Mar
    30

    SelectUSA Investment Summit Recap: EB-5 Continues to be a Growing Source of Foreign Direct Investment into the U.S.

    Last week, IIUSA participated in the 2nd Annual SelectUSA Investment Summit in Washington, D.C. which was attended by 2,600 people including international investors from 70+ markets and U.S. public and private sector entities. With attendance more than twice that of the first SelectUSA Summit in 2013, it shows there is growing global interest in the United States as a place to launch and expand operations, invest in research and development, and create jobs.

    Housed within the U.S. Department of Commerce, SelectUSA is a government-wide program established in 2011 to promote and facilitate business investment into the United States in order to create jobs, spur economic growth, and advance U.S. competitiveness.

    IIUSA Sponsors SelectUSA Summit & Leads EB-5 Panel at SelectUSA Academy 

    On March 22nd, IIUSA Executive Director Peter D. Joseph moderated a panel at the SelectUSA Academy titled “EB-5: How Does it Fit with FDI?” Other panel participants included IIUSA members Angelique Brunner of EB5 Capital and Brent Raymond of the State of Vermont EB-5 Regional Center

    The conference kicked off with the SelectUSA Investment Summit Academy on Sunday March 22nd as IIUSA Executive Director Peter D. Joseph moderated a panel focusing on educating economic development organizations (EDOs) on EB-5 best practices. The other two panel participants were IIUSA members Angelique Brunner of EB5 Capital and Brent Raymond of the State of Vermont EB-5 Regional Center. In just 30 minutes, the presenters were able to convey to the audience the basics of EB-5 Regional Centers, steps for undertaking proper due diligence from the economic development, financial and immigration perspectives as well as review several case studies of EB-5 Projects in California, Vermont and the District of Columbia.

    IIUSA Exhibit booth at the 2nd Annual SelectUSA Investment Summit, March 23-24, 2015.

    In addition, IIUSA sponsored and exhibited at the SelectUSA Summit for the first time ever. For two days, IIUSA staff members had the pleasure of explaining the EB-5 process to hundreds of investors and economic development professionals around the country. Furthermore, IIUSA added dozens of signatories to its public letter of support for immediate EB-5 Regional Center Program Reauthorization. To date, a cross-sector coalition of 543 supporters have already signed on – reflecting the broad bi-partisan support the Program enjoys from across the country. IIUSA encourages its members to reach out to its partners as well as state and local stakeholders and encourage them to support our grassroots advocacy efforts. With any questions, please contact us at advocacy@iiusa.org.

    SelectUSA Summit Highlights

    On Monday, President Obama announced some new initiatives to make investing and expanding operations within the United States even easier for foreign investors and companies. In particular, Obama announced that the U.S. Citizenship and Immigration Services  (USCIS) will increase clarity around the adjudication of the L-1B non-immigrant visa that allows international companies to temporarily deploy workers with specialized knowledge when launching or conducting operations in the U.S. Read President Obama’s remarks here.

    Commerce Secretary Penny Pritzker introduces President Barack Obama at the SelectUSA Summit, March 23, 2015. Photo courtesy of SelectUSA.

    Earlier in the day, Commerce Secretary Penny Pritzker highlighted why the U.S. is the top destination in the world for foreign investment such as our rising job market; strong rule of law and intellectual property protections; world-class universities and our global leadership in R&D; stable financial markets and vibrant supply chains; and abundant and affordable energy supply. We also heard from Jeff Zients, Director of the National Economic Council, and a phenomenal panel of executives, discussing the resurging U.S. economy.

    On Tuesday, Google executive chairman Eric Schmidt spoke during a plenary session on “Training Your Skilled Workforce” and called on entrepreneurs from around the world to make more investments in smart phones and broadband networks.

    Secretary of State John Kerry closed out the conference with remarks calling for increased global trade and investment. Kerry noted that in today’s interconnected world, America does better when everyone grows and that “economies around the world are increasingly and inextricably linked.” Read Secretary Kerry’s full remarks here.
    Mar
    26

    RCBJ Retrospective: Twinning EB-5 with New Markets Tax Credits to Enhance Transaction Quality and Returns

    mfTwinning EB-5 with New Markets Tax Credits to Enhance Transaction Quality and Returns (Vol. 2, Issue 2, June 2014, Pages 21-23)

    By Michael Fitzpatrick, Partner, Baker Tilly Virchow Krause, LLP

    Recently, project sponsors have combined New Markets Tax Credits (NMTC) with EB-5 financing in order to provide additional capital to help close a funding gap and/or reduce the need for leverage, which has strengthened the overall financing structure of the projects. While significant benefits to project sponsors can be achieved, several structuring challenges need to be overcome.

