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Complexities of TEA Designations

September 28, 2015

Panelists: KEVIN WRIGHT, MICHAEL KESTER, RUPY CHEEMA, ROHIT KAPURIA

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Rupy Cheema.: What should we look for when reviewing a TEA (targeted employment area) letter?

Michael Kester.: As an economist, when reviewing the project to see if it’s TEA eligible, especially since it is such a make or break issue, it’s very important that we see that the TEA letter is current. USCIS has specifically mentioned outdated TEA letters as being a persistent problem with applications, so that’s the very first thing we check and recommend that the project get an updated letter.

The TEA letter really comes into play at the time when the investor makes an investment and when the I-526 is filed. Where it becomes difficult is when you’re trying to figure out if your project is located within a TEA long before the investors come on board. We’ll look at the date, then we’ll look at the census tracts or census block groups that are listed in the letter and I’ll just plot them on a map myself just to make sure that they are actually contiguous.

A lot of states do a good job, for the most part. However, mistakes can and do happen, and they might, for example, fail to include the census tract or census block group in the TEA letter. So just doing some reality checks is a good way to suss out angy problems before you actually make a submission. The final steps would be to ensure that the TEA letter uses the most current data the state has at the time the investor comes on board.

Essentially, the main things when looking at the TEA letter is that it is current and done properly. Regarding the shape of it, as I said, I double-check to make sure everything looks contiguous, but USCIS has, at this point, deferred to the particular state on the shape of the area. That means the USCIS is not really supposed to question that aspect, even if it looks completely gerrymandered.

Rohit Kapuria.: Kevin, in the context of the Grassley Bill and the issue of whether TEAs are going to be curtailed to a single census tract or whether they’re going to go to a more restrictive reading, let’s say, for example, the way California does TEAs with something like 12 census tracts. And in some states, I’ve seen combinations of probably a hundred census tracts. 

In your experience, would you be able to quantify just how important that is in EB5 terms, of all the deals you’ve done and whether this really restrictive reading is going to impact the EB5 industry if it comes to fruition? It’s my viewpoint that it will, but I’m curious about yours.

Kevin Wright.: I would say that at least 95% of the TEAs that we see are not in rural areas, and all tend to be multiple census tracts. Now, a lot of those would fit within that model if they were to adopt the Californian model of 12 tracts or less. But nearly none of them would fit in the single census tract like the TEA that the Grassley bill is proposing. To me, that’s very disastrous for the program. I’m very hopeful that they adopt the number of at least 10, 12 or more census tracts.

Michael K.: I agree that just limiting it to a single census tract or even just an arbitrary limit doesn’t really make sense from an economic standpoint. Consider the fact that people commute, often great distances to work and that new jobs are more likely to be taken up by individuals from lower income or more disadvantaged areas. 

While it seems like the intent is, to some extent, to go after “gerrymandering,” and obviously the Bill has a big rural bias, gerrymandering is really impossible to define. Each area is different in the sense of how people commute and how far away they come to and from work. It just doesn’t make a lot of sense to have an arbitrary limit to that. 

More than 90% of the projects we’ve looked at on which we had a TEA analysis done have required more than a single census tract, so it would have a big impact if it happened to go through.

Rohit K.: What about from a state perspective? For instance, which are the states that seem to be very TEA friendly, not just from the ability to converse with the state but which are amenable to advise on how EB5 works. Especially in terms of what you’re looking for from a TEA designation standpoint and what they should be using as a model. Also, where have you seen the most EB5 deals? I’m just curious as to where the clusters are in your experience.

Michael K.: It’s interesting, a lot of us seem to be thinking about the California model of limiting TEAs to a certain number of census tracts. But in California, where the majority of the EB5 projects are, the 12-tract limit doesn’t really eliminate too many project areas from TEA eligibility, because California has relatively high unemployment and because it’s pretty well scattered throughout the state. So the majority of sites we look at in California have been able to work with the 12 tracts or fewer, but if you took that to another state it’d be severely limiting.

As far the different states’ methodologies, the majority of them recognize that EB5 has gained in popularity. It seems like the majority of them now have their own set processes and set ways and it’s very rare where the state will not allow any sort of combination at all. There are states that could care less what you put together as long as it’s contiguous and the math works out, because again, they don’t have any guidance or they don’t have any restrictions put on them on the area they can certify. Most of them seem to be somewhat in the middle, that is that they’ll allow you to combine, and combine pretty flexibly, but they don’t want to see it get outrageous where it’s obviously gerrymandered. It seems that most of them are kind of in the middle road with flexibility is what I’ve been seeing.

 

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