Free EB-5 Project Evaluation TEA Designations in California, New York, and Texas

One of the most important steps in planning an EB-5 project is determining whether or not the project is located within a targeted employment area (TEA). TEAs offer EB-5 investors a lower investment threshold of $500,000 (as opposed to $1,000,000), and since these investors are, typically, more concerned about gaining permanent resident status than a strong return on their investment, this lower threshold is often vital.

TEA Designation Basics

An area can receive TEA designation in one of two ways—by being identified as a rural area or through higher-than-average unemployment.

In order for a rural area to be designated a TEA, it cannot be located within a metropolitan statistical area (MSA) or within the boundary of a municipality that has a population of 20,000 or more residents (according to the most recent available census data).

Rural TEAs are not determined by state agencies, and so the remainder of this

An area experiencing high unemployment may be designated a TEA if its unemployment rate is at least 150% that of the national average. For example, the national unemployment rate for 2015 was 5.3%—so to qualify as a TEA in 2016, the area’s unemployment rate must be at least 8.0%.

While states list existing TEAs, project sponsors may also apply for special TEA designation. If the area in question is at the MSA or county level, a project sponsor can petition United States Citizenship and Immigration Services (USCIS) directly. This petition must contain evidence from the Bureau of Labor Statistics that the area’s unemployment rate is sufficiently high.

Most specially designated TEAs, however, are formed at the census tract or even census block level—in which case the state must issue a TEA designation letter.

And so while TEA designation is governed by federal law, states are responsible for actually issuing TEA designation letters. This dynamic has resulted in policies that vary greatly by state.

For instance, while certain states maintain a level of flexibility regarding TEA designation, others are more rigid. Some states clearly define the data sets they use, while others take a more opaque approach. And while some states outline their TEA designation policies and expect applicants to provide the necessary details and analyses, others offer no real insights into their policies and simply require a project’s address.

Following is an analysis of three states—California, New York, and Texas—which offers some insight into just how diverse each state’s TEA designation policies can be.

California TEA Designation Policy

The TEA designating agency for the State of California is the Governor’s Office of Business and Economic Development, also known as GO-Biz. GO-Biz employs a highly transparent, flexible set of policies and offers a number of tools as well as useful information on its website to help stakeholders analyze project sites before making a TEA designation request.

California allows for what it calls “special TEAs”—which can be comprised of up to 12 contiguous census tracts in any configuration whose average unemployment rate meets the required minimum. An individual census tract can also constitute a special TEA as long as the tract meets the necessary unemployment rate.

Before the state will issue a special TEA designation letter, however, the applicant must obtain a letter of support from the appropriate local Economic Development Corporation (EDC), city, or county. In this letter, the local EDC will indicate whether or not it agrees that the area will be a likely source of the project’s labor force. Usually, this process is fairly simple—but if an EDC has never issued a support letter, the process can be a bit more involved and may result in delays.

In addition to the EB-5 Program overview and TEA policy information given on its website, GO-Biz offers users an online web tool that generates TEA designation requests based on address. The tool uses the address to identify the census tract and provide its unemployment statistics, which allows the user to determine if the single census tract qualifies as a TEA. If necessary, the user can then create a group of contiguous census tracts, and the application will update the combined unemployment figures. The final product is an official TEA request based upon the information provided by the user.

While the GO-Biz TEA interactive tool is a valuable asset, it isn’t perfect. For example, users must input exact addresses—information which may not be known yet. And even if an exact address is given, the tool may not recognize it, or an incorrect census tract may be selected. Each project is unique, and each TEA designation request is likewise unique, and so no single tool will work for every situation.

Despite its shortcomings, though, this tool represents both California’s commitment to serve EB-5 stakeholders and the popularity of the EB-5 Program in the state.

New York TEA Designation Policy

In New York, the Department of Labor reviews all TEA designation requests and determines eligibility, but Empire State Development issues the TEA designation letters.

Unlike California, where those requesting special TEA designation must submit detailed TEA analysis as well as the local EDC support letter, New York requires only the project’s location. This makes the TEA designation request process fairly simple.

Once it receives the project’s location—whether a specific address, an intersection, or some other identifier—the New York Department of Labor conducts its own independent analysis of the site to determine whether or not the location qualifies as a TEA. As part of this analysis, the Department of Labor tends to consider unemployment data for census tracts as well as census blocks. New York accepts combined census tract TEAs. The state does not seem to limit the number of census blocks or tracts used to form a TEA, and the configuration of the TEA seems unrestricted as well.

Whereas most states use the most recent available American Community Survey (ACS) data for calculating census share, New York currently uses census data from 2000. This may change in the future, and if the state does begin to use more recent data, the unemployment rate for census tracts—and especially census blocks—could shift drastically.

Texas TEA Designation Policy

The TEA designating authority in Texas has been delegated to city mayors and county judges—which seems to offer a level of flexibility. Compared to most states, however, Texas tends to have one of the most complicated and frustrating TEA designation processes.

Following are several drawbacks that have resulted from the way Texas has delegated its TEA designating authority to cities and counties:

First, the state does not have an official data set for TEA designation, though some larger cities have defined which data and which procedures they will accept. As a result, throughout much of Texas, any credible data for census tracts or census blocks may be used to demonstrate an area qualifies as a TEA. In practice, however, this tends to complicate the process by forcing project sponsors to rely on the expertise of economists to determine whether or not an area has a high enough unemployment rate for TEA designation.

Second, cities and counties may be uncomfortable with the EB-5 Program and, in particular, might be apprehensive about the implications of providing TEA designation. For instance, the city or county may be concerned about any legal repercussions of issuing a TEA designation letter. Also, the city or county might be worried that issuing such a letter would adversely affect its image by acknowledging the community has a higher-than-average unemployment rate.

Third, cities and counties can tend to consider elements beyond simply whether or not an area is eligible for TEA designation. For instance, cities and counties sometimes fail to consider only whether an area is TEA eligible and instead consider whether they want the project to receive TEA designation—regardless of the data.

Fourth, cities and counties tend to be reluctant to issue TEA designation letters when the area in question lies within multiple jurisdictions. For example, if some of a TEA’s census tracts are within city limits but others are in the county, obtaining a designation letter may prove challenging—even though the area may obviously qualify for TEA designation.

Instead of simply determining whether an area is eligible for TEA designation—which is what designating authorities are supposed to do—the local designating authorities in Texas seem to sometimes shift their focus to other issues that should not be relevant—such as TEA designation implications, whether they like a particular project, and jurisdictional concerns.

TEA Designation Summary

As demonstrated by California, New York, and Texas, the TEA designation policies of one state can vary significantly from those of another. While understanding federal EB-5 regulations is vital to the success of any EB-5 project sponsor, sponsors must also carefully examine the specific policies of the states in which they plan to operate.

California New York Texas
Designating Authority Governor’s Office of Business and Economic Development (GO-Biz) Empire State Development City mayor or county judge
Data Source 2013 BLS & 2011 ACS   Depends
Update Frequency Annually (May 1) Annually (April) Depends
Census Blocks No Yes Depends
Census Tracts Yes Yes Yes
Combined Blocks/Tracts Yes Yes Depends
Block/Tract Limit Up to 12 No defined limit Depends
Block/Tract Configuration Defined by applicant Defined by Department of Labor Depends
Application Process Make request based on state-provided data Make request based on project location Contact the appropriate mayor or judge