    NMTC Background

    The NMTC program was enacted by the federal government in 2000 and is the first federal tax credit program to stimulate commercial investment in “low-income communities.” The program is overseen by the Community Development Financial Institutions (CDFI) Fund, an agency within the United States Department of Treasury. The CDFI Fund typically allocates $3.5 billion of NMTC authority to Community Development Entities (CDEs) on an annual basis. These CDEs  monetize the tax credits, using the proceeds to provide subsidized financing to qualified commercial projects that promote positive community impact.  Although different standards, NMTC-qualified areas will typically overlap EB-5 Targeted Employment Areas (TEA).

    After typical transaction costs, NMTC can fund approximately 20 percent of the capital stack of a project. The NMTC-subsidized financing can be subordinated to EB-5 funding and is usually structured as interest-only debt with an annual cost of approximately three to four percent and a seven-year term to match the NMTC compliance period. NMTC rules require all sources of project funding to close simultaneously with the NMTC funding co-mingled in the NMTC structure (see figure 1), with non-NMTC sources of funds used as “NMTC leverage.” At the end of the seventh year, the transaction unwinds (see figure 4), resulting in most or all of the NMTC capital permanently remaining with the project sponsor.

    Unlike EB-5, where a Regional Center may raise EB-5 funding at will, a finite amount of NMTC is allocated to CDEs each year from the CDFI Fund, and accessing it is very competitive. Less than 25 percent of the CDE applicants submitting an application for annual NMTC allocation authority are successful. Similarly, projects compete amongst each other for NMTC allocation from CDEs, as there are more projects seeking allocation than available. CDEs are free to allocate their limited NMTC resources to any qualified project within their service area that they deem worthy and are free to prioritize projects based on their business plan. A common element that all CDEs evaluate are the distress levels of the community and the projected community impact of the project, which is typically measured by job creation, the provision of unmet goods and services to the low-income community, environmentally sustainable outcomes, community support, and the potential for the project to be a catalyst for additional investment in the community. In addition, CDEs focus on financing impactful projects that are unable to obtain full funding through traditional sources of financing, making NMTC highly compatible with EB-5. Qualified projects must be located in low-income communities, which are defined by census tract information found using online mapping tools. Due to the complexity and economics of an NMTC transaction, projects with total costs of $6 million or more are most suitable.

    Similarities of EB-5 and NMTC

    A primary objective of both programs is to create jobs in distressed communities. While there are no specific job creation metrics for obtaining NMTC, providing evidence of job creation and other community benefits is important to persuading a CDE to allocate a portion of its NMTC to a project. In addition, both EB-5 and NMTC fund projects that have a gap in financing or are unable to fully fund with traditional sources of capital. Both programs provide underwriting that is more flexible than conventional financing and allows these projects to move forward. Additionally, NMTC can be used to cover costs that are ineligible under the EB-5 program, such as loan origination fees and construction period interest.

    Transaction Structures

    Structuring a transaction to be NMTC compliant requires some creativity to address the needs of all of the stakeholders. Figure 1 depicts a typical NMTC structure. In order for the tax credit generated by NMTC to flow to the party purchasing the tax credit, the “purchase price” is structured as an equity investment into a newly created “Investment Fund.” The Investment Fund is required to make a Qualified Equity Investment (QEI) in an amount equal to the amount of NMTC allocated by the CDE. Since the NMTC is 39 percent of the allocation amount, and purchased at a present-value discount, the Investment Fund needs additional capitalization from another source to fully fund the QEI; this additional capitalization is referred to as the “leverage loan.” The leverage loan can come from multiple sources and from any traditional source of project funding, including EB-5 monies. The QEI flows from the Investment Fund as an equity investment into a special-purpose entity formed for the specific project by the CDE (this entity is known as a subsidiary CDE or Sub-CDE). The Sub-CDE then makes a Qualified Low Income Community Investment (QLI-CI), which is typically depicted as an “A Note” [the source(s) of leverage] and a “B Note” (the NMTC proceeds, net of CDE fees).

