Goldman Sachs Inmate Bet Fuels Social-Impact Bonds: Muni Credit

New York City and Massachusetts are turning to a mixture of philanthropy and profit to fund projects tackling homelessness and inmate recidivism, using a program that can offer investors returns as high as 13 percent.

It’s the first embrace in the U.S. of a public-private funding method known as social-impact bonds. Also called pay-for-success contracts or social-innovation financing, the model allows governments to transfer the risk of expanding prevention programs to investors. Taxpayer money is spent only if the results exceed a measurable goal set by both parties.