Level Emphasis (local, state, national): Any
Location Emphasis (rural, urban, suburban): Any

Incentivized Behavior
Current: Funded project where bank owners profit
Goal: Funded project where community members profit

Potential Financial Effects
No Effect Expected. Assuming the government gives the same rate of return to community as they would have to outside loan/bond holders. It’s possible community members would be willing to participate at a lower rate, as they will be getting the project’s benefit on top of the financial return.

Introduction
Often times a community doesn’t have the funds upfront for a large project. To allow for the project to be funded the government will take out a bond/loan to pay for the project. The bond/loan would be for a significant length of time years/decades.

The bond/loan pays interest on top of the principal to the bond/loan holder increasing the total cost of the bond/loan. The interest is the profit the bond/loan holders gain from providing the funding. Generally this interest will go people outside of the community.

Proposed Solution
By focusing on getting bond/loans funded from the community, the profit for projects that benefit the community can also go to the community. Given that governments are generally stable, this would allow for a low risk area for community members to invest their money that also provides a benefit to their community as a whole.

If a bond/loan does not reach the required threshold to fund the project, traditional funding agents can be sought to bridge the gap, allow for the project to proceed with at least some of the profit going to community members.

In Practice
Community members would sign up for the bond/loan/fund with how much they would be willing to invest.

If there are more people/money than required, the selection of individuals could done by first to sign up, a lottery, or a percent (alt. equal) amount from all members that reaches the required total. I would suggest a percent or equal amount from all members to get greater buy-in from the community and spread the profit more broadly. Of course if some members’ allotted contribution is less than the calculated average, those members’ contribution would only be to their limit and the remaining members average contribution would be higher as a result.

As often happens, unexpected expenses occur and some of the funding members may need to withdraw their allotted funds. This would be allowable assuming there is someone else to take their place. Alternatively, an additional bond/loan could be obtained to cover the deficit, with the withdrawing member taking any penalties (ex. due to interest rate being higher than when the fund was originally obtained).

To keep things from being too chaotic, there would likely need to be set times for withdraws (monthly or quarterly). Anyone who wished to withdraw funds would need to signal that with significant advanced warning of the withdrawal windows (ex. 30 days).

Expansion
While this is intended for community projects, this could be expanded to reduce costs to home buyers or home owners, by providing mortgages at lower rates or buying out existing mortgages and providing replacements at lower rates.

As individuals can default on their mortgages, their home would need to be used as collateral and be worth what the community loan was worth.

This could also be expanded to business or startups, though I expect that those types of loans would need higher collateral, as businesses have a significant failure rate, and their assets are unlikely to cover any large loan.

These types of loans would, of course, be subject to the same community member opt-in/selection that community projects would be. As in they would have to actively signal that they wanted their provided funds to be available for these use-cases.

Contract Type Overview
Bond: a fixed-income loan, issued by corporations and governments to multiple investors. Treasury Bonds mature after 20 to 30 years. However, short-term bonds (those with maturities under 3 years) also exist. [Ref 1]

Loan: a structured agreement between a lender and a borrower. In exchange for receiving money, the borrower agrees to repay that amount (called the principal), plus interest. Some loans may require collateral (an asset that secures the loan in case the borrower can’t pay). [Ref 1]

Risks/Mitigations

1. Risk (“Spending Spree”): Local government sees a large amount of available funds and starts to fund projects of dubious benefit.
   Mitigation: By allowing community members to select only what projects they are willing to fund can help prevent projects of dubious merit.

2. Risk (“Government Bankruptcy”): If the government goes bankrupt the community members can lose their invested funds. This bankruptcy could be from mismanagement or active corruption, where government officials siphoned funds to individuals and/or businesses which caused cost overruns.
   Mitigation: Transparency of government activity and oversight by community members can reduce this risk.
   Additionally, projects that require the awarded business to takeout a “Lifetime/Completion Bond” (discussed in “Purchasing (Guaranteed for Lifetime)” proposal) can somewhat mitigate this risk, as an insurance company would be the backstop to any failure of the awarded business to complete work.
   Another potential option is higher government backing (Ex. in US bank accounts are backed by FDIC or NCUSIF up to $250k). [Ref 2]

Sources
Ref 1: https://www.citi.com/personal-loans/learning-center/basics/bond-vs-loan
Ref 2: https://www.experian.com/blogs/ask-experian/fdic-vs-ncua/

Edit: Removed duplicate words.