    fig11

    Figure 2 depicts a slight twist on the basic structure, where the EB-5 funds are structured as a loan to the operating entity of the project sponsor, which makes the leverage loan with the resulting QLICI flowing into a special purpose entity that will hold the real estate project and lease it to the operating company.  In this example, the EB-5 project is a lender to the NMTC structure and a tenant of the Qualified Active Low Income Business (QALICB), where it can pledge a leasehold mortgage to secure the EB-5 loan.

    fig22

    Figure 3 depicts another variation where the sponsor funds the leverage using a bank loan and its own capital, with the resulting QLICI structured as subordinated debt with the EB-5 financing taking a first lien position.

    fig33

    Figure 4 depicts the unwinding of the basic NMTC structure. At the completion of the seven-year compliance period, the unwinding will typically follow the process below:

    • The Sub-CDE will distribute its assets (the A & B Notes) to the Investment Fund in exchange for the Investment Fund’s ownership in the Sub-CDE, resulting in no assets or equity remaining in the Sub-CDE. The Sub-CDE is eliminated from the structure.
    • The Investment Fund now consists of the A & B Notes as its assets and loan(s) payable to the leverage source(s). At the original closing of the transaction, the project sponsor (or its designee) entered into Put & Call Agreements with the NMTC Investor. The Investor is expected to exercise its put and sell its ownership in the Investment Fund to the sponsor for a nominal amount (typically $1,000). The result is that a party related to the project owns the A and B Notes, with a corresponding note(s) payable to the leverage source(s).
    • Typically, the project will refinance the QLICI A Note and repay the Investment Fund, which will use the proceeds to repay the leverage source(s), with the remaining B Note canceled for tax purposes since it is held by a related party. If the QALICB/Borrower is a for-profit entity, then the cancellation of the B-Note will have income tax ramifications that should be reviewed by a CPA.

    fig44

    Challenges of Twinning EB-5 and NMTC

    Twinning the two programs comes with some challenges. The first challenge is the timing associated with the closing and drawing of funds. The NMTC program requires all sources of funds present at closing, as the QEI must be funded fully in cash at closing for the tax credits to flow to the investor. On the other hand, it is customary for EB-5 funds to be drawn from escrow as investors are approved by USCIS. Complicating this challenge is the difference in the investment horizon, where EB-5 terms are five years as a matter of market practice, while NMTC has a seven-year compliance period. With careful planning before the EB-5 offering is drafted, these challenges can be overcome with the use of bridge funding and/or creative transaction structuring.

    An additional complication includes achieving the desired collateral position for the EB-5 investor, while also meeting the structuring requirements imposed in order to receive the NMTC tax opinion. While adding complication, early and careful planning with transaction professionals specializing in NMTC and EB-5 can result in achieving both objectives.

    Successful Twinning of NMTC and EB-5

    While twinning the programs does create some complication, numerous transactions have successfully used EB-5 and NMTC together to realize the full benefits of two powerful programs. The combination of the two incentives creates a stronger investment opportunity, benefiting the sponsor and EB-5 investor; however, it is important for a project to determine NMTC and EB-5 twinning feasibility early and to incorporate the proper structure and disclosures into its offering memorandum. ■

    RCBJ Retrospective articles are reprinted from IIUSA’s Regional Center Business Journal trade magazine. Opinions expressed within these articles do not necessarily represent the views of IIUSA and are provided for educational purposes.

    Mar
    25

    U.S. Securities and Exchange Commission’s (SEC) Office of Investor Education and Advocacy Translates 2013 Joint EB-5 Investor Alert into Chinese (Simplified), Korean & Spanish

    Recently, U.S. Securities and Exchange Commission’s (“SEC”) Office of Investor Education and Advocacy translated the October 2013 SEC/USCIS jointly issued investor alert into two three foreign languages: Chinese (View here), Korean (View Here) and Spanish (View Here).

    On October 1, 2013 the U.S. Securities and Exchange Commission’s (“SEC”) Office of Investor Education and Advocacy and U.S. Citizenship and Immigration Services (“USCIS”) issued a joint investor alert containing 14 specific suggestions that investors can use to undertake due diligence on investment opportunities and affiliated partners to protect the safety of their investment and compliance with immigration and securities laws. You can read the investor alert here.

