Gaithersburg-owned rentals a surprise to city officials
Employees pay below-market rents to live in houses
Three city employees are leasing city-owned houses at rents well below market rates, to the dismay of city leaders, who did not know the properties existed. In one case, the arrangement dates nearly three decades, without a lease.
The housing arrangements include:
- A 925-square-foot 2-bedroom house on South Frederick Avenue is rented to an equipment operator for $704 per month.
- A 504-square-foot 1-bedroom house on James Street is rented to a fleet maintenance supervisor for $400 per month.
City records show that a police corporal, information technology officer and city planners have rented the homes. The South Frederick Avenue and James Street housing opportunities have been raffled every several years, said Gaithersburg Finance Director Harold Belton. The Kentlands Mansion was rented to the head planning and code enforcement officer for $10 a month in 1999.
Details on the properties were first reported in The Town Courier.
"The fact that we have no documentation of it and many of the leaders of the city were surprised to learn about this is very telling," said Councilman Ryan Spiegel. "At some point, the City of Gaithersburg was run like a summer camp."
Gaithersburg City Council Members, City Manager Angel Jones and City Attorney Lynn Board said they did not know about the city owned the properties. Mayor Sidney A. Katz, an elected official since 1978, said he knew a Deer Park property was rented to staff, but did not know details.
The rental arrangements are now under investigation, Board said Monday.
"What I know is what I've read in the newspaper," said Board, responding to questions about tax liability, overtime management and documentation. "Certainly it's all an issue."
City Manager Angel Jones has launched an investigation with plans to report to the mayor and council and revisit the arrangements during the next budget cycle, possibly at the mid-year retreat in September. Council members have called for formal policy and reevaluation of how the properties are used.
"…If the city is in the property-ownership business, then we need to have a policy as to how we execute that role," said Councilman Jud Ashman. "And we need to determine whether it makes sense to maintain these properties or whether it makes sense to dispose of them, to sell them."
Robert "Bobby" Johnson, a public works supervisor, has rented the 1,728-square-foot house at 300 Dogwood Drive in the Deer Park neighborhood for more than 27 years, according to city officials.
He pays $350 month rent for the 3-bedroom home with a large tree-lined backyard, where he raised two sons, including an adult who still lives there.
Similar homes in the neighborhood rent from $1,500 to $1,700 per month, according to rental comparisons supplied by Lynne Dermody of Coldwell Banker.
Johnson's apparent $12,000-plus annual benefit is not documented by a lease or tax-related documents, said Gaithersburg Finance Director Harold Belton.
"An oversight on my part," he said. "We've never added it to his taxable income."
City-owned property is exempt from taxes, according to Maryland's Assessment Procedures manual, provided it is being used "for governmental purposes." Board said she is familiar with Maryland tax rules but has not researched whether the city's rental agreements meet requirements.
Asked about possible tax liabilities for Johnson, Belton said: "I would say that's an issue if the IRS were ever to come knocking…and say ‘You owe us money on that taxable income,' that could be, and I stress ‘could be,' a problem for him."
An Internal Revenue Services specialist based in Wheaton declined comment Tuesday.
Top city officials said last week that Johnson's rental agreement began as a handshake deal between Johnson and former City Manager Sanford Daily, who retired in 1994. Johnson earned $17,341 as a work force leader in the public works department. Now a public works supervisor, Johnson was the city's highest overtime earner in 2008, when he received a $65,813.30 salary and more than $38,000, in overtime.
Daily, now Kensington's town manager, said Tuesday that the city bought the Dogwood Drive property in 1968 with intent to expand City Hall and a public park and connect it to a pedestrian path. The arrangement predated the Fair Labor Standards Act and the city had concerns about overtime and how Johnson may be taxed, he said.
"We actually made it a condition of [Johnson's] employment that he was supposed to do different things, like take care of bathrooms at City Hall, and to do some part of inspection of street lights and a number of other things," Daily said. "There was a written statement of fact to that effect. I have no idea where in the hell it would be. It's been 14 years."
Daily said that during his tenure Johnson's rent was periodically reviewed and a certified public accountant ensured the city got a fair return on its investment. "I do know that."
Johnson, a 35-year city employee, did not return calls from The Gazette. City officials have described him as a Johnny-On-The-Spot who addresses issues from snow removal to vehicle collisions.
