Federal states Lynchburg can't repay self for Bluffwalk

Federal law prohibits Lynchburg from dipping into community revitalization funds to reimburse itself for last year’s six-figure Bluffwalk Center payment, officials revealed this week.

The discovery, which has since been hashed over by both City Council and citizen advisers, puts a crimp in a long-held plan and could potentially cut a major source of grant funding in half. If realized, the loss of revenue would affect both city programs and numerous nonprofits.

Last August, the city made a $257,944 payment on a loan for the Bluffwalk Center, a high-end downtown hotel and restaurant complex. The city intervened, in accordance with the terms of a deal struck in 2002, after the hotel realized it wouldn’t be able to meet the financial deadline.

It was always thought the money would be recouped this year by tapping Community Development Block Grant funds, which come from the federal level but are meted out by City Council for projects ranging from neighborhood improvements to anti-poverty efforts.

Officials have since learned that while CDBG money could have been used to make the payment directly, it can’t be earmarked to repay money already spent.

As a result, City Council has decided to take nearly $326,000 — enough to cover Bluffwalk’s loan payments for the next year — off the table at the outset of this year’s CDBG deliberations.

A total of 30 community projects are competing for a piece of that funding. The hold, which officials said was necessary to guard against future defaults by the hotel, cuts their pool of money by one-third.

Citizen representatives on the Community Development Advisory Committee, which makes recommendations on how the grant money should be used, found out about the decision when they met Friday afternoon to begin their deliberations.

Several objected to the change, questioning whether community grant money should go to a private business and asking why the hotel couldn’t make the payments on its own.

A call made to one of the hotel’s co-owners Friday night was not immediately returned. City Council members said the hold was only a precaution and held out hope the hotel would meet its future payments.

If it does, the money can be re-appropriated for community projects.

City Council, which discussed this issue during its budget session last Tuesday, has not decided how to handle the fizzled attempt at recovering the money spent last year.

Councilmen Mike Gillette and Jeff Helgeson have suggested it be indirectly repaid by using CDBG money to pay for a city project, such as Fifth Street revitalization, and free up local funds for another purpose. No consensus on that point was reached.

The hotel itself is obligated to repay that money at some unspecified point in the future.