08/21/2012 01:12 pm ET Updated Oct 21, 2012

Mayors Lead the Charge For Innovation

Mayor Bloomberg's City Hall got everyone's attention earlier this month when it announced that a private bank, Goldman Sachs, is investing in services to young inmates on Rikers Island -- and stands to make a modest profit.

This investment will allow New York City to provide a highly effective cognitive-behavioral therapy program to roughly 3,000 incarcerated young people on Rikers this year alone, preparing them to make better decisions once they leave jail. The need for the program is clear: One of two adolescents leaving jail today ends up back behind bars within 12 months.

This new service is made possible by an innovative financing instrument called a social impact bond. It's a contract in which private investors, such as banks or foundations, pay a nonprofit group to deliver a service that improves social results and saves taxpayer money. That service is delivered at no upfront cost to government. If goals are achieved then the city pays the principal and interest. If targets are missed, the investors lose money.

It's a significant development that boosts accountability for taxpayers. The government only pays for success -- a radical departure from typical government contracts that fund activities rather than results. It's no stretch to think that within the next decade, cities and states across the nation will come to see this innovation as a go-to financing strategy.

Imagine, for a moment, finding the next handful of public-sector innovations with this same kind of potential to solve problems in lots of cities.

That's exactly why we launched the Bloomberg Philanthropies' Mayors Challenge -- a competition for U.S. cities to develop new ideas that solve major challenges and improve city life.

The goal of the Challenge is to inspire a new round of public problem solving in urban centers -- and to promote the boldest ideas with the greatest potential to spread.

The response has been phenomenal. Nearly 400 cities have joined a process that will require real time, energy and political capital. Local leaders are holding Twitter town halls, launching local ideas competitions and developing cross-agency and cross-sector teams to assess problems and brainstorm solutions. News articles are bubbling up across the nation in which community leaders and citizens challenge themselves to think outside the box to find solutions that could help their city win.

City Halls will submit their ideas by mid-September, and a selection committee will narrow the field down to 20 finalists. Teams from these cities then will attend Bloomberg Ideas Camp in New York City in mid-November, where they will work with one another -- and with innovation and performance experts -- to further strengthen their proposals. We'll announce the five winners -- including a $5 million grand prize winner -- in spring 2013.

What are we looking for in applications? The Mayors Challenge does not dictate which problems to solve; instead, it asks local leaders to identify the issues that matter most to them and their communities. These ideas might enable government and its partners to better address social or economic challenges, create efficiencies, improve customer service and meaningfully engage its citizens. Some of the more interesting ideas -- like Chicago's pioneering 311 system or Mayor Bloomberg's social impact bond -- allow government to deliver in several of these areas at once.

Just as we hope cities get inspiration from one another as they participate in the Mayors Challenge, we drew inspiration for using competition and collaboration to spark innovation from Nesta, the United Kingdom's leading foundation for innovation.

I spent a few days with the group last summer in Birmingham, England, as they convened teams from various local governments as part of their Creative Councils program, an inspiring effort to help local governments develop bold solutions and support the spread of those ideas. Their program is generating some exciting new approaches. The city of Stoke-on-Trent, for example, is embarking on a strategy to become energy self-sufficient, while the town of Wigan is tapping underutilized resources to create a new economic model for services for vulnerable residents.

In the process, Nesta has fostered a discussion about the need for innovation in local government and the skills and conditions necessary for it to flourish.

It's a conversation we hope to fuel in the United States.

Mayors around the nation are working to meet increased demands with fewer and fewer resources, making the need for public-sector innovation more important than ever. The Mayors Challenge will shine a spotlight on the pragmatism, ingenuity and can-do attitude found in so many of our best local leaders -- and the essential role they must play in moving their cities and our country forward. Stay tuned.

JAMES ANDERSON leads the government innovation portfolio at Bloomberg Philanthropies. Previously, he served as the communications director to Mayor Bloomberg.