"From my perspective we had good ol' Bobby, an outstanding employee who never, ever said ‘No' when I called him to take care of whatever random issue needed to be solved, taken care of, whatever," said Assistant City Manager Fred Felton, who has worked for the city nearly 25 years. "I never really thought about the financial arrangements of him living there, but I was glad to have him there." Felton said officials at City Hall "just forgot" about Johnson's rental agreement and "never thought about" raising his rent, which has stayed fixed at $350 since at least 1999.
That year, Director of Public Works James Arnoult sent Belton a memorandum stating that Johnson no longer performed some of his original duties pertaining to the lease in question, but had added others. At the time, two similar houses on Tulip Drive nearby rented for $750 per month, the memo said.
According to the 1999 memo, Johnson locked the bathrooms nightly at the City Hall Park Pavilion — located across the City Hall lawn from his backyard — and unlocked the bathrooms on weekend mornings, as a trade-off for his low rent. At one time, Johnson received five hours of overtime pay per week for checking, locking and unlocking the park pavilion bathrooms, Arnoult's memo said.
"If we were to use another employee, it would take approximately 18 hours per week (2 hours per visit with 9 visits per week)," Arnoult wrote.
Johnson also checked streetlights at night for outages four hours per week, earning him partial compensatory leave, the memo states.
Arnoult said Tuesday that the 1999 memo is his only involvement in Johnson's leasing agreement and that Johnson has said an official agreement once existed, though it cannot be found.
Gaithersburg Human Resources Director Margaret Daily, who is Sanford Daily's wife and began her career at City Hall more than 20 years ago as a secretary in the public works department, did not return phone calls from The Gazette. She said in an e-mail that the city's residential leasing agreements had never been handled by HR and had always been a function of the city manager's office. She would not answer questions sent via e-mail about whether she was aware of the rental arrangements and how they had been managed.
Former City Manager David B. Humpton said he had no comment and he "didn't have anything to do directly with the leases."
Humpton, who left his job two years ago to become executive director of the Montgomery Village Foundation, referred The Gazette to Assistant City Manager Tony Tomasello, whom he said he had oversight.
"I did not even know we had residential properties," said Tomasello, who oversees commercial real estate. "I don't even know why we bought the houses." Tomasello said he has never seen the properties, leases or rental arrangements.
Renting property to employees is a longstanding tradition in Gaithersburg. Director of Planning and Code Administration Greg Ossont lived in the Kentlands Mansion for $10 per month in 1999, in exchange for providing security, Felton said. He had a lease.
Since 2005, the city has also rented a 925-square-foot 2-bedroom house at 307 S. Frederick Ave. to Mario Carmona Padilla, a city equipment operator who earned $45,823.41, including overtime in 2008, for $704 per month, according to city records. The city has also rented a 2,120-square-foot house at 2 James St. in the Observatory Heights neighborhood for $400 per month since 2005 to Keith S. Vogel, a fleet maintenance supervisor who in 2008 earned nearly $60,000, including overtime.
Felton said he thought the James Street property, adjacent to the city's International Latitude Observatory, once came with maintenance responsibilities. Leases connected to the two properties and the staffers' job descriptions do not mention additional job duties. Neither Padilla nor Vogel returned calls for comment.
City records show that a police corporal, information technology officer and city planners have rented the homes. The housing opportunities have been raffled every several years, Belton said. Custodian Tommy Mason lives for free in a efficiency at the Casey Community Center, reportedly in exchange for providing security.
Neighborhood Services Director Kevin Roman said the apartment "fell through the cracks" when the city's planning and code administration divisions merged in 1998 and has not been inspected in nearly 10 years. Mason reminded him of the property last week.
City officials did not discuss the rental revenue or city workers' living arrangements during a public hearing last year on an employee housing stipend for employees. The stipend, implemented in 2008, is based on workers' income and household residents. Recipients must complete a tax form, which records among other things, deferred compensation. Rental revenue from the three properties is in the fiscal 2009 budget under "miscellaneous income." City leaders said that they never noticed the figure.
At left: 300 Dogwood Drive
-Size: 1,728 square feet, 3 bedrooms
-Purchase price: $0 in 1968 (City took over mortgage)
-Rent to employee: $350/month
Below left: 2 Saint James St.
-Size: 504 square feet, 1 bedroom
-Purchase price: $65,000 in 1993
-Rent to employee: $400 per month
Below: 307 S. Frederick Ave.
-Size: 925 square feet, 2 bedrooms
-Purchase price: $103,500 in 1998
-Rent to employee: $704 per month, since 2005
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