Who Regulates CDCs?

Reviewed: June 12, 2024

Visitor Question: Who has the authority to regulate what a CDC does? The one that is active in my neighborhood is now proposing a development that seems self-serving for one of the officers, and on top of that, they aren't seeking our opinions as residents at all. Who can we complain to?

Editors Reply: For the benefit of all website readers, "CDC" here is an acronym for community development corporation.

The answer as to who can regulate aspects of CDC behavior varies from state to state in the U.S. Often the Secretary of State's office, or a comparable office that deals with incorporation of non-profits and businesses, has some authority over what the corporation does in a business sense.

Your first step should be to determine how the CDC is incorporated in your state (profit or non-profit, and what type of each where applicable). Then you could find out whether your state has any laws related to corporate officer behavior in terms of conflicts of interest.

You should be able to do the first part yourself, in which you find out what type of corporation you are dealing with. States typically have a search function on their websites to allow you to have access to names and contact information for corporation, and certainly those would tell you the type of corporation and whether it is current on any required filings of its officer and board member names, official mailing address, and other details.

But then you may need an attorney licensed in your state to help you chase down all of the relevant state laws that might apply. We don't know of any state that has an article or section of its laws that deals with CDCs explicitly and exclusively, so such provisions might be scattered throughout state statutes.

There is no single body of federal law that applies to all community development corporations either. Again, depending on the specific activities of your CDC, some federal law might apply, but only because of some particular aspect of its operation, not because of its existence as a CDC.

So in a sense, the answer to your question is that nobody regulates CDCs, and your watchfulness on behalf of your community is very appropriate.

Nonetheless, you may have some leverage over your CDC. Find out if your city has any written agreements with the CDC that possibly are being violated. Many times a city attorney will insert language about good corporate behavior in general into contracts that the city might have with the CDC regarding real estate development, service delivery, or citizen engagement. Depending on the size of your city, you may be able to take a city attorney aside at the close of a public meeting and ask him or her to check on this.

At about this point, we need to make sure that you are working in concert with any neighborhood association that exists in your area. A neighborhood association is a membership group of residents, as opposed to being a private but community-spirited corporation such as a CDC. In some places, the CDC acts as the neighborhood association (although we think it is good practice to have both), but if you are lucky enough to have a separate neighborhood group, be sure you are working with them, even if you are normally not active in that group.

Many times neighborhood activists and neighborhood organizations neglect to have a direct and pointed conversation with the CDC president, or even more importantly the CDC's attorney, about what is happening. All of these people may be buddies and very reluctant for confrontation with one another, but you don't know this until you try. Even in the somewhat likely event that the whole board knows about this and has chosen to take a blind eye to it, let them know that you are watching.

You also might want to take your situation to the media; if you have any investigative reporters, give them a tip, especially related to possible corruption on the part of a CDC officer. The most professional of reporters will respect your need to remain anonymous to the extent possible. Exert some dignified pressure through social media as well, if you are sure of your facts and ready to deal with any retaliation that might come your way.

Another way to exert pressure might be to appeal to donors to the CDC. Any time a CDC is large enough to undertake a development project, some corporations, foundations, or individuals are giving them some real money that's beyond pocket change. Find out who these people are, if possible, and tell them what is happening. Look at past publicity from the CDC; usually they will put the names of sponsors and funders on their posters, flyers, and publications.

Foundations are sensitive to such issues and might become major allies. Corporate giving managers likewise are apt to care about allegations of impropriety, although their reaction is by no means guaranteed. Corporations are somewhat likely to just refrain from donating to the CDC next time without ever challenging the CDC's behavior, but foundations are more likely to take the time to confront.

If the combination of your sleuthing and your new knowledge of applicable state law makes you reasonably confident that laws are being violated, you may want to visit your local prosecutor's office to request that they investigate further.

Follow these steps, and in a few weeks you will feel as though you have done all you can do about this matter.

This answer ignores the many other regulations a CDC has to follow, just as any other resident or corporation would be obligated to do. A CDC also is subject to zoning, building codes, environmental requirements, and all the rest.

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