    As the EB-5 Regional Center Industry’s trade association, it is IIUSA’s duty to maintain open and effective communication channels with governmental and regulatory authorities, such as the USCIS, SEC, Financial Industry Regulatory Authority (FINRA), and the North American Securities Administrators Association (NASAA), and relay information to our members and to the industry at large. Dissemination of information relating to investor education and safety, thanks to thorough due diligence, is key.

    In February 2013, IIUSA published several blog posts relating to investment due diligence tools, resources and outreach from both the SEC and FINRA including information on the SEC-developed web portal investor.gov and Broker Check search tool, which allow investors to do background research on FINRA registered brokerage firms and finance professionals.

    In March 2013, IIUSA posted about NASAA’s investor education tools to its website. NASAA, which is comprised of State Securities Regulators, is responsible for “licensing securities firms and investment professionals, such as broker-dealers and investment advisers, registering certain securities offerings, reviewing financial offerings of small companies, auditing branch office sales practices and record-keeping, promoting investor education, and most importantly, enforcing state securities laws. In addition to protecting investors, many state regulators also help small businesses raise money and comply with securities laws.”

    Lastly, in June 2013, IIUSA’s Best Practices Committee recommended alist of best practices to provide guidance to the industry to promote business practices that will foster the growth and success of the EB-5 program. This list, comprising 38 points on matters from Regional Center Oversight, Securities Issues, Escrow, Agents/Marketing, Immigration attorneys and investors relations are meant to provide guidance to regional centers seeking to enhance their operations and provide protection to themselves, investors and other involved parties.

    By providing this information to any and all investors through their various websites, the U.S. government is clearly sending a message to investors from all over the world that they are protected under U.S. securities laws, which exist to deter fraud and punish those who partake in it. It is the responsibility of the investor, however, to perform thorough due diligence on investment opportunities and affiliated business partners. Thanks to U.S. securities laws, and the outreach and resources of the SEC, FINRA and NASAA, the tools are not hard to find.

    Combining this guidance with the recommendation provided by IIUSA’s hard working leadership, committees, and membership to promote ethically sound business practices, there is now a robust body of work with several layers for the industry to turn to for guidance.
    Other important links provided by Investor.gov pertaining to SEC enforcement actions or investor alerts involving EB-5 include:

    Mar
    24

    USCIS Announces EB-5 Immigrant Investor Program Stakeholder Engagement for Wednesday, April 22nd

    U.S. Citizenship and Immigration Services (USCIS) invites you to participate in a stakeholder teleconference on Wednesday, April 22, from 1 to 3 p.m. (Eastern) to discuss the Immigrant Investor Program, also known as the EB-5 program. This engagement is part of our ongoing efforts to enhance dialogue with our stakeholders in the EB-5 program.
    During the first part of this engagement, we will provide EB-5 program updates. The second part will be a question-and-answer session. We invite you to ask non-case specific questions or provide feedback on the EB-5 program.

    To register for this session, please follow the steps below:
    • Visit the USCIS registration page to confirm your participation
    • Enter your email address and select “Submit”
    • Select “Subscriber Preferences”
    • Select the “Event Registration” tab
    • Be sure to provide your full name and organization
    • Complete the questions and select “Submit”
    Once USCIS processes your registration, you will receive a confirmation email with additional details.

    To submit non-case specific questions before the teleconference, please:
    If you have any questions regarding the registration process, or if you have not received a confirmation email within two business days after you register, please email Public.Engagement@uscis.dhs.gov.
    Mar
    23

    IIUSA EB-5 Conference Alert: Ticket Prices Go Up on Wednesday – Full Speaker Lineup Available Now!


    IIUSA Member – $750 ($850 after 3/25) 
    Nonmember- $999 ($1,050 after 3/25) 
     
    Conference Hotel & Venue Information
    Hyatt Regency 
    Capitol Hill
    400 New Jersey Ave NW, Washington DC 2001
    Reservation requests received are based on availability at the Hotel’s prevailing rates.Book today!

    Calling all EB-5 Stakeholders to Washington, DC for Next Month’s IIUSA’s EB-5 Advocacy Conference!

