Council extends interfund loan tied to former Target property as developer timeline continues
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Summary
Council approved a resolution extending an existing interfund loan for the former Target site, citing an executed developer agreement and the city's intent to sell the property by Jan. 2027; staff argued internal financing is cheaper than outside borrowing.
The Federal Way City Council voted unanimously Feb. 3 to extend an interfund loan that finances the city's holding of the former Target property in the city center.
Steve Groom, the city's finance director, outlined the property's financial history and the rationale for extending the internal loan. He said the city purchased the property in November 2014 and financed it with low interest; after a balloon payment was addressed in 2022 the city created an interfund loan to keep interest within city funds rather than pay a bank. Groom said the city does not currently have the $5,000,000 on hand to accelerate payoff and that an executed agreement with a developer includes terms under which the developer intends to purchase the property by January 2027.
Groom told council the interfund loan earns roughly 3.8% (the city's internal rate) versus a slightly higher external borrowing rate (about 4.1% in staff scenarios) and argued that extending the interfund loan is better stewardship of taxpayer funds. He also noted state‑auditor guidance that interfund loans are intended to be temporary and that the council's resolution should document the city's intent to avoid appearing to permanently divert restricted funds.
Councilmember Honda moved approval; the motion passed unanimously.
Next steps: staff will continue to monitor the negotiated purchase timeline with the developer and report back if circumstances change.