I don’t see any “downside” to a real-life test of your concept. If one such “town” works, then we can start a PROGRAM.
I guess that, for some, the “downside” would be that there few opportunities for graft if only one such town is built.
A quiet, almost secret is that the US has an increasing number of “geriatric prisons”, exclusively for older prisoners, along with two prisons for prisoners in need of long term hospitalization.
So I imagine the first of these trustee towns would be for those who are older but still able to do some work.