    Invest in the USA (IIUSA) cordially invites you to join us the EB-5 Conference of the year from April 12-14 in Washington, DC! The EB-5 Regional Economic Development Advocacy Conference, hosted by IIUSA each spring, is the longest running EB-5 conference attended by international investment and economic development professionals from around the world.
    The Hyatt Regency on Capitol Hill will be the setting for this cutting-edge event combining the right balance of grassroots advocacy, advanced education, and business development opportunities. Hear directly from the federal government on the future of the EB-5 Program, advocate with your industry peers and help us commemorate IIUSA’s 10-year anniversary as the industry trade association!

    Regular Ticket Pricing & Sponsorship Deadline is Wednesday March 25th!

    Would you like to be a sponsor or exhibitor? Only a handful of exhibit booths remain and the deadline is Wednesday March 25th to become a sponsor. View the sponsorship guide and sign up today by contacting us at info@iiusa.org.

    EVENT SCHEDULE  & GUEST OF HONOR SPEAKERS

    View Schedule in PDF, click here

    CONFERENCE SPONSORSHIP
     
    Sponsors & exhibitors at this year’s event will have 2+ days to showcase their services to

    Exhibit at IIUSA’s EB-5 Advocacy Conferece, the industry’s foremost event for advocacy, advanced education and business development

    a wide range of EB-5 stakeholders.

     
    There are only 2 booths remaining! The Last day to reserve a sponsorship slot isWednesday March 25th.

     
    Booth selection is determined on a first-come-first-serve based on sponsorship level. The exhibit floorplan and booth selection process will take place in March. Each exhibit space is 6′ x 30″ with a table, two chairs and table skirt. Platinum sponsors have a total exhibit space of 10′ x 30″.
    With questions, contact IIUSA Associate Director of Marketing & Communication Allen Wolff at 202-795-9663 or allen.wolff@iiusa.org.

    mems




    Mar
    19

    IIUSA Press Release: 2015 SelectUSA Investment Summit Academy to Feature Panel on Accessing EB-5 Capital



    2015 SelectUSA Investment Summit Academy to Feature Panel on Accessing EB-5 Capital

    IIUSA to participate on foreign direct investment and economic development panel to be held Sunday March 22nd


    Washington DC (PRWEB) March 18, 2015

    Invest in the USA (IIUSA), the national not-for-profit industry trade association for the EB-5 Regional Center Program (the “Program”), announces that Executive Director Peter D. Joseph will moderate a panel at the SelectUSA Investment Pre-Summit Academy on March 22nd at the National Harbor in Maryland. Mr. Joseph will be joined by IIUSA members Angelique Brunner of EB5 Capital and Brent Raymond of the State of Vermont EB-5 Regional Center for the panel “EB-5: How Does it Fit with FDI Development,” which will focus on educating economic development organizations (EDOs) on EB-5 best practices.

    “IIUSA is honored to participate in this important pre-summit workshop and represent the EB-5 Regional Center industry with experienced EB-5 practitioners from both the public and private sector,” said IIUSA Executive Director Peter D. Joseph. “For many years, IIUSA has worked with SelectUSA to promote American job creation and enhance economic growth by encouraging and supporting foreign direct investment (FDI) in the United States through the EB-5 Program. I look forward to sharing valuable industry insights with economic development organizations on how EB-5 can be aligned with local economic development strategies to spur economic development via FDI. EB-5 capital has played a vital role in America’s recovery from the Great Recession. These at-risk investments have given projects across the country the ability to add bank financing and other outside investments to their capital stack – a key in post-recession capital markets for economic development projects that will help write the next chapter of local economies across the country,” Joseph said.

    Housed within the U.S. Department of Commerce, SelectUSA is a government-wide program established in 2011 to promote and facilitate business investment into the United States in order to create jobs, spur economic growth, and advance U.S. competitiveness. According to a report released last year by the Executive Office of the President and the Department of Commerce, “SelectUSA has directly assisted in winning more than $18 billion in job-creating business investments for the United States in 17 different states and territories, and since October 2013, has assisted nearly 500 businesses, encouraging them to invest in the U.S. and helping them to navigate the Federal government.”

    The SelectUSA Academy is an orientation for companies, state and local governments, and economic development organizations attending SelectUSA’s annual Investment Summit where participants will learn about the finer details of investment in the United States.

