Bay City asks for patience as police and FBI continue investigations at the State Theatre

BAY CITY, MI — Bay City government has broken its silence on the troubled saga of downtown’s State Theatre and its former manager. While the city did not reveal much new information, it asked the public for patience as the criminal investigation continues.

On July 10, the city released a statement in response to numerous recent news articles covering the fallout from the State Theatre’s bankruptcy filing and sale. At the center of the issue is Mike Bacigalupo, the venue’s former manager and Bay City special events coordinator, and the potential mismanagement of funds.

City Manager Dana L. Muscott said the statement was issued to address public misconceptions.

“We wanted to say from the city side what is absolutely true, and that is what is in this press release,” Muscott said.

The city confirmed that the Bay City Department of Public Safety is investigating, with assistance from the FBI. This is the first direct confirmation of FBI involvement other than what Commissioner Ed Clements said in February.

The facts, as reported by the city, are as follows:

• Bacigalupo was employed by the city from April 22, 2016, until Nov. 1, 2023, at which time Muscott terminated him. In his role, he did not have access to city funds.

• At the same time, Bacigalupo served as executive director of the State Theatre, a nonprofit run by its own board of directors. Bay City had no relationship with or oversight of the state.

• In 2019, the State approached the City regarding projects to improve Wenonah Park. The State acted as an independent contractor, under an agreement with Bay City, to program events and maintain the property.

• The Michigan Economic Development Corporation (or MEDC) announced a potential $900,000 grant for improvement projects at Wenonah Park through its Revitalization and Placemaking (RAP) program.

• The potential grant was subject to several conditions. MEDC never issued the funds for the Wenonah Park projects. When city staff contacted MEDC for updated information on the grant, they learned that the name of the grant recipient had changed from the City of Bay City to The State Theatre.

• This discovery initiated an investigation process that resulted in Bacigalupo’s expulsion from the city.

The State Board of Directors dismissed Bacigalupo and the Central Development Authority removed him as its director.

“We are confident that local and federal law enforcement will uncover the facts and ensure that justice is served,” the city concluded in its statement. “City leaders are saddened by this unfortunate situation and are committed to doing their part to help authorities uncover the truth. The legal process will take time, and we ask for the community’s patience as we let law enforcement do their job.”

The State Theatre closed its doors and filed for bankruptcy on March 1, claiming it owed $1.6 million to various creditors. Since June, the property has been up for sale. Interested parties interested in the property (currently listed at $483,000) have until July 12 to submit offers.

Bacigalupo and other former State Theatre officials will be subpoenaed for proceedings in the U.S. Bankruptcy Court for the Eastern District of Michigan.

As MLive previously reported, representatives from the State Theatre reached out to the Bay County Growth Alliance in July 2019, requesting funding for the Wenonah Park Band Shell renovation and construction project.

At a September 2019 meeting between Growth Alliance representatives and the State Theatre, a bridge loan was discussed that would cover the difference between the construction costs of the project and the grants being obtained to fund it. The loan discussed was for $800,000 and the source of repayment would be future grants awarded to the State Theatre for the renovation project.

The Growth Alliance Board unanimously approved the loan on September 16, 2019. A mortgage was foreclosed on in June 2020. Funds were distributed to the State Theatre three times (twice in July 2020 and once in August 2020) to fund the Wenonah Park project.

The project was completed in June 2021. The State Theatre began making loan payments in February of that year and continued through August 2023.

In a February 2022 meeting between the parties, it was revealed that the State Theatre mistakenly listed the loan as a grant on its IRS Form 990, but the theater’s nonprofit took no action. While theater representatives ignored Growth Alliance, the nonprofit still made payments on its loan.

Scandal at the State Theatre in Bay City