WASHINGTON -- The Department of Housing and Urban Development's recent clarification of the effective date for new rules governing projects that use the low-income housing tax credit may have fixed one problem but created another.
In September, the department updated a list of cities and counties poor enough to be eligible for extra amounts of the housing credit. HUD dropped some areas from the list and added others, but it did not say when the new list was effective.
Last week, HUD clarified that the new list does not take effect until Jan. 1. That may be good news for areas dropped from the list but not for newcomers to it.
"There are deals that have received allocations in [what they thought were] difficult development areas, and now they find they are not," at least until Jan. 1, said Anthony S. Freedman, a partner with Powell, Goldstein, Frazer & Murphy in Washington.
The housing credit law, passed in 1986, allows developers a tax credit equal to a percentage of the present value of the low-income portion of housing projects. Developers are eligible for 30% more credit than they would normally be allowed if their projects are built in areas HUD considers difficult to develop. A city or county is designated a "difficult development area" if it has unusually high housing costs and a large number of low-income people.
On Sept. 16, HUD published a revised list of difficult development areas that was based on data gathered in the 1990 census. Dropped from the list were San Jose, the borough of Manhattan in New York City, and 10 counties. HUD also added 28 counties and a number of cities to the list.
At the time the new list was published, HUD created a stir by not specifying an effective date. For cities dropped from the list, the omission of a specific date threw into doubt projects for which tax-exempt bonds had already been issued but for which the credit had not yet been allocated.
The department rectified that problem by publishing a clarification last week in the Federal Register, which states that the list of difficult development areas is effective for allocations of credit made on or after Jan. 1, 1992.
For projects with a bond component, "the list is effective if the bonds are issued and the building is placed in service after 1991," the department said.
But some cities and counties added to the list thought their new status took effect when the revised list was announced back on Sept. 16. Projects in some of those areas have received the extra credit amount they thought they were entitled to, and have moved forward, said Mr. Freedman.
The department's clarification means those areas jumped the gun and are not really eligible for that additional credit until Jan. 1. Mr. Freedman said that, at least for him, the date has put "a whole bunch of deals in limbo all over the place."
A HUD official said the department is not planning any changes that would help those cities for which the clarification has created problems.
