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Targeted Employment Area (TEA) Webinar on Post 11/21/19 TEA Qualification Rules

Targeted Employment Area (TEA) Webinar on Post 11/21/19 TEA Qualification Rules

Sam (00:07):
Hi everyone. Thank you for joining us today. This is Sam Silverman, managing partner of EB5 Affiliate Network. I’m joined today by my partner, Mike Schoenfeld, who’s also on the line today. We’re going to walk through the targeted employment area qualification rules that are now in effect past the USCIS changes that went into effect on November 21, 2019. We’re going to also explain how to quickly check and determine if a project qualifies as a high-unemployment targeted employment area using our free online TEA map. If you have any questions during this webinar, please use the chat box in front of you to send us a question, and we’ll address all the questions at one time at the end of the webinar.

Sam (01:07):
So, quick background—again, I’m Sam Silverman, managing partner of EB5 Affiliate Network, joined today by my partner, Mike Schoenfeld, and our third partner, Timothy Shih. So, targeted employment areas—first we’ll start with the basics in the top-left corner. What is a targeted employment area? A targeted employment area, or TEA for short, is a project location that, under the current USCIS rules, is considered either 1) a rural area or 2) an area experiencing high unemployment at the time of the EB-5 investment. It’s important to note that, historically, before November 21, high-unemployment targeted employment area designations were issued by state agencies. So, each state would designate their own TEA authority, which would issue letters. So, you had 50 different states with 50 different offices in charge of issuing letters. Now, all of the designation is going to happen centrally at USCIS with more scrutiny and stricter guidelines for the approval of designated areas. So, first, before we get into rural or high unemployment, let’s look at the top-right. Why does this matter? First, projects that are located in a targeted employment area have a lower investment threshold of only $900,000. If you are not in a designated targeted employment area, then each investor in your project has to invest double, or $1.8 million. Obviously, we’re still early since the changes went into effect about two months ago.

Sam (03:08):
However, it does look like most projects in the marketplace are still targeted employment area–designated projects, which makes sense because there’s no reason why an investor would want to put in double the amount of capital unless they thought it was a significantly higher rate of return and or had lower risk associated with it. The goal, of course, with the targeted employment area–designation scheme is to compensate investors looking for investments in less attractive areas that the government believes should qualify for this lower investment amount because there’s going to be greater economic stimulation in areas that need more economic activity

Mike (03:55):
At the $500,000 to $1 dollar level before November 21, over 98% of projects were done at the $500,000 level. So, looking at this and now knowing that there’s an even bigger jump now, where it used to be $500,000 to $1 million, with a $500,000 delta. Now it’s a $900,000 Delta. We anticipate the market will continue to reflect this, and a vast majority of projects will fall into these new TEAs that will get funded.

Sam (04:29):
Exactly. And if we look at the two different types of designations… first, rural areas—it’s an area that’s outside of an MSA as designated by the Office of Management and Budget. Additionally, it has to be outside of a city or town with a population of more than 20,000 people. So, truly rural—not in an MSA and not in a town with more than 20,000 people. The other option, of course, is the high-unemployment TEA designation. And what that is is an area that’s experiencing at least 150% of the national average unemployment rate at the time of the investment. The area can be a county, a single census tract, or a combination of only directly adjacent census tracts. When we look at how the calculation methodology applies specifically for census tracts, most project locations will need to qualify under the census tract method—probably 90% of them.

Sam (05:35):
So, it’s important to really understand how that works at the census-tract level. What you need to know is that currently, there’s two different types of data that can be used to qualify projects at the census-tract level. The first is the American Community Survey data, or ACS. And the second is the census-share data method, which combines ACS and Bureau of Labor Statistics, or BLS, average unemployment data. So, same qualification approach—it’s just using two different sets of underlying unemployment numbers to get to the same calculation. And we’re going to go through how both of those work.

Sam (06:22):
So, again, taking a look at these two methods—because this is going to be where 90% of the projects are going to go to get their project qualified—so, again, there’s two different methods: first, ACS five-year data, and second, census-share data method. Both data sources are at the census-tract level, meaning that every census tract has two different sets of unemployment numbers: one using ACS and one using census share. So, the map has all of the same census tracts outlined. It’s just in some cases, on one map level of data, some tracts will qualify and others won’t, and vice versa on the other layer. So, when we look just geographically on these maps—so, direct your attention to the right side, where we’ve got the same area screenshotted using the two different layers of data—you’ll see that a lot of the tracts are very similar in that in a lot of cases, the data is the same.

