An examination of city audits and council records reveals millions in long-term loans between municipal funds, raising questions about repayment, oversight, and the use of utility resources.
In June 2015, the Sturgis City Council approved a series of financial transfers to help fund development projects. Among them was a $1,503,000 loan from the city’s Water Fund to Tax Increment Financing District No. 11, a development associated with Scott Peterson Motors. Another $402,000 would come from the General Fund, bringing the authorized financing for that district to $1,905,000.
The arrangement was not particularly unusual in its basic purpose. Cities use tax increment financing, commonly called TIF, to help pay for improvements associated with development. Instead of relying entirely on outside lenders, Sturgis was using money from its own municipal funds, with the expectation that the development districts would eventually repay those advances.
But the financing did not end with that 2015 decision.
By December 31, 2023, the city’s audited financial statements showed that its TIF funds owed $7,924,936 in long-term advances to other municipal funds. Of that amount, $4,907,946 was owed to the Water Fund, while another $3,016,990 was owed to the General Fund.
Nearly $5 million that had been advanced from a fund associated with the city’s water utility was recorded as money to be repaid by development districts.
The question is not simply why Sturgis made those loans. It is how the city expected to recover the money, whether the developments were producing the revenue necessary to meet those obligations, and what effect the arrangements had on the funds supplying the financing.
How the Financing Worked
Tax increment financing is built around an expectation of future growth in property values. When a district is established, a baseline property valuation is determined. As development increases taxable property values, the resulting additional property tax revenue can be directed toward eligible project costs and financing obligations.
The idea is that improvements made today will help generate the revenue needed to pay for them tomorrow.
There are advantages to such arrangements. Developments may require roads, drainage improvements, utilities, or other infrastructure before construction can proceed. A city may decide that helping finance those improvements will encourage investment that otherwise would not occur.
However, the projected increase in tax revenue is not guaranteed. Property values can grow more slowly than expected, construction can be delayed, and financing costs can change.
When a municipality lends money to a TIF district from an existing fund, it also creates a financial relationship between that district and another part of city government. Repayment becomes important not only to the development project, but also to the fund that supplied the money.
Sturgis described its approach publicly in a September 2021 report to the City Council. Finance Officer Fay Bueno explained that the city loaned funds to TIF districts to cover portions of development costs, with the districts repaying the city at a 5 percent interest rate.
The report described several developments receiving this type of financing, including Trailhead, Garden Grove, and Hidden Hills Estates.
Those arrangements help explain how the city accumulated such substantial interfund balances. They also make the repayment history worth examining.
What the 2023 Audit Shows
The city’s 2023 audit provides the clearest available snapshot of these obligations.
As of December 31, 2023, the Water Fund reported $4,907,946 in advances to other funds. That amount represented approximately 27 percent of its reported total assets of $18,231,746.
This does not mean that 27 percent of the Water Fund’s available cash had disappeared. A loan receivable is itself an accounting asset, representing money the city expects to collect. Nor does the balance establish that the loans were delinquent or that the city had suffered a loss.
It does, however, show how much of the Water Fund’s reported financial position depended upon long-term repayment obligations rather than assets such as cash or utility infrastructure.
The distinction matters because a receivable and cash are not interchangeable. A city cannot necessarily use money scheduled for repayment years in the future to meet an immediate expense.
The same audit reported $180,158 in Water Fund cash, along with $143,232 in restricted cash. Those figures cannot, by themselves, establish whether the utility had sufficient liquidity. That requires examining its operating revenues, expenses, reserves, other investments, debt obligations, and future capital needs.
The audit also reported that the TIF funds collectively had a negative governmental-fund balance of $8,206,990. This is a significant accounting figure, but it should not be interpreted as a straightforward measurement of losses. TIF financing relies on revenues expected to arrive over time, while governmental-fund statements recognize certain obligations and resources according to their accounting rules.
To determine whether the districts can meet their obligations, we need the individual repayment schedules, projected tax increments, actual collections, and any contractual commitments made by developers.
Those documents are especially important because the audit describes repayment periods extending from 2025 through 2043, with interest rates ranging from 4 to 6 percent.
Some of this financing was expected to remain outstanding for decades.
The Question of Repayment
Earlier city audits provide more detail about individual TIF districts than the 2023 audit.
The older reports identify certain districts, the municipal funds financing them, and their repayment terms. The 2021 audit, for example, associates Water Fund financing with districts including Scott Peterson Motors, Dolan Creek, Woodland, Trailhead, Garden Grove, and Hidden Estates.
By 2022 and 2023, however, the audits largely presented the advances collectively rather than explaining the financing terms district by district.
