The Public Finance

1
The Public Finance of Private Communities and
Private Transit Fred E. Foldvary Dept. of
Economics Santa Clara University ffoldvary_at_scu.edu
2
We can recover from smart growth with private
communities. Entrepreneurs seek to maximize land
rent, which optimizes the land use.
3
General Principles

• Optimal price marginal cost.
• Civic works create site rentals.
• Marginal benefits decline.
• Optimal quantity MC MB.

4
Spencer Heath, 1957, Citadel, Market and Altar
Hotel services like a city, but voluntary.
Hotels compete. Services paid from the room
rentals.
5
Spencer Heath MacCallum

• The Art of Community, 1970

Society suffers from schizophrenia. The same
agency that performs public services also
performs disservices, cannibalizing society with
taxation.
6
William Vickrey

• Price services e.g. transit at marginal cost,
  including congestion costs.
• Build if rent generated is greater than cost,
  when users pay MC, often free.
• Rent pays the remaining costs.

7
Fred Foldvary, 1994

• Public Goods and Private Communities
• There is market success providing public goods,
  in theory and in practice.
• Demand is revealed by rent.
• No free riders users pay rent.
• Condominiums, residential associations.

8
Replace zoning and regulations

• Covenants and easements.
• Association deeds and bylaws.
• Proprietary governance.
• Allow secession and tax substitution.

9
Private streets and transit

• Cars pay congestion, pollution charges.
• Jitneys, vans, have curb rights.
• Public transit charging MC if generates rent,
  quantity at MC MB.
• Streets owned by civic associations.
• No proxie taxes, e.g. on gasoline.

10
Replace taxes

• Voluntary user fees, with electronic tolls and
  meters.
• Community assessments.
• Congestion and pollution charges.
• Private and voluntary services.

11
Mass democracy fails

• Rent seeking by special interests.
• Tyranny of the median voter.
• There is no general will.
• Rational voter ignorance not worth knowing
  better.
• Candidates must have the money.

12
Small-group voting

• Little need for campaign money.
• Can personally meet and know candidates.
• Bottom-up power and money.
• Complements private communities.

13
Conclusion

• Replace dysfunctional mass democracy with
  bottom-up small-group voting.
• Replace zoning with covenants.
• Replace taxes with fees, assessments.
• Privatize transit, streets, roads.