(Updated) Rockville Housing Enterprises Executive Director Ruth O'Sullivan updated the Rockville City Council on Monday on issues related to the agency's $36 million purchase of Fireside Park Apartments in December.

The city authorized a $2 million loan package to RHE to be put toward the purchase of the 236-unit, garden-style apartment community on Monroe Street. RHE, which administers the city's public housing, has said that the purchase would help the city preserve mixed-income, affordable rental housing. According to O'Sullivan's report, Citibank was Fireside's primary lender, providing a $32.4 million loan. Montgomery County supplied a $3.19 million loan. The agency used $500,000 of its own funds—including $273,885 in grant funds from the U.S. Department of Housing and Urban Development.

Between the city's authorization of the financing in November and the agency's purchase of Fireside in December, Montgomery County increased its loan amount—from $2.85 million to $3.19 million—to cover unanticipated transfer/recordation taxes, O'Sullivan said. While RHE Fireside Inc.—the independent company RHE set up to own Fireside—isn't a government entity, it's wholly owned by one and RHE assumed it was exempt from property and recordation taxes, O'Sullivan said. That isn't entirely the case.

Faced with a $500,000 tax bill, RHE proposed postponing some repairs to the property. Instead, the county preferred a loan increase to cover the gap, O'Sullivan said. The county attorney's office later determined that RHE Fireside Inc. is exempt from county and state transfer taxes and the county recordation tax, but not the state recordation tax—an estimated $340,000.

Another issue was the requirement that the city rent to more households at or below the area median income—$107,300 for a four-person household—in order to meet federal Community Reinvestment Act requirements.

The city's proposal for RHE had called for renting only 40 percent (94) of those units to families that earn up to 60 percent of the area median income. The new requirement would call for renting half of the 236 units at rates affordable to families that earn up to 80 percent of the area median income.

O'Sullivan attributed this change to an oversight and said the new requirement would not have a financial impact on the city. She said an informal survey of Fireside Park residents showed more than half earned incomes that were at or below 80 percent of the area median income. "It was in the contract from the beginning," she said. "We missed it."