One of the reasons for the changes to targeted employment area (TEA) definitions in the November 2019 EB-5 program update stemmed from regional centers successfully developing projects in wealthy cities by taking advantage of the opportunity for multiple investors to contribute to such projects with lower investment amounts under the TEA exception. This exception, as outlined in the Immigration Act of 1990, states that while EB-5 investors in general must commit a $1,800,000 investment, investors in a project developed within a TEA may commit only half that amount, meaning $900,000.
When establishing the criteria used to determine a TEA, Congress chose to use unemployment as the target metric over other measurements of poverty, such as average household income. As such, a high unemployment TEA must experience unemployment of at least 150% the national average. This allows for situations in which areas with low average incomes but high employment would not qualify as TEAs, whereas areas with high average incomes but low employment would qualify. While this seems counterintuitive, one of the goals of the EB-5 program is to create employment, and targeting areas with low employment through TEA incentives is consistent with this goal.
As most regional center investments are made in the reduced $900,000 amount, it is clear that TEAs play a significant role in the success of the EB-5 program. This article explores how targeted employment areas are defined and what the consequences of these definitions are for EB-5 investors.
How Are TEAs Defined?
TEAs are outlined in the Immigration Act of 1990. However, their designations were reformed and clarified under a new rule published in the Federal Register by United States Citizenship and Immigration Services (USCIS) and the U.S. Department of Homeland Security (DHS) in July 2019, which came into effect in November 2019.
Previously, each state had the authority to designate TEAs based on available data. However, USCIS took over this function to ensure greater consistency in the designation of TEAs and to prevent gerrymandering to create TEAs that include areas within wealthy cities.
Under the previous definition, a TEA could span a region encompassing multiple income and employment levels if the average employment level for the entire region was low enough. For example, if a TEA comprised six neighborhoods in a major city, one of which had an employment level much higher than the rest, a project located in the wealthier neighborhood would still have been within the TEA.
Under the November 2019 definition, a TEA can still include multiple census tracts. However, only the tracts in which the new commercial enterprise will operate and the tracts directly adjacent to those tracts can be combined. The weighted average unemployment in the combined area has to be at least 150% of the national average.
Considerations for Investors
The benefits of investing in a TEA project are significant, as investors can take advantage of a lower investment amount than would be possible with a regular project. A regional center may obtain a TEA designation when its I-924 is approved, meaning when the USCIS has designated the organization as an official regional center under the EB-5 program. However, changing unemployment figures may affect the delineation of a TEA after that time. Therefore, each I-526 petition must be accompanied by documentary evidence obtained from reliable third parties that the project area still qualifies as a TEA. Investors should also include a description of the methodology they used to support this claim. Additionally, investors should confirm project areas’ TEA status before committing any funds.
Because of the potential for uncertainty surrounding TEA designation, investors will benefit from consulting with an attorney experienced in these procedures to confirm the possibility of investing in a TEA project.