Since 1990, foreign investors interested in obtaining U.S. permanent resident status for themselves and their immediate family members have had a lucrative option available to do so: the EB-5 Immigrant Investor Program. For years, the program has granted U.S. green cards to foreign nationals who make successful EB-5 investments, meeting the various program requirements and creating 10 full-time jobs filled by U.S. workers. The program funnels foreign capital into in-need regions by promoting targeted employment area (TEA) investment with the incentive of a lower required investment amount.
Though the EB-5 program has been continuing its mission to stimulate the U.S. economy for decades, in November 2019, making a viable EB5 investment suddenly became more difficult for countless prospective investors. When the Modernization Rule came into effect, it increased the minimum required investment amount for non-TEA projects from $1 million to $1.8 million and the amount for TEA projects from $500,000 to $900,000. Suddenly, countless prospective investors were no longer eligible to participate, and countless others found themselves restricted to TEA EB-5 investment.
The complicated aspect of TEA investment is that United States Citizenship and Immigration Services (USCIS) does not itself demarcate TEAs, meaning the investor must present evidence in their I-526 petition demonstrating why their project qualifies for TEA designation. While this certainly complicates matters, it packs both advantages and disadvantages: it demands additional effort from the investor and adds an extra element of uncertainty into the EB-5 investment journey, but at the same time, it allows for flexibility in demarcating TEAs.
TEAs come in two varieties: high-unemployment TEAs and rural TEAs. High-unemployment TEAs are classified as areas with an unemployment rate 150% of the national average, while rural TEAs are defined as having fewer than 20,000 inhabitants. The methods for calculating TEA eligibility differs for the two types, and this article focuses on calculation methods for high-unemployment TEAs.
Two Main Data Sources for TEA Justification
While USCIS does not outline one specific calculation method for determining TEA eligibility, the immigration body does provide particular data sources that EB-5 investors must base their calculation on. The first is American Community Survey (ACS) data, which is calculated at the census-tract level and released every five years. As of January 2021, the most recent release of ACS census-tract employment data is ACS 15–19, covering the five-year period between 2015 and 2019.
The second data source for determining high-unemployment TEA designation is Bureau of Labor Statistics (BLS) Local Area Unemployment Statistics (LAUS). BLS data is calculated at the county level and may be used independently to procure TEA status for qualifying counties or metropolitan statistical areas (MSAs). However, most TEA designation is granted at the census tract level, where BLS must be used in conjunction with ACS data to obtain a more precise estimate of current unemployment levels. While BLS data is released monthly, the yearly estimates are typically used in TEA status calculation because the calculations must be based on the most recent data available at the time of adjudication. In other words, using annual data is more practical, as the data remains valid for longer. Annual BLS data is usually published in April of the following year, so the annual BLS data for 2020 can be expected in April 2021.
Time Lags Mean Long Delays Before COVID-19 Impacts Are Visible
The COVID-19 pandemic has wreaked havoc on the entire world, including the United States and its economy. While the EB-5 program represents a lucrative means to help stimulate the U.S. economy in its time of need, the time lag in ACS and BLS unemployment data minimize the potential benefits the EB-5 program could offer as the United States rebuilds its economy. Those participating in an active EB-5 investment, as well as those considering making an EB5 investment, may predict future unemployment levels by considering which areas of the United States have suffered greater economic consequences as a result of the pandemic, but the nature of EB-5 TEA calculation may prevent the effects from permeating the data for several years. BLS data for 2020 will be available in April 2021, but in most cases, TEA calculation with just BLS data is unviable, and even when the ACS five-year data for 2016 to 2020 is released in December 2021, the impacts of COVID-19 will be drowned out by the data of the previous five years.
TEA Calculation Methods: ACS-Only vs. Census-Share
One of the key advantages of having to individually prove TEA eligibility for each EB-5 investment is that the two census-tract unemployment rate calculation methods can garner different results, and even if the EB5 investment does not qualify for the lowered investment amount in one calculation method, it may in the other. Ineligibility in one method does not disqualify an EB5 investment for TEA status as long as the other one indicates TEA eligibility, giving investors some control over their TEA designation.
Since the five-year ACS unemployment dataset focuses on census tracts, EB-5 investors can opt to use only ACS data in their TEA calculation. If they choose this route, they must similarly use ACS data to determine the national unemployment average to which they are comparing the census-tract unemployment rate.
If, however, the ACS-only method does not yield TEA eligibility, an investor can instead apply the census-share method, which combines the five-year ACS data with BLS data for a more precise estimate of current unemployment levels. The method compares the percentage of unemployment in the census tract as measured by the ACS data to the more recent county-based rate of the BLS data and, under the assumption that the percentage will remain stable, estimates a more current unemployment rate for the census tract.
Given the wide-ranging changes that are expected to permeate the unemployment rate data due to the COVID-19 pandemic’s debilitating impacts, differentiating between these two calculation methods could become more important than ever. EB-5 investment participants concerned their current TEA will lose its eligibility should opt for the more stable ACS-only method, while investors hoping their project region will become eligible for TEA designation should use the more volatile census-tract method, which will reflect the impacts of the pandemic sooner. By carefully choosing their TEA calculation method, EB-5 investors can better procure a bright future in the United States for themselves and their immediate family members.