Okay.
Just quickly, because MDRC isn't a self-explanatory thing—although the letters are the name of the organization—we're a not-for-profit social policy research organization. We've been around for 35 years or so. We basically evaluate and do demonstration projects of interventions to help low-income individuals and families. Our projects involve either evaluating what someone else has developed—we're real believers in very rigorous evaluation, random assignment evaluations—or developing an intervention ourselves, with help, and then studying that. Those are the two arms of our business.
I'm here to talk to you today about the first social impact bond, in New York City, to be implemented in the United States. There were lots of discussions, and probably a number of them should have started earlier, but we were the first ones off the block. It's a project that's providing cognitive behavioural therapy to 16- to 18-year-olds in New York City's Rikers jail, which is the largest jail in North America, I believe, with a huge population, and a huge population of adolescents.
Before I get into a little more of the detail of the program, I'll make a few introductory remarks. I know there's been lots of hype in the debate around pay for success and the social impact bonds. In the States, when we first started the project and there was nothing else happening, that's when the debate was at its fiercest, because usually people debate when they know less about something. When there's less information, there's more to argue about.
In those early days, we heard two...and I took questions about both of these alternatives. There were those who were positively hyping this as a transformative strategy that would get new money from investors for preventive programs, increase government accountability, save money for government and taxpayers, and improve outcomes for at-risk populations. It was a “quadfecta” winner, so to speak, in horse-racing language.
On the other hand, I heard other things when I would talk about our project, that it was just a cynical strategy to privatize services, to polish the sorry reputation of banks while ripping off government and the taxpayer, and leave at-risk populations worse or no better off—a quadruple loser.
Now, I'm not an ideological type. I'm a program evaluator, so I try to be more like my man Friday on Dragnet, “Just the facts, ma'am.” But I had to deal with those questions early on. Fortunately, I think things have changed a little bit now that we've actually started to do some of these things. I think the consensus in the States more is “Let's see whether any of these things really can produce what they claim they can produce, and make our judgments there.” So I'm facing a little bit less both the more strident criticisms and the promotional statements, and facing more the “Well, let's wait and see, give this thing a chance, and see what happens.”
I have to say that we at MDRC, as evaluators, were also a little reluctant to get into this, to start. Evaluators look at programs with a very rigorous lens, and we don't see a lot of things that really work. There aren't a lot of programs out there that are very successful. So then how does one attract an investor to take the gamble on something that may not have a great likelihood of being successful? The only way they will is if they're getting a high rate of return on that investment and there's the ability, or the willingness, of government to pay high interest rates to banks.
It seemed to us that this probably was not going to happen, so we went in with a fair amount of skepticism but with the open mind of an evaluator of let's give it a chance and see what happens.
Now we're about three years into our project, which is up and running. The measures we use to see how we're doing indicate that we're on track to achieve the goals of the program, but I can't tell you that I know that this will happen. The goals of the program are to reduce recidivism by 10%, at a minimum, for our population. Recidivism means return to jail. In our case, it's compared with a historical comparison group of the same age. I don't have that data yet. All I have is the data about the program participation, and the program participation is on track to achieve those goals if the connections between those things play out as they're expected to do.
Our partners in the project are Goldman Sachs. They are providing a loan to pay the cost of this program, a loan that's secured, however, by the Bloomberg Family Foundation. We're the intermediary, so we are the folks who are responsible for kind of pulling the deal together, and more critically I think, for monitoring the ongoing performance and selecting the program intervention.
We have two well-regarded service providers in New York, Osborne Association and Friends of Island, which run the actual intervention. Then we have a partner in the City of New York, through both the department of correction and the mayor's office, which is also involved. It's a partnership with multiple players who have different perspectives on things. We've managed to work reasonably well together. The negotiations and getting the deal together were complex things. It was probably more costly for us than we had anticipated. There were transaction costs around working with a bank. We had to bring in our own Wall Street lawyer so we understood the language. We had to build trust. Everybody kind of had to build trust. But we got to a point where we got the thing up and running. We mounted it. We did a pilot stage. We've run it incrementally, and it looks as through it's going reasonably well.
It's a social impact bond, so if it is successful—and that means if it achieves at least a 10% reduction in recidivism for our population—then the investor gets paid back. If it goes beyond the 10%, investors can earn some interest, up to a rate 20%. That's the interest, and it's capped at that level. We'll see whether we actually get there. A third party evaluator, the Vera Institute, a very well-respected criminal justice evaluating organization, is evaluating the program. We're going to look at impacts on recidivism at one year and then at two years. An important thing, I would say, about social impact bonds, which may be somewhat different from prior pay-for-performance models and something that we think is very important, is that the measure of success is not outcome. It's not achieving a predetermined outcome. It's achieving a predetermined impact, meaning that the program does better than it would have done without the intervention, or the population does better. So that means you have to establish some point of comparison, either a control group if you're doing it really scientifically and rigorously or some legitimate comparison group.
To me that's a great development. For many years we had pay-for-performance contracts that were based on outcomes, but outcomes are easy to manipulate and easy to gain. If you serve a population you think is more likely to succeed, you will get those results, but they don't really tell you if you've made a difference or not. So the idea is that we have a net impact evaluation. I think most of the social impact bonds being proposed do have that kind of evaluation as well.
Another thing I would just say about lessons is that you face the challenge of having a restrictive contract that has some pretty clear terms. When you try to impose that on a program that has to operate in a very flexible changing environment, reconciling those two things can be difficult. In our case, one of the big challenges is that we had a predetermined number of folks we needed to serve, but at the end of the day, the number of people who are in the jail system is not within the control of the program or the control of the Department of Correction. So we built in all kinds of formulas for how to deal with reduced numbers, but it meant going back and renegotiating and rebudgeting. That was a complication. I think we figured out how to do it, and there certainly is some advantage to going in with something that says, “These are the goals you have to meet, and you have to stay on point on this”. But it is a tension, and it is a challenge in the program.
I think I can stop there. I'll just say that we are scheduled to have the interim results a year from August and then our final results in 2016. The payback will occur at the end of 2017. One of the tricky things about these projects is that you have to accumulate the success, the impact over time, before government will have achieved enough savings to be able to pay back the investor.
The last thing I want to say is that I think it's a mistake to think about social impact bonds or pay for success as limited to only projects that result in cost savings. So far, primarily that's been the focus to date, but there are a lot of other goals that in many cases are more important to help the population we care about and that may not lead to cost savings. So—