More than 300 cities entered the contest, which is called the "Mayors Challenge." It sought ideas from the nation's mayors in how they would use the money to make improvements.
Chicago Mayor Rahm Emanuel said he wanted to use the grant to create a data-driven "predictive analytics platform" to track trends and allow city leaders to identify problems before they are obvious.
Providence, Rhode Island, won first place and will get a $5 million grant for an idea that uses technology to track the number of words children are exposed to every day.
Chicago was one of 305 cities that pitched an idea to the contest designed to spur innovation in America's cities. Houston, Philadelphia, and Santa Monica, Calif., were selected for the $1 million runner-up prizes.
The selection committee at Bloomberg Philanthropies selected Providence's proposal because it takes a new approach to a systemic problem and could be replicated in other cities.
"Mayor Taveras found an evidence-based solution to a major challenge - the word gap for low-income children - that has potential to move us forward in a cost effective, scalable, and sustainable way," Bloomberg said in a statement. "The Mayors Challenge aimed to find the most powerful ideas that have the greatest potential to spread - and each of these five mayors knocked it out of the ballpark."
One third of Providence children live in poverty, and two-thirds of kindergarten-age children enter school already behind on national school readiness benchmarks. Less than half of Providence fourth-graders are deemed proficient in reading and math, and roughly one third of city students will drop out of high school.
The city, which has tested the proposal in a small-scale pilot initiative, cites research that show that similar programs can boost the number of words spoken to a child by 55 percent. Data from the project will also help city and school officials target literacy and educational programs to neighborhoods and residents who need it most, according to the mayor's office.
The other pitches submitted to Bloomberg Philanthropies included Milwaukee's plan to promote urban agriculture in vacant lots and Phoenix's proposal to create "smart energy districts." Applications came from cities in 46 states, according to James Anderson, who oversees government innovation programs at Bloomberg Philanthropies.
"We're trying to encourage a bold round of public-sector innovation to help a handful of these ideas take root," Anderson said. "There were many, many more good ideas than there were prizes."
When Bloomberg's contest was first announced last year, Taveras' advisers brainstormed several ideas before the mayor settled on Providence Talks. Taveras said his decision was based on his own experience growing up poor - and the birth of his daughter, now a year old. He said he was "thrilled" that Bloomberg chose Providence, a city that has struggled in recent years with high unemployment and yawning budget deficits.
"Improving education helps everyone," he said. "It helps develop the leaders of tomorrow. It helps economic development. It means having a safer city, a healthier city. This is a blessing and we are grateful."
The Associated Press contributed to this report.