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Navigating the new world of Target Employment Areas (TEAs)

Michael Kester

Special guest is Michael Kester, partner and lead economist of Impact DataSource, a Texas-based consulting firm that is a leader in EB-5. For the last nine years, Impact Datasource has conducted more than 450 EB-5 economic impact studies and over 1,000 EB-5 applicants in obtaining TEA certification.

This discussion deals with the significance and impact of the new EB-5 modernization rules on Targeted Employment Area (TEA) designation.

EB-5 investors will want to know that much has changed with TEA designations. Who must provide the proof, who now determines what is and what isn’t a TEA, how you can now combine census tracts, when an investor will know if TEA designation is approved Also, the new rules impact issuers and the EB-5 industry in general. Will big real estate projects still be the norm? Another consideration for investors will be rural TEA’s vs. high-unemployment TEAs: which kind is safer and less prone to change?

Read on to get answers to these questions and discover best practices for the very important consideration of what now qualifies for the lower EB5 investment amount as a TEA.

Kurt Reuss: Michael, on November 21st, 2019, we saw some pretty big changes to the EB-5 unvestment program through new regulations. The change that garnered the biggest headline was the increase to the minimum investment amount, from $500,000 to $900,000; but I think the biggest change to the EB5 program is probably the way targeted employment areas (TEAs) are determined.

Michael Kester: I would totally agree that the changes to TEA designations are probably the most impactful of any of the changes that occurred, the biggest being new rules that drastically limit the way you can aggregate census tracts to get recognized as a high-unemployment TEA.


Michael Kester: Under the old rules it was more or less left up to the states. As an economist, I could get as creative as the state would allow, as long as the census tract combination was contiguous. If it met the required 150% threshold [above 150% national average unemployment rate], then the state would sign off on it.

But the new EB5 investment regulations limit census tracts to only the EB-5 project tract plus the tracts that touch the project tract. The government’s terminology of this is ‘directly adjacent’ to the EB-5 project tract.


Michael Kester: The other big takeaway is that DHS (Department of Homeland Security) has removed the states from the decision making completely.

USCIS, which is part of DHS is now handling TEA certifications, so you can’t call up or email the state anymore and say, “Hey, I’ve determined, based on acceptable modeling, that this is a TEA; can you give me a letter?”.

Now the onus is on the petitioner to include independent evidence that the project location qualifies as a TEA. Instead of having a state letter as that evidence, the petitioner will now need to have a TEA analysis or opinion letter that shows how the new TEA qualifies.

In the past you’d get a state letter and you wouldn’t know 100% for sure it was acceptable until USCIS approved the I-526, but you had a pretty good comfort level because the states had been doing this for a long time. But now we’re not going to hear back whether the TEA is approved until the I-526 is adjudicated.

Kurt: So, not only do we not have clarity from the state confirming a TEA prior to filing, but we won’t get that clarity until our I-526 is adjudicated?


Under the previous EB5 Investment rules, the states would use what’s called a ‘census share methodology,’ which uses a combination of different data sets to get to a final answer. The new rules leave things a bit open-ended and say we can use a couple of types of data. They listed BLS data (Bureau of Labor Statistics) and (ACS) American Community Survey data as reliable and verifiable data to utilize.

The census share methodology that the states were using uses a combination of BLS and ACS. For most cases, if one methodology works, the other one usually works, however sometimes only one methodology works.

Kurt: So in your initial analysis of the datasets, are there times when you find yourself using BLS data and times you find yourself using the ACS data?

Michael: When a client sends us an address and asks whether their location will qualify, usually we look to see if it qualifies under both methodologies [census-share and ACS-only]. If it does we’ll have a higher comfort level. If it doesn’t qualify under both, we let the client know.

So it’s not really that one is necessarily better than the other. The census share methodology does trend the data forward to get a more current data point. But for our purposes, we’re more concerned about what is USCIS going to accept.

ACS and BLS data are updated throughout the year with new ACS census tract data coming out in December and BLS calendar year data is finalized in April. Unfortunately, USCIS did not provide us with any great guidance that says, when you file your I-526 you need to make sure that you’re using the latest and greatest data out there, so there is a question of how recent the data we use must be, and that’s very important because it can take a long time to raise EB-5 funds. On prior projects we’d get at least two letters from the state during the course of the project; sometimes we’d get three or four.

And we’re going to have the same issue here. I can tell clients that the location currently qualifies as a TEA, but it’s borderline and we don’t know for sure if it will continue to qualify when the investor actually invests and files. And USCIS hasn’t provided guidance on how long they will accept an analysis after new data comes out.


Rupy Cheema: So are there any red flags an issuer or investor should be concerned about when looking at a TEA designation related to changes that might happen in the future?

Michael: Yes. Under the old ways, it wasn’t uncommon to put together a four or five census tract TEA, and we usually had the flexibility to add more census tracts or get a little bit creative in order to rescue the TEA designation if necessary. But now we don’t have much flexibility because we can only use the project tract and the tracts that touch the project tract.

Currently, under census-share, the threshold is 5.9% (unemployment rate), so under the census share methodology if you have an area that’s only barely above that level, say 6% or 7%, then there’s a big possibility that it could fall out in the future, and if it does we don’t have many options since we are limited in how we can try to aggregate tracts.

For example, a client that we did an analysis for in November, which was just as the rules changed and it qualified as a single census tract TEA, but it was the only high unemployment tract in the area. I think it had about 7.5% unemployment rate, which is a decent amount above the 5.9% threshold that’s needed.

But when the new data came out in December, I took a look at it again and the data had changed enough that it had actually dropped below the threshold. I had to write to the client and tell him that. In the past, I could have probably figured out a different way of calculating it as a TEA, by using block groups or a different combination. But now there’s just nothing we can do.

Rupy: Well, it’s kind of ironic that on the one hand, the idea of the green card by investment program is to create jobs and to revitalize an area. And then if you successfully revitalize an area you might end up not qualifying for a TEA designation.

Kurt: So you want to keep an eye on the areas that surround the tract you’re invoking in your petition because if the surrounding area has lower unemployment rates, it may only be a matter of time before it starts to bleed into the tract used by the EB5 regional center, as it did in December.

Michael: Yeah. It’s just tough to predict because we’re not dealing with instantaneous data updates. We’re dealing with data at the census tract level that’s a bit outdated, so it’s kind of tough to say exactly what’s going to happen in the future, and especially if it’s the only high unemployment census tract in the area.


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