The benchmarks used to delineate targeted employment areas (TEAs) within the context of the EB-5 Program have recently been under contention, as regional centers have successfully developed 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 $1,000,000 investment, investors in a project developed within a TEA may commit only half that amount, meaning $500,000.
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 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 the majority of regional center investments are made in the reduced $500,000 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?
While requirements for targeted employment areas are outlined in the Immigration Act of 1990, each state has the authority to designate TEAs based on available data. For example, while one state may designate a wide swath of rural land as a TEA, another might designate a small neighborhood within a large and otherwise prosperous city. This is meant to allow states to tailor the program to suit the needs of their populations in a way that would not be possible with overarching federal designations. However, while United States Citizenship and Immigration Services (USCIS), which administers the EB-5 Program, generally defers to state designations of TEAs, adjudicators will verify the calculations and data used when approving or denying EB-5 petitions.
Under the current definition, it is possible for a TEA to span a region encompassing multiple income and employment levels if the average employment level for the entire region is low enough. For example, if a TEA comprises six neighborhoods in a major city, one of which has an employment level much higher than the rest, a project located in the wealthier neighborhood would still be within the TEA. This allows for the development within the TEA of impactful projects such as luxury hotels, which benefit from being located in wealthier neighborhoods because of increased tourism to those areas, for example. In the scenario of the six neighborhoods given above, such a development would create economic growth throughout the TEA based on the logic that those without employment, meaning those from the neighboring disadvantaged areas, would benefit from the jobs created by the project.
Criticisms of the current designation criteria center on the argument that the sole metric of high unemployment is not adequate to allow for an accurate delineation of economically depressed areas. More effective criteria might be a combination of several factors, such as employment, income, education and crime levels, and others, for example. As such, critics argue that EB-5 investment funds are not currently being applied where they would be of most benefit. However, if the sole goal of the TEA designation is to encourage EB-5 projects to create jobs where a need for jobs exists, the current criteria is inarguably useful in that regard.
Considerations for Investors
The benefits of investing in a TEA project are significant, as investors are able to 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 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, and because USCIS will confirm the TEA status of a project only when an investor files his or her I-526 petition, investors should request a current letter from the regional center proving that a project is located within a TEA before committing any funds.
State strategies for delineating targeted employment areas may also change over time, so investors benefit from consulting with an attorney experienced in these procedures to confirm the possibility of investing in a TEA project.