By Mona Shah, Esq. and Rebecca S. Singh, Esq.
As EB-5 practitioners know, one of the most maddening aspects of the petition process is locating a targeted employment area (“TEA”) designation for a project and submitting the application to U.S. Citizenship and Immigration Services (“USCIS”) before said TEA succumbs to remapping irrelevance. There is, however, a method to mitigating this madness—a responsibility given to a singularly important member of the EB-5 corps: Enter the EB-5 economist, who is trained to roll with such data-driven changes in the post-EB-5 Reform and Integrity Act (“RIA”) environment.
Such is the message behind “Upcoming Changes To The TEA,” Episode 192 of long-running podcast EB-5 Investment Voice, the brainchild of Mona Shah, Managing Partner of New York-based EB-5 specialist Mona Shah and Associates Global (“MSA Global”). A huge topic right now, TEA is particularly important for anybody who is from one of the backlog countries like India or China and can move up in line by way of the set-asides (e.g., rural and infrastructure projects) for green cards.
The bad news: These individuals’ petitions hinge upon a 2-year window during which TEA designations, as prescribed by the RIA, remain valid. As such, a project only has 2 years as a TEA and—practically speaking—only 2 years to find investors. Already, the seemingly capricious vicissitudes of the market have elicited a number of TEA status losses in April, thereby dooming various projects and their corresponding petitions.
Analyzing the Numbers[1]
A careful assessment of the data is key. To address April’s and December’s TEA complications (part of “an ongoing issue with USCIS”), Ian Perry, Managing Partner of EB-5 economic consulting firm Vermilion Consulting (“Vermilion”) in Monument, Colo., and a guest on the podcast’s 192nd episode, used an updated Census share dataset—one of two at the firm’s disposal. Combining county-level data released for 2022 from the “the more up-to-date” Local Area Unemployment Statistics (“LAUS”) program of the U.S. Bureau of Labor Statistics (“BLS”) with the 2021 ACS data at the census-tract level, the Vermilion team arrived at census-tract level data for 2022.
“Having these two different data updates, December and April, does seem like a hassle, and I know a lot of people feel that way,” said podcast guest Chris Atteberry, a Founding Partner of Vermilion. “But it’s actually a good thing, because it represents the fact that there are two datasets that we can use now. Back when the states were doing the designations … if you were going to get a letter from the state, you had to use [Census share] in almost every case.”
Still, there is not much else one can do if those two dataset choices are nixed. “If a client gets bad news about a dataset one, then we will run the TEA with dataset two,” said Atteberry, who indicated that criticism of the census-share methodology has burgeoned of late owing to its complexities. “But if that’s bad news also, unfortunately, that’s kind of the end of the road.”
Vetting the Process
While that kind of finish may sometimes be unavoidable, it does help to be prepared. Both clients and practitioners alike must be cognizant of the fact that the different TEA map tools available online (including free ones) are of varying quality and do not provide the same results. “A lot of times with those free websites or free maps that you find online, they’re not necessarily the most up to date,” said Perry. “There’s no real accountability in those. So there’s no way of knowing if they’re actually using the proper methodology anyway.”
Another thing to be aware of is that the job-creation methodologies (e.g., IMPLAN and/or RIMS II) used in petitions’ economic reports, composed by firms such as Vermilion, do not have any bearing on the TEAs. “The TEA data comes from the Census Bureau in December and from the Bureau of Labor Statistics in April,” said Atteberry. “So there’s no connection at all with the [aforementioned job-creation methods].”
The Client’s Role
Despite the economist’s prominent role in the EB-5 process, Atteberry explained that investors must keep abreast of any TEA transformations. “So what we’re telling all of our clients now is … you need to stay on top of it, because we can’t keep track of everybody’s projects. A lot of times somebody will pop up and ask us for a TEA, and then we don’t hear again from them for six months.”
In view of that, part of the onus is on the petitioner to ensure the TEA is viable. “Clients need to make sure that they’re watching the release dates, and as one approaches … December, come back to us and ask us once the thing is clicked over, once the new data has been released, let us tell them whether it qualifies or not,” added Atteberry.
A comprehensive understanding of TEA-data nuances is essential to navigate this area. “A TEA’s qualifying threshold is 150% of the national average, which means that in order for a census tract to qualify, its unemployment needed to increase faster than the national average did,” said Perry.
The Rural Mystique
Increases of this sort may often be found in the rural category, a coveted, post-RIA type of set-aside that stands in contrast to the more densely populated regions (such as New York City), which have been prone to gerrymandering. That practice is exactly what RIA co-sponsors. Sen. Chuck Grassley, R-Iowa, and then-Sen. Patrick Leahy, a Democrat from Vermont, sought to curb in an arena they deemed rife with fraud. TEA and rural designations have always been uppermost for Grassley, who hated how much money went into projects in regions that were not as economically stagnant. As he noted in 2019:
“[Rampant] and abusive gerrymandering of the EB-5 program’s targeted employment areas has undermined congressional intent. Instead of channeling investment to rural and high unemployment areas, EB-5 has become a source of cheap foreign capital for big city, big moneyed interests. The targeted employment area reforms in the proposed rule would take a first step towards refocusing EB-5 investment in the way that Congress originally intended. … Unfortunately, multiple bipartisan efforts in Congress to reform the EB-5 program have been consistently stymied by powerful special interest groups and big moneyed interests.”
