utilize this method to fund effective programs while weeding out less effective programs. Additionally, the pool of corporate and wealthy private investors could increase pumping much-needed private funds into social programs facing cutbacks from government sponsors.
