Three Gaithersburg employees living in city-owned housing will pay market rent effective Jan. 1.

According to lease agreements, the city is obligated to give 60 days' notice of rental increases for the houses at 300 Dogwood Drive, 307 S. Frederick Ave. and 2 James St., which are leased by public works employees for $350, $704 and $400 monthly. City Manager Angel Jones recommended delaying increases until Jan. 1, citing the upcoming holiday season.

Officials should consider whether maintaining the houses serves the public interest, said Jones, who recommended that city leaders annually revisit whether to sell the properties. The homes should remain occupied to deter vandalism and to help detect maintenance problems, such as water leaks, she said.

Gaithersburg's mayor and council agreed to raise the rents at their Sept. 8 meeting.

"I have a couple of problems with this situation," said Councilman Jud Ashman, who said that four months' notice was excessive and favored selling the properties. He stressed city leaders' responsibility "to use city properties in a way that serves the public most effectively." Councilman Ryan Spiegel said that the additional time would allow city officials to determine an appropriate rent and policy.

A real estate agent determined rents to be below market and recommend appropriate rates. City officials will gather market rate information from two other realtors then charge each tenant an average of the highest and lowest recommendations, Jones said.

The properties collect $17,450 in rent annually and are budgeted for $10,000 in upkeep in fiscal 2010. They have cost $50,000 in maintenance and repairs the last three years, according to Pete Geiling, facilities and capital projects director.

The city has owned the Dogwood Drive property for 41 years. In the next five years, the house will likely require a new air conditioning unit, including new vinyl floor tiles and carpet replacement, Geiling said. The South Frederick Avenue house will likely need a new roof, a new heat pump and air ducts.

Come January, the tenants will be eligible for an employee housing stipend since they will be paying market rents.

Eligibility for the stipend is based on total household gross income and follows county housing income requirements for moderately priced dwelling units and workforce housing.

The salary cap for unmarried city employees with no children to receive the $200 minimum benefit is $86,268.

Robert E. Johnson, a public works supervisor living in the Dogwood Drive house for $350 rent since 1981, earns a $78,767 salary.

But he has been one of the city's top 10 overtime earners for years, according to Gaithersburg Finance Director Harold Belton, and in 2008, earned more than 53 percent of his salary in overtime, topping out his income at more than $117,000.

Should the current tenants decide to vacate, the city will rent the home to another fulltime employee, the mayor and council agreed. Future tenants could be selected through a fair process, such as a raffle, said Councilman Michael A. Sesma.

A fourth public works employee living free in an accessory apartment at Casey Community Center on Route 355 will remain living there at no charge, Jones said. He lives there as a condition of employment and his schedule is often adjusted to perform after-hour duties, she said in a memorandum to city leaders. City Attorney Lynn Board has determined the value of the apartment is not required to be treated as a taxable benefit.

Board has not returned calls from The Gazette questioning whether she determined the three other tenant situations to be taxable benefits. She briefed the mayor and council on legal issues connected with the properties in a closed meeting, Jones said.