EB-5 legislation and regulations
Sep 12, 2016
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Kurt Reuss
Kurt Reuss
Kurt Reuss is a registered securities broker who has been specializing in EB-5 since 2012. He offers advice on investment structuring and market conditions related to EB-5 investments.

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Goodlatte Bill Would Pretty Much End TEAs As We Know Them

The TEA provisions in the Goodlatte Bill are even more restrictive than thos proposed in the final Grassley-Leahy Bill last December. I would go so far as to say that the Goodlatte Bill would pretty much end TEAs as we know them.

EB5 Projects would need to be in a qualifying tract with no combinations allowed, nor would block groups which about 15 states currently rely upon. I would estimate that about 90% of current TEAs would no longer qualify.

There won’t be too many instances where a tract without a qualifying rate would qualify based on high poverty rates or low median income and even here you could not combine any tracts to meet the necessary poverty or income criteria.  There might be an occasional low unemployment tract that could qualify on poverty or income but I would estimate very few and maybe lower the percentage of TEAs that would no longer qualify from 90% to 85%.  

One new concept that would make a mockery of the whole TEA process is the outlying counties as rural areas.  This will backfire for those trying to help rural areas and will actually discourage potential investments in rural areas.  Apparently, no one heeded my warnings about the dangers of adopting the outlying counties concept. See my article titled: How Bad Were the TEA Provisions in the Grassley-Leahy Senate Bill? 

If you can’t locate an EB5 project directly in a high unemployment inner city area, the only real option is to game the system and invest in one of these outlying counties. 

Thirty percent of the counties in MSAs are outlying counties and most of these have very low unemployment rates and are the last places that should benefit from the new TEA procedures.

For example, any city or town in Denton County, TX with a population under 20,000 would automatically be a TEA, even though the 2015 UR was only 3.6%. On the other hand, you can just about eliminate most other possibilities in the Dallas-Fort Worth area. 

Likewise, any city or town under 20,000 in Osceola County, FL would automatically qualify but you can eliminate most anything else in the Orlando metro area.  Likewise, most California TEAs will no longer be possible unless you locate in Contra Costa County.

The same scenario will repeat itself all across the country. Virtually no TEAs in major cities and surrounding communities such as NYC, LA, Miami, Atlanta, Boston, Dallas, Phoenix, Seattle, Denver etc.  No TEAs in Metro DC where Maryland and Virginia allow combinations with nearby DC.  For that matter, none of the TEAs I have done within DC would qualify for an EB5 investment. 

This would also be devastating to large rural states like Utah and Montana which can only get TEAs done in their cities by using block groups.  Block groups have been very important in getting TEAs in low unemployment states such as Texas, Washington, Oregon, Hawaii and many others.  

Of course, this may all be a moot point as no areas can be combined anyway under this proposal. The 2-year effective period is good policy but there won’t be too many TEAs left to benefit from this policy. 

There would be two basic TEA options.  Locate your project in a poor inner city area or in a well to do outlying county.  While these outlying areas would be defined as rural, it is certainly not the types of areas that the rural interests are intent on helping.  The truly rural areas already automatically qualify. 

The efforts to set aside 2,000 rural visas could have had a positive impact on getting more investments in these truly rural areas if a more reasonable TEA revision were to be implemented. For example, the city of San Antonio limits their TEA configurations to 12 census tracts (like California) or 24 block groups (given that block groups cover a much smaller geography).  With the anticipation of TEAs plummeting if this bill were to be implemented, there would be no need for set asides for any category.

Finally, I can’t imagine USCIS processing TEA requests within 60 days when they now take well over a year for I-526 filings.  However, in a bit of irony, they may now be able to do it if the volume of requests drops 85%-90%. 


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