The closing of businesses due to the pandemic caused by the rapid spread of the 2019 novel coronavirus, which causes COVID-19, has had a significant effect on employment levels in the United States. At this stage, it is impossible to know exactly what the long-term outcomes for employment will be, but it is reasonable to expect an increase in the national unemployment rate and fluctuations in regional unemployment rates. This, in turn, will affect targeted employment area (TEA) designation based on a high unemployment rate, but not rural TEA designation. Additionally, the effects will be delayed due to data lag, with the data for the current calendar year becoming relevant only in April 2021.
COVID-19 and EB-5 TEA Designation: The Basic Assumptions
Although numerous factors will influence the outcomes of the coronavirus pandemic for EB-5 investors, we can make several key assumptions. Infection rates and the effectiveness of response strategies will fluctuate across regions. Severely affected regions may experience unemployment rates that are on par with or higher than the national unemployment rate. Likewise, in less affected areas, the unemployment rate may be significantly lower than the national unemployment rate. The implications of this is that new regions may qualify as TEAs, and regions that currently qualify as TEAs may no longer qualify.
Moreover, the changes to unemployment rates and their implications for TEA designation will not become clear immediately. The two main types of data used to determine whether a project location qualifies as a TEA are American Community Survey (ACS) data and the data published under the Bureau of Labor Statistics (BLS) Local Area Unemployment Statistics (LAUS) program. The earliest update to a relevant data set relating to the current calendar year is expected in April 2021.
Understanding Unemployment Data for TEA Designation: ACS vs. BLS Data
When calculating unemployment rates for TEA designation, we use either ACS five-year data only or the census-share method, which relies on a combination of ACS and BLS data. Data about 2020 unemployment statistics will not become available until April or December 2021, depending on the data set.
ACS data is based on a five-year period and updated each December, with the data set published in 2019 covering the 2014 to 2018 five-year period. The next set of five-year data, expected in December 2020, will cover 2015 to 2019. Thus, data related to current employment conditions will not appear until December 2021, when the 2016 to 2020 data will be published.
BLS data is published monthly, but using monthly data for TEA calculations would not make sense, as the designation would need to be updated each month when the data becomes outdated. Consequently, census-share calculations typically rely on annual BLS data, which is published in mid-April each year. Therefore, the 2020 data will be published in April 2021.
Because the ACS five-year calculation method relies on data covering a span of five years, it tends to be the more stable method, and the effects of the COVID-19 crisis may not be as pronounced. Additionally, the updated information will not be available until December 2021, so it will take longer for the current employment rate changes to affect the data.
In contrast, the census-share method relies on annual BLS data in addition to ACS data, and the relevant data will be released in April 2021. This means calculations based on BLS data will show the effects of the COVID-19 pandemic faster than ACS five-year calculations, and we will probably observe more significant fluctuations over time.
United States Citizenship and Immigration Services (USCIS) accepts either the ACS five-year method or the census-share method. That means a project area must qualify as a TEA based on either calculation method—the project area does not have to qualify under both. In other words, even if a project area does not qualify as a TEA when we use the ACS five-year method to calculate unemployment rates, it could qualify as a TEA when we use the census-share method.
Future TEA Status in the Face of Uncertainty
While it is difficult to predict future TEA status at the best of times, the current uncertainty complicates forecasts even further. Current TEAs with unemployment levels far above the threshold might continue to qualify for designation. Similarly, we can base assumptions on the effects of the COVID-19 outbreak as they become clear. For example, considering the extent of the outbreak in New York, it should be safe to assume current TEAs in New York will still qualify as such when the data for 2020 is released in 2021.
Calculations are usually made at the census-tract level for a small labor force. This makes it extremely difficult to predict how COVID-19 will affect specific TEAs, as it is impossible to know at this stage whether or not major changes will occur. Moreover, if unemployment rates rise steeply due to COVID-19, entire counties may qualify as TEAs, eliminating the need for census aggregation. Finally, the most significant impacts of the pandemic should be temporary, so unemployment rates that increase in the wake of COVID-19 might fall back below the threshold once the local economy recovers. Whatever happens, it is safe to assume that unemployment rates will fluctuate
While no one can predict the future, we can look at monthly county-level BLS data to develop an idea of a project site’s continued TEA status. Although using BLS data will be more accurate for the census-share method, it is useful for the ACS five-year data method. ACS data will not be available until December 2021, but analyzing the BLS data can show how conditions in the project area are changing over time. This could provide valuable clues about what we can expect from the updated ACS data.
If you would like us to monitor a specific project location for you, please e-mail the EB5AN team at info@eb5an.com or schedule a call. We have developed an excellent understanding of the factors affecting TEA determination through the development of our free national EB-5 TEA map and our EB-5 TEA qualification report service.