The legislators’ solution provided a solid framework that mitigates any misuse. “The rural qualification has two components,” said Perry. “The first one is that the project needs to sit in a county that is outside of a metropolitan statistical area. It can sit in a micropolitan statistical area. So metro is bad for rural, micro is good.”[2]
Perry elaborated that these qualifications, published by the Office of Management and Budget and changed periodically (but not regularly), have elicited a smattering of tweaks when updated—including the most recent update this year. “When they did that, only a couple dozen or so counties changed their metro-micro status, where some counties may have moved from micro to metro, and some counties may have moved from metro to micro,” he noted. “But overall, they’re mostly the same as they were previously. … It’s just something we have to keep an eye on.”
Then there is the second component, which “will not change until 2030 because the second component is based on the population of the town that the project is in,” said Perry. “And that population has to be less than 20,000 people, as specified by the most recent decennial census.”
Given these and other attributes, the rural designation is much in demand. “We are seeing lots of rural,” said Atteberry. “In fact, people will pursue rural, and if they don’t find that their project is in a rural location, sometimes they don’t even want us to check to see if it’s in a high unemployment TEA.”
Then and Now
Rural’s emergence as an EB-5 force offers further evidence of the RIA’s success at mitigating the abuses that had pervaded the sector while bolstering all-too-often-ignored types of projects. “This TEA model, combined with the exclusive authority of DHS to make high unemployment TEA designations, should crack down on TEA gerrymandering that has long deprived rural and economically distressed areas of the investment Congress intended they receive,” stated Grassley in 2022 about the RIA’s ratification. “It’s also my belief and expectation that DHS should reserve [‘high unemployment’] TEA designations for census tracts that have experienced persistently high unemployment for a number of years rather than brief spikes in unemployment due to temporary and extraordinary circumstances such as the COVID-19 pandemic.”
The difference in the decision-making that informed the TEA-designation process in the years following the EB-5 program’s 1990 introduction versus now is remarkable. “It was actually the state that decided which location would fall under a TEA,” said Shah, who pointed to “gerrymandering” for the discrepancies among U.S. states with regard to TEA requirements.
The changes also have affected signing procedures, which, in days of yore, required the state hosting the project to sign off on the TEA letter … although USCIS used (and continues to use) the same data as the economists’. “Now, post-RIA, the state is no longer involved,” clarified Perry. “So it’s the same data, but we as economists are allowed to write the letters that get submitted to USCIS, and then USCIS looks at our letter, and they essentially check our math or the data that we’re presenting against the data that is published online by the Census Bureau and the BLS.”
Why the Economist?
All of the previous points demonstrate the need to run with an economist for EB-5 who knows the territory. “We’ve actually come across a few economists who are not EB-5 economists, and they really have no real understanding,” said Shah during the podcast. “So it’s not recommended to go to someone who’s not familiar with EB-5.”
“It’s not just important for the economist to give the job creation,” said MSA Global Partner Rebecca S. Singh, Esq. “Now we’re seeing it ever more so because there’s the importance of analyzing the TEAs (the targeted employment areas), as well as … the mandatory compliance for regional centers.”
Handling such end-of-the-year compliance, which features components such as the I-956G forms, can be unwieldy, to say the least. In light of that, regional centers must be vigilant. “It’s really important for regional centers to stay very closely tied with the developer and make sure that you’re getting regular updates throughout the project’s lifetime, because now you need to report on it every single year,” said Atteberry. “And each time you get a data dump from your developer, you’re adding more and more information that will eventually you’re going to need for the [I-829].”
Direct Versus Indirect
Maintaining continual communication with a project’s developer can also add clarity with regard to the question of direct versus indirect jobs, a frequent bugbear for regional centers calculating employment-creation numbers. Happily, Atteberry has seen no complications in this area. “I don’t think we have really run into one yet where the percentage issue became a problem,” he said. “What we see most of the time for conventional construction, commercial real estate type projects is it’s pretty darn close to 50-50: 50% direct, 50% indirect. You only get into trouble if your direct numbers are really low, like if you’re 10% direct and 90% indirect. But we honestly haven’t really seen that yet. We’re very careful about it.”
Economic models also come in handy with regard to calculating “real jobs,” though everything comes with a caveat. “We deal with models,” explained Atteberry. “And the numbers that come out of our models are not the kinds of jobs where you could go and walk into an office building and touch somebody on the nose and say, ‘I see you’re number 125 in the direct column.’ These are just numbers.”