    IIUSA has a strong track record of engaging with government entities like SelectUSA to educate stakeholders about the EB-5 program. Other organizations that IIUSA has worked with include the Council of Development Finance Agencies (CDFA), the National Association of State Securities Administrators (NASAA), the Securities and Exchange Commission (SEC), and U.S. Department of Commerce, staffs of several Governors, the U.S. Conference of Mayors (USCOM), and National Association of Counties (NACo).

    To learn more about or register for the Academy and the Investment Summit, click here. To view the full conference agenda, click here (PDF).

    Mar
    18

    IIUSA Introduces “New” Member Portal on IIUSA.org – Your Hub for Everything EB-5 Under One Roof!

    Last week, IIUSA rolled out a beta-version of its “new” Member Portal or online member database. This comprehensive portal (member.iiusa.org) will replace Basecamp as the new hub for IIUSA’s membership directory, calendar event listings and shared, member-only resources.

    An invitation e-mail from IIUSA titled “Setup Your Login for the New Member Portal” has been sent to your inbox so please follow the setup instructions. Since this will be your first time logging into your account in the new member portal, you will be asked to change your password and update your profile.

    Note: If you have not received this the invitation e-mail in your inbox, check your spam folder.

    If you have an existing account in Basecamp, an account has been setup for you in IIUSA’s new member portal. If you do not receive an email to setup your account in the next 48 hours, please email tech@iiusa.org immediately.

    If you do not have a current member account with IIUSA, you can purchase today for $100 per account.

    If you are unsure whether you have an account, have any questions about how to find particular information or suggestions to enhance the member portal, please e-mail IIUSA’s technology support team at tech@iiusa.org. Alternatively, you can review Member Portal FAQs at our Member Portal Help Center.
    Mar
    17

    New USCIS.gov Page Posted on EB-5 Evidence Tips

    Last week, U.S. Citizenship and Immigration Services posted a new webpage to its the USCIS.gov site for the EB-5 Program on tips for evidencing source of funds documents. On February 26, USCIS held an EB-5 Stakeholder teleconference titled (listen here, read summary here).

    Below are the contents of the new webpage:

    • Inconsistencies in documents: There may be legitimate reasons for inconsistencies. For example, the dimensions listed on pre-construction contracts for house purchases may vary from the actual dimensions shown on other documents. When submitting documents, providing explanations and evidence to reconcile inconsistencies will greatly reduce the chances of a Request for Evidence (RFE).
    • Unavailability of documents: Whenever possible, explain and provide evidence of the reason why a particular document is not available. For example, if claiming that proof of prior employment is unavailable because a company no longer exists, submit evidence that the company has been dissolved.
    • Probative value of evidence: “Probative value” refers to whether a document proves or supports a claim/eligibility requirement. So, for example, income tax returns from the government would have greater probative value and credibility than a letter from a family member or a friend as proof of income to show lawful source of funds.
    • Incomplete translations: USCIS requires complete English translations of all foreign language documents submitted as evidence. Ensuring that foreign language documents are translated in their entirety before submitting them will reduce the chances of an RFE or Request for Clarification.
    Mar
    16

    Record Setting EB-5 Capital Formation Continues in Q1-2015

    While IIUSA is merely weeks away from releasing its FY2013 Economic Impact Report of the EB-5 Regional Center Program, we would like to whet your appetite with some updated figures on minimum foreign direct investment (FDI) contributed by the EB-5 Program. In the first quarter of fiscal year 2015 (FY2015), the EB-5 Program contributed at least $826 million to the U.S. economy, the highest quarterly output in the Program’s history!

    The minimum foreign direct investment figure is calculated by multiplying the number of approved I-526 petitions (according to data provided by U.S. Citizenship and Immigration Services) by the minimum EB-5 investment amount ($500,000). In Q1 2015, there were a total of 1,652 approvals, a growth of 50% from Q42014. To view the complete I-526 data report, click here.

     

    Looking at EB-5 contributions of FDI year-over-year, FY2014 proved to be a high-water mark for the industry. In total, 5,115 I-526 petitions were approved which represents over 2.5 billion dollars in FDI.