Sam (07:30):
In other words, if you look at the blue box with the blue outline around it, the square on the left side—you’ll see that in both layers of data, that census tract qualifies. So, you could use either level of data, and that would work. However, if you look at the red star, you’ll see that when we use the ACS level of data, that tract does not qualify, whereas if we’re using the census share, it does qualify. So, that’s why it’s very important to check both methods. If you check one method and it works, then you don’t have to continue. You only need it to work with one of the two. However, if you check one and it doesn’t work, that’s where you would absolutely want to turn on the other layer that you haven’t tried yet and see if it does qualify using the second layer.

Sam (08:26):
It’s also important to realize that the qualification number is different for each set of data. So, on the ACS, you’ll see that currently the national unemployment matching rate is 5.9%, which means that the qualifying rate is 8.9%. So, if you’re using ACS data, the tract or direct combination needs to have more than 8.9% unemployment. Using the census-share data method, the rate is 3.9%, meaning that the hurdle rate is 5.9%. So, if you’re using census-share data, then the combined group of tracts needs to have at least 5.9% combined unemployment. And we’ll get into how that combination works on the next slide as well.

Mike (09:16):
And within both of these different methodologies, USCIS made it clear in their new guidelines that the only TEA for high unemployment that will qualify is a single census tract or the census tract directly adjacent to it—so, the ones touching it. Some people have called this the doughnut method. So, the census tract in the middle and all of the tracks around it—it’s applied the exact same way to both of these types of data. This is just two different ways of looking at the data available and using combinations to get it to qualify. Historically, you could use many more census tracts to get an area to qualify as a TEA that could extend out several census tracts away, and based on the new policy guidelines, that is no longer allowed. And it is very clear what will or will not qualify as a TEA based on these two sets of data.

Sam (10:13):
Great. Thank you, Mike. Okay. So, one of the key things to realize is that since most project locations will not directly fall in a single census tract that does automatically qualify, it’s very likely that you’ll need to utilize the combination ability to get a particular site to qualify as a targeted employment area. So, using our map, which has these three different layers, if you look below the map here, TEA with ACS data method, TEA with census-share data method, and TEA with county-level rural method—our map allows you to turn on and off each of these three layers. And then, visually, you can look at them and see if your particular project, like this one here, this blue outline census tract here—if that is your project site in that census tract, then it automatically qualifies, and no combination would be required. However, looking at the map again, if your project site is located here, in this census tract right here, the one that’s unshaded in the corner here, then you’re going to need to try combination method to determine if your project could qualify using a combination.

[Audio cuts out]

Sam (12:20):
And so, a combination—one, two, three, and four—would allow us to determine if the project site combination of these four tracts would together qualify as a high-unemployment TEA. And so, our map allows you to do that in real time for each of the different layers on the map. So, first, you would try the combination method using ACS layer, and if it didn’t work, then you would turn off the ACS layer, turn on the census-share layer, and try the same combination.

Sam (13:18):
Then, once you’ve determined, using the map, whether or not a particular site will qualify as a TEA using either the combination method or if the census tract is automatically qualified and no combination is needed, then your next step is to order an independent TEA qualification and analysis report. In order to approve an area, a project site, as a targeted employment area, USCIS now requires an independent qualification report that explains exactly how that particular site qualifies as a TEA under the new rules, what data sources were used, what type of calculation is being used to determine that the site does qualify—clear and convincing evidence must be provided to explain how that site meets the requirements. That gets included as part of a project’s I-924 designation or with each individual investor’s I-526 petition. And so, when you’re using the map, on the right side of our map, there’s a button that says “click here to order report,” and you can follow that link or go directly to the link at the bottom of this page—Get-TEA-Help.EB5AffiliateNetwork.com—to actually order a report. And at that point, you would know that the site does qualify because you’ve used our free map, and now you just need the letter that actually proves that to USCIS.

Sam (16:05):
And that wraps up today’s TEA webinar. To use the TEA map, you can visit our website directly—click “view the map,” and you will be able to see the map. On the right-hand side of the map, you’ll see a number of help buttons to view a video, helping you to visually see how the combination tool works, which is very popular with our map users, along with a number of other helpful links to order a report. And if you still have additional questions or need help designating a particular site, all the contact information [is here] to reach out to our team—we can usually get a response back within the same business day as to whether a site could qualify. If you don’t want to spend time and use the map, we’re happy to just take an address and double-check and give you a firm yes or no within the same day. Mike, do you have any other comments?

Mike (17:20):
Thank you all for attending the webinar. The new world of EB-5 is very different. Fewer projects are going to qualify as TEAs. So, it’s absolutely critical, in the first step in looking at a project, to go onto our map and work with it or work with our team to decide whether or not that individual site can qualify as a TEA. So, thank you again, everyone, for the time, and look forward to hearing from you soon.