The primary purpose of the EB-5 program is to stimulate the economy through foreign investment, particularly in rural areas or areas of high unemployment known as targeted employment areas (TEAs). Accordingly, the United States Citizenship and Immigration Services (USCIS) requires ample evidence that a project will indeed produce the necessary economic impact—specifically, that 10 full-time jobs will be created for each EB-5 investor involved in the project.
For direct investments by a foreign investor into a new commercial enterprise, only direct job creation is counted. Direct jobs are those created by the new commercial enterprise itself.
But for a project sponsored by an EB-5 regional center, the broader economic impact can be counted, which involves direct job creation as well as the creation of indirect and induced jobs. Indirect jobs are created through the EB-5 project’s spending on goods and services, and induced jobs are those created as employees spend the wages they’ve earned. To calculate this broader economic impact, an economic analysis is necessary.
Basics of Economic Analysis for EB-5 Regional Center Projects
The overall purpose of the economic analysis is to prove to the USCIS that the project produced the necessary 10 full-time jobs per EB-5 investor. The EB-5 program specifically requires a project’s economic impact analysis to use reasonable economic or statistical methodologies to estimate employment creation.
This economic analysis, however, is not limited to the project capital derived from EB-5 investments—the entire project is considered for the sake of its economic impact. In other words, all full-time direct, indirect, and induced jobs for U.S. workers created by the project will count toward the EB-5 employment creation requirement.
Projects in which EB-5 financing is a smaller percentage of the capital stack tend to have a higher ratio of jobs per EB-5 investor, which makes it easier for each investor to prove he or she has met the employment creation requirement of the program.
Types of EB-5 Economic Analysis
Typically, the economic analysis used with an EB-5 project is an input/output model, which can be loosely defined as a quantitative economic model that considers the relationships between the various industries in an economy. By considering these relationships, this type of analysis can be used to determine the broader economic impact of the project.
While other input/output models can be used, the two that are most common for EB-5 projects are IMPLAN and RIMS II. IMPLAN is provided by MIG, Inc., while RIMS II is provided by the U.S. Department of Commerce through its Bureau of Economic Analysis. EB5AN strongly recommends the use of RIMS II since it is an official government database and the job creation calculations tend to be more favorable for EB-5 regional center projects.
Factors that Affect EB-5 Economic Analysis
A number of factors affect job creation analysis, but the two most important factors are geographic location and industry.
The geographic location of a project affects its economic impact multipliers within input/output modeling. Generally speaking, the larger the area or higher the population, the larger the multiplier—which indicates greater job creation.
The project’s location and impact area are determined by where the project’s goods and services are purchased and where its employees live.
The industry classification of a project is determined using the North American Industry Classification System (NAICS). The project’s NAICS code affects its economic impact multipliers because some industries, such as manufacturing, have larger multipliers, while others, such as retail, have smaller multipliers. The business activity of a project will determine its NAICS classification.