     

    To view the complete I-526 data report, click above (Members-Only)

     

    Mar
    13

    RCBJ Quarterly Retrospective: State Designations of EB-5 Targeted Employment Areas

     

    USmap

    State Designations of EB-5 Targeted Employment Areas (Vol.2, Issue 2, March 2014)

    By Carolyn S. Lee, Partner, Miller Mayer, LLP

    clee

    Misconceptions about targeted employment area (TEA) designations continue to cloud the views about certain EB-5 immigrant investor projects. These misconceptions appear to be grounded in fundamental misunderstandings of the rules governing TEAs.

    TEAs discussed here are high unemployment TEAs as certified by authorized state agencies, qualifying investments in these areas for EB-5 investment at the $500,000 level, due to “high unemployment” of at least 150% of the national average unemployment rate.   Other types of TEAs are not controversial.  Rural TEAs are published by the Office of Management and Budget, are static and politically uncontroversial.  Similarly, high unemployment in an area already measured by the U.S. Bureau of Labor Statics (BLS), Local Area Unemployment Statistics (LAUS) program, such as Metropolitan Statistical Areas (MSAs), counties and certain large cities, requires no state certification because LAUS publishes unemployment data for these areas. If an EB-5 project is in an MSA, or a county is a TEA, no state designation is required because LAUS publishes high unemployment data for these areas.   Many non-rural projects are within MSAs and counties that as a whole do not meet the high unemployment thresh-old, so the project sponsors use the second form of evidence – state TEA designation letters for smaller geographic areas.

    The state government of any state of the United States may designate “a particular geographic or political subdivision located within a metropolitan statistical area or within a city or town having a population of 20,000 or more” as a high unemployment TEA.  Before a state makes any TEA designation, it must notify USCIS which state agency will be delegated the authority to certify TEAs.  Typically, a state’s labor department is the designated state agency.  USCIS regulations delegate to states the task of designating high unemployment TEAs for smaller areas within MSAs and counties for which no federal data are publicly available. Current USCIS policy, consistent with USCIS regulations, affords state designations robust deference.  USCIS, however, does not abdicate all review.  It reviews a state’s determination for compliance with the EB-5 program definition of high unemployment and ensures the use of the most recent federal statistics.

    While USCIS has oversight authority over TEA designations, the U.S. Department of Labor (DOL) provides substantive guidance and standards for state TEA designations. The DOL has issued at least four technical memoranda instructing state departments of labor on the proper methodology for determining EB-5 TEAs, most recently in July 21, 2010 (“DOL Technical Memorandum”). These technical memoranda make clear that in designating areas for which BLS does not produce employment estimates, states must use “the standard LAUS estimating methodology” including specified disaggregation methods.  Therefore, as long as states follow these DOL guidelines, USCIS defers to state TEA determinations.

    Is Gerrymandering “Rules Stretching”?

    Some have suggested that rules have been “stretched” to qualify certain sites as within TEAs. These sources point to selective uses of census tracts resulting in irregular shaped maps evocative of gerrymandered districts.  Others contend that census data are “manipulated” in violation of the EB-5 program rules.  It may be true that state designated TEA maps are rarely geometric and some are odd shapes. But this is not necessarily a sign of rule stretching.

    U.S. Department of Labor Standards

    Department of Labor guidance on state TEAs permit states to draw their own boundaries: “States may create geographic boundaries of any size and/or limit the size of these areas.”   States’ discretion to draw similar boundaries is not limited to the EB-5 program. The DOL TEA guidance allows states to find high unemployment for other federal programs:  “a State may choose to apply an ASU-type approach and identify very small areas that meet the unemployment rate minimum, but, if they find this process too time-consuming, they may decide to limit labor force estimates to areas with some minimum population size.” Areas of Substantial Unemployment (“ASUs”) are areas having among other factors an unemployment rate of at least 6.5% and are used to determine areas qualifying for federal funding programs targeting unemployment and worker displacement. This process is very similar to the process states use to designate EB-5 TEAs, as it also prescribes using LAUS methodology for calculating unemployment in sub-LAUS areas. Under DOL guidance, ASUs may be comprised of “any combination of LAUS areas and/or census-shared areas (for example, census tracts within counties, functional minor civil division (MCD) parts of census tracts, place parts of census tracts, and place parts of functional MCDs)” or “a portion of a LAUS area that is census-shared from a whole LAUS area.”   States’ findings of high unemployment areas using even parts of a census tract are therefore valid, as long as states use standard DOL methodology specified in the Manual for Developing Local Area Unemployment Statistics and follow all other procedures and statistical policy directives the memoranda require.