COVID-19’s Impact
Not so amorphous is the impact of the COVID-19 pandemic, whose lingering COVID effect has made a significant dent in U.S. unemployment levels. “It seemed like big cities, anecdotally at least, were hit harder than rural areas,” said Perry, adding that this phenomenon “may have had something to do with the generous unemployment policies that more urban areas tended to have, or more liberal states, if you will, since unemployment tends to be at a state level rather than a city level.”
For example: New York “got hit really hard and their unemployment skyrocketed,” Perry said. “And so some areas that pre-COVID may not have qualified because their unemployment was still below the national average then did qualify with COVID.” Indeed, “New York City just has a higher chance of continuing to qualify, not as a whole, but in their specific pockets of census tracks.”
Foreseeing a Comeback
A return to the jobscapes of years past, however, is on the horizon: “Over the last year or two, we’ve seen the unemployment start to gradually come back down to pre-COVID levels” Perry observed, calling attention to recently released Census Bureau data via American Community Survey (“ACS”). “So we’re going to start to see the unemployment levels overall start to come back down to the normal 3-5% level.”
This is despite the mystery of how ACS collects its data. “ACS is kind of a black box,” said Perry. “We don’t really know how they calculated or how they come to their numbers, but that’s what we have, and that’s what we use.”
The Problems With Predictions
The mysteries of such methods do not end there. Atteberry cited the challenges of predicting TEAs for specific areas, which depend upon a mix of factors.
“Many of our clients ask us from year to year if we can forecast the TEA for a given project site,” he said. “Specifically, they want to know if their project site will continue to qualify under TEA rules, or for a project that is just short of qualifying, whether it will qualify next year. It’s very difficult (and unwise) to make forecasts for a particular address because many variables are at play, including the possibility that the [Census Bureau] will redraw census tract lines as happened in the 2020 data release.”
A ”cautious” approach to forecasts, on the other hand, that takes into account TEA trends from a macro perspective is possible, as TEA qualification depends on a comparison of the local unemployment rate with the national rate, added Atteberry. “From a post-pandemic trend perspective, if a local area’s unemployment rate decreases faster than the rest of the nation, then it becomes incrementally harder for TEA qualification in that local area,” he said. “In the case of New York in 2021, the state’s average unemployment rate was 7.0% while the rest of the country registered 5.3%. New York City was even more extreme, with an average unemployment rate of 10.0% in 2021.”
Later numbers shine a brighter light on the ebb and flow of jobs. “Now, if we look at 2022, New York state came in at 4.3%, New York City at 5.7%, and the nation at 3.6%,” Atteberry noted. “Importantly, New York state’s rate decreased 2.7%, the City decreased 4.3%, but the nation decreased only 1.7%.”
These fluctuations can have a significant impact on TEAs. “Because the State and City decreased faster in 2022 (as compared to 2021) than the rest of the nation, it was generally harder to find qualifying TEAs in New York state and New York City than the previous year,” he continued. “From a forecasting perspective, since the national rate has remained fairly static thus far in 2023, if the New York state and New York City rates continue to decline (a reasonable assumption), then TEAs next year will be more difficult to attain than they have been this year.”
The Remote/Hybrid Workscape
That does not mean the pandemic’s impact has run its course. The COVID effect also has transformed the way people work in terms of remote or hybrid remote -and-office models. Yet the question of whether this can impact TEAs does not have a set-in-stone answer. “It really is a gray area, and it is different from project to project,” said Atteberry, mentioning the importance of project location in calculating job creation numbers.
Thankfully, the outlook is rosy when it comes to remove-versus-hybrid impacts. “I don’t remember ever hearing anyone worried that that was going to be a problem with USCIS,” Atteberry added. “Job creation is job creation, and if it’s not, well, there is no TEA. So you can’t say whether it’s inside or outside.”
Ultimately, no amount of tract finagling will enable a project lacking viable employment numbers to pass USCIS’s muster. As Shah remarked: “It’s got to be credible at the end of the day.”
On all fronts—TEA or otherwise—that is the right way to proceed.
Simon Butler contributed to this article.
[1] According to USCIS, a TEA “at the time of investment” can be a rural area—specified as “any area other than an area within a metropolitan statistical area (MSA) (as designated by the Office of Management and Budget) or within the outer boundary of any city or town having a population of 20,000 or more according to the most recent decennial census of the United States” or an “area that has experienced high unemployment (defined as at least 150% of the national average unemployment rate).” High-unemployment areas comprise “the census tract or contiguous census tracts in which the new commercial enterprise is principally doing business, which may include any or all directly adjacent census tracts, if the weighted average unemployment for the specified area based on the labor force employment measure for each tract is 150% of the national unemployment average.”
[2] Per the Census Bureau: “Each metropolitan statistical area must have at least one urban area of 50,000 or more inhabitants. Each micropolitan statistical area must have at least one urban area of at least 10,000 but less than 50,000 population.”