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Finance director frames debt limits, urges pay-as-you-go to shrink capital wait list
Summary
At the Federal Way City Council retreat, Finance Director Steve Groom laid out the city’s legal debt capacity and argued that paying cash for routine capital needs — ‘‘pay as you go’’ — reduces long-term costs and interest expense. He warned that existing revenue volatility and ongoing commitments leave little room for new debt without tradeoffs.
Federal Way — Finance Director Steve Groom told the City Council at its retreat that the city technically can still issue more debt but should be cautious because borrowing doubles project costs once interest is included.
Groom said the city’s legal capacity is roughly 1.5% of assessed value minus outstanding debt, which on Federal Way’s current assessed base translates into a theoretical maximum on the order of tens or hundreds of millions of dollars. “Just to issue debt for $1,000,000 we would add $773,000 in interest,” Groom said, using an example amortization table he presented.
Groom said the city’s current outstanding debt portfolio includes balances for the performing arts center, a HUD loan tied to that facility, a community center loan, the SCORE jail debt and the recently issued maintenance facility bonds. He noted the maintenance facility issuance benefited from market timing but that the city depends heavily on sales tax and REET (real estate excise tax) inflows to cover annual debt service and capital projects.
Why it matters: Groom emphasized that borrowing imposes long-term interest costs and that the cheapest borrowing is the debt the city never takes on. “The cheapest mortgage that we have is the one that we can avoid,” he said, urging councilors to sweep one-time savings into paying as you go for vehicle and playground replacement rather than adding new long-term debt.
Supporting details: He walked the council through the arithmetic for a $1 million bond at sample rates and terms, then mapped the city’s debt-service profile through the 2040s. He said the city budget adopted for 2025–26 fully allocated current revenues and left the capital wait list intact; that wait list included City Hall, Dumas Bay, the community center and the performing arts center as high priorities. Groom suggested capturing projects on the wait list, prioritizing annually, and redirecting small savings to reduce future reliance on borrowing.
Council response and follow-up: Councilors pressed Groom on revenue forecasts for sales tax and REET rebound prospects and on the possibility of bonding against specific new revenue sources such as tax increment financing for downtown. Groom said TIF can fund infrastructure inside an approved TIF area and that Sound Transit and other development projects could change the city’s long-term revenues.
Bottom line: Groom recommended prioritizing existing obligations, expanding pay-as-you-go replacements (for example replacing one‑seventh of a patrol fleet each year instead of borrowing for the full purchase), and continuing monthly monitoring of sales tax and REET to guide timing for major capital or debt decisions.