That change does not necessarily indicate a problem with the underlying loans. An audit’s disclosures are not a replacement for a complete debt ledger, and the city may maintain detailed amortization schedules elsewhere.
But it makes the public financial statements less useful for determining how much each district owes and whether its payments match the original projections.
One particularly important example is Dolan Creek.
The audits describe a TIF-related obligation associated with District No. 12, with a maximum borrowing amount of $1.9 million including interest. The reported balance declined from $1.9 million in 2019 to $1,115,053 at the end of 2023.
That reduction is evidence of a declining reported obligation. The available records should not be presented as though every development was failing to repay its financing.
There is also a separate note receivable involving Dolan Creek, LLC, with different terms and a different balance. Although the names are similar, the two obligations cannot simply be combined. They represent distinct financial instruments.
Understanding those differences is necessary if we are going to evaluate the city’s broader lending practices fairly.
The City’s Own Concerns
Perhaps the most revealing passage appears not in the 2023 audit, but in the city’s 2025 budget.
In discussing its TIF districts, the city acknowledged that some appeared to be repaying their obligations substantially faster than expected. For others, officials said it was unclear whether the developments were meeting their projected benchmarks.
The budget also indicated that developers would be responsible for covering financing gaps when projects failed to perform as expected. City officials intended to complete an assessment before the 2026 budget process.
That assessment could answer several important questions.
Which districts were performing better than projected? Which were falling behind? How much additional revenue would developers need to provide? And were the city’s existing repayment schedules still realistic?
The 2026 second-reading budget document examined for this investigation includes district-level financial tables, but it omits the promised performance assessment and its conclusions.
This does not establish that the assessment was never completed. It may exist as a separate internal report, council document, or financial schedule. It does mean that the assessment could not be established from the reviewed budget materials.
Given the amount of municipal money involved, its availability to the public would be valuable.
What the Audit Findings Add
The 2023 audit identified weaknesses in the city’s financial reporting, including adjustments involving TIF-related accounting.
One finding described corrections associated with Dolan Creek debt and the classification of amounts between funds. Another identified TIF activity for several districts that had not been properly capitalized.
These findings should not be confused with evidence that the city unlawfully lent money or that developers failed to repay it. They concern financial recording and reporting, although accurate accounting is essential to understanding the obligations.
They also reinforce the importance of obtaining the city’s underlying schedules rather than relying exclusively on summary balances.
At the time of this investigation, the latest Sturgis municipal audit identified in the city’s publicly listed audit records was for 2023. Without reviewing completed subsequent audits and updated schedules, the present status of these findings and the more recent loan balances cannot be established.
Why This Matters to Residents
The Water Fund exists within a municipal utility system that residents and businesses rely upon. Its finances must support the operation and maintenance of that system, along with its future infrastructure needs.
There may be legitimate reasons for a city to finance development from available municipal resources. Such loans can earn interest, support infrastructure construction, and produce economic benefits over time.
But those advantages depend on the terms of the loans, the reliability of repayment, and the financial needs of the lending fund.
A development that performs as projected may repay its financing without difficulty. A development that falls short may require additional payments from a developer, revised financing arrangements, or some other response depending upon the applicable contracts.
This is why the underlying agreements matter. We need to know which obligations are secured, what happens if projected tax revenue falls short, and how the city protects its financial interests.
We also need to know whether the Water Fund’s outstanding advances affected its ability to build reserves, finance maintenance, or prepare for infrastructure improvements. The audit balance alone cannot answer that question.
The Records Still Needed
The central financial arrangement is documented. Sturgis authorized interfund loans for development, subsequently described a broader policy of municipal financing for TIF districts, and reported nearly $4.9 million in Water Fund advances outstanding at the end of 2023.
What remains unresolved is the performance of those loans.
A complete accounting would include the original agreements and amendments, district-by-district amortization schedules, payments actually received, outstanding balances after 2023, and the benchmark assessment referenced in the 2025 budget.
Those records would allow residents to distinguish projects that are meeting their obligations from those requiring closer examination. They would also help establish whether the lending funds have adequate resources for their own responsibilities.
None of the findings examined here establishes that the loans were illegal, that the money was stolen, or that Sturgis suffered a financial loss. Making such accusations without evidence would obscure the legitimate questions the records raise.
The city’s financial statements document millions of dollars moving through a system of long-term development financing. Residents have a reasonable interest in understanding how those arrangements were approved, how they have performed, and when the money is expected to return.
That is the accounting this investigation is seeking.
Editor’s note: This article is part of Ungoverned Money, an ongoing examination of the City of Sturgis’s finances and financial oversight. The principal balances discussed here come from the city’s 2023 audit and represent its position as of December 31, 2023, not a verified current balance. Additional records may clarify or change the findings presented here.