    No rule limits how states draw their boundaries for measuring high unemployment areas: “States may create geographic boundaries of any size and/or limit the size of these ar-eas.” The DOL ASU guidance states that an area “must be a contiguous geographic area composed of any combination of counties, balance of counties, cities, census tracts, or other areas within a State.  Contiguity may be accomplished if two areas are separated by a body of water (for example, river, lake, ocean) if the two areas are directly across the body of water from one another.” Accordingly, DOL guidance gives states discretion to configure the area as long they follow a BLS-approved methodology to find the local unemployment rate.

    USCIS Standards

    USCIS regulations expressly permit irregular areas to be recognized as high unemployment TEA is based on a state government letter meeting the requirements of 8 CFR 204.6(i). That regulation, in turn, states in part:

    The state government of any state of the United States may designate a particular geographical or political subdivision, located within a metropolitan statistical area or within a city or town having a population of 20,000 or more within such state as an area of high unemployment (at least 150 percent of the national average rate). Evidence of such designation, including a description of the boundaries of the geographic or political subdivision and the method or methods by which the unemployment statistics were obtained, may be provided to a prospective alien entrepreneur for submission with Form I-526.”

    These regulations make clear that states have the discretion to draw the geographic bounds of a TEA.  First, while “political subdivision” has a general defined meaning (such as a state, county, city), there is no general definition of “geographic subdivision.”  Also, because the definitions set apart the areas in the alternative as “geographic or political subdivision,” a geographic subdivision must have a meaning apart from political subdivision. It follows then, that “a” geographic subdivision may encompass any single area the delegated state authority designates. Thiis single area may encompass multiple political subdivisions, parts of political or statistical subdivisions, a single census tract, or an aggregation of different types of areas and/or parts of them, consistent with DOL guidance. The open character of geographic subdivisions under USCIS regulation is therefore consistent with DOL guidance discussed above.

    Second, recall that the regulations provide the state designation letter as an alternative form of high unemployment evidence distinct from evidence readily and publicly available to establish a single political subdivision as having high unemployment. If an MSA, county, or large city qualifies as a TEA, EB-5 petitions may simply collect public LAUS data and include that data with the petition. 8 C.F.R. 204.6(j)(6)(ii)(A) permits:

    “Evidence that the metropolitan statistical area, the specific county within a metropolitan statistical area, or the county in which a city or town with a population of 20,000 or more is located, in which the new commercial enterprise is principally doing business has experienced an average un-employment rate of 150 percent of the national average rate.”

    The USCIS’s Adjudicator’s Field Manual (AFM) is consistent with the regulations as set forth above. Chapter 22.4(c)(4)(F) of the AFM states:

    In some instances I-526 petitioners may claim high unemployment in only a portion or portions of a geographic area or political subdivision for which distinct unemployment data is not readily available to the general public from federal or state govern-mental sources. This may be indicative of an attempt by the petitioner to “gerrymander” a finding of high unemployment when in fact the area does not qualify as being a high unemployment area. Such a claim is not sufficient to establish that the area is a high unemployment area unless it is accompanied by a designation from an authorized authority of the state government.

    The purpose of the state designation letter is precisely to permit a state to designate irregular areas not readily encompassed by a political subdivision or subdivisions as high unemployment TEAs. An oddly-shaped TEA is no indication of rules stretching. Both USCIS and DOL rules applicable to state EB-5 TEA designations contemplate and permit state to draw boundaries consistent with DOL methodology such as consensus-share and population-claims methods. DOL memoranda make clear that for “components of non-rural areas” for which BLS does not publish data, LAUS methodology must be used. As long as states follow this guidance and prescribed methods, 8 C.F.R. § 204.6(i) is satisfied, regardless of the area’s shape.

    States as TEA Designators

    There is no better authority arguably than a state department of labor or workforce agency to designate TEAs. First, as the ASU example shows, states have followed similar DOL guidelines for other federal programs requiring BLS methodology to disaggregate BLS data for smaller geographic areas.  Second, it is in every state’s interest to ameliorate unemployment within their state. In particular, no governmental agency, has a greater interest in lowering unemployment and enhancing the workforce than a state labor agency, as their mission statements show.

    