What is it? A productivity bank is a municipal fund used for loans to support programs and initiatives that will help the government save money or even increase revenue. It is often hard for local governments to carve out funds for new innovative ideas. Even if these ideas would ultimately result in government savings, the initial capital is often difficult to secure. A productivity bank can help implement money-saving ideas without requiring major budget revisons and cuts in needed services. The “bank” grants loans to worthwhile projects. The loans are repaid from the savings created. When this money is returned, often with interest, it may then continue to be used to fund new innovative, money-saving ideas.
How has it been used? Philadelphia was one of the first cities to start a productivity bank. It started as a 20 million dollar fund, raised using the sale of bonds. The mission of the productivity bank is to support innovative projects that will save money, generate income, or greatly improve the efficiency of government systems. In its first seven years of existence, the bank provided loans to 16 different projects. The projects are expected to save the city over 70 million dollars. The loans are repaid over five years using the money saved and the funds are then available for future project loans. If a proposed project’s goal is to significantly increase service provision without saving or making money, it can still be funded as long as the loan is paid back from the general fund. So far, the productivity bank has been used to help modernize tax collection methods to find hidden unpaid taxes and to streamline data records and collection in the police department to increase its effectiveness. (Source: Executive Order 1-99: Productivity Bank – Philadelphia and Governing.com)