Funding Public Transport with a Co-op

Capital is a major cost of Public Transport. Once a system is in place the marginal cost of carrying another passenger is close to zero. A bus with one passenger costs as much to make a trip as a bus with forty passengers.

The cost of Capital consists of the repayment costs and the cost of interest. We can remove the cost of interest by paying investors back in passenger rides where the marginal cost is close to zero. Investors get a return on their investment by getting the passenger rides at a discount. Assuming we have public transport financed with loans at 5% then for each $1000B in loans we save $50M yearly by giving a return on investment with discounted passenger fares instead of interest. It means the marginal cost of loan money is zero.

Users of public transport, if allowed to invest, will accept discounted passenger fares as a return on investment. Doing this removes the cost of interest. A Co-op is a way to enable this form of community investment.

Each Co-op determines the membership rules. A computer application contains the operational rules. Each member receives a copy of the application that only they can use. It enables the rules and records all transactions. Let us call the investments for Public Transport, Public Transport Rewards (PTR).

Possible Co-op Rules

Investors purchase PTRs. They receive a fixed 10% per year return on the PTRs and the PTRs they hold increase with CPI inflation. The value of PTRs comes by using them to pay for any government services as agreed by the government. The Public Transport Authority uses the money raised from the sale of PTRs for Capital Investment in Public Transport. Unused PTRs increase in value with CPI inflation.

The Public Transport Authority works with the Co-op to decide on Capital expenditures and money raising. Because there is no interest cost, it becomes economically sensible to spend Capital on ways to save ongoing costs. Examples of capital expenditure might be making it easier to change modes of transport, of reducing labour costs with self-driving trains, running them more frequently, deploying mass transit systems, and integrating payments and information systems across all forms of transportation.

A 10% inflation adjusted return is a desirable investment and because there is a limit on the amount of Capital needed the Co-op will issue Rights to purchase PTRs. The rules on who can get these Rights are worked out with the government and the authority. For example passengers of public transport could be issued Rights depending on how much they use public transport.

How can a discount of 10% be cheaper than an interest rate of 5%?

PTRs give a discount of 10% fixed but adjusted for inflation. Ordinary loans give a return of 5% compounded. It is counterintuitive, but both cost the Public Transport Authority the same. The reason is that with PTRs there is no interest cost of 5%. The savings could result in lower fares, or they could give higher returns to investors. As the Public Transport Authority now gives 5% to investors, the Co-op can add the 5% in savings to investors giving them the 10%. The difference depends on how long it takes to repay the loans and the inflation rate, but as a rule of thumb, we can double the existing interest rate to give the discount rate.

Other examples

PTRs are an implementation of a “Complex Adaptive System”. ACT Water Rewards Co-op funds water infrastructure. Affordable Housing makes it possible for anyone who can afford to rent to own their dwelling place.