February 21, 2012; Source: WSLS | The decisions of Lynchburg, Va. city officials regarding the Community Development Block Grant (CDBC) program reflects a very troubling example of localities cutting nonprofits out of funding streams that they typically used to provide needed social safety net services.

The CDBG program is distributed to eligible localities and states by formula. Most CDBG recipients use up to 15 percent of the grant to fund service providers whose programs complement what a locality is trying to do to promote community development. Lynchburg’s CDBG grant is only $649,283, but the city’s grant advisory committee (comprised of City Council members and citizens) faced requests for some $1.3 million—including $290,000 to pay back a private developer’s loan that the city had guaranteed. 

Normally, that level of demand for limited resources leaves CDBG advisory committees flummoxed and various nonprofit claimants frustrated. For Lynchburg, it was easy, in part due to a new city policy that basically eliminates nonprofit applicants from CDBG funds. Starting this year, the city isn’t even considering nonprofit applications for CDBG money unless the city or a city department sponsors the application. That cut the number of nonprofit applicants down to a handful as the advisory committee plowed through its agenda, relegating nonprofits to the sidelines.

Lynchburg acknowledges that the whirlpool sucking money out of the CDBG program is the mixed-use Bluffwalk Center project. “It’s sick, quite frankly,” said City Council member Jeff Helgeson. “I wish they [Bluffwalk] would pay … I think all of the nonprofits who’ve been taken out of the mix deserve a free room and meal from them.”

Before federal subsidies for nonprofits fall prey to Congressional budget cuts, nonprofits will be feeling their losses as local governments decide to feed themselves and pay for their own operations rather than paying for nonprofit service providers. This story is a powerful reminder that to fully understand what is happening to the nonprofit sector, it is critically important to keep up with actions being taken at state and local government levels, not just the big policy and appropriations fights in Washington.—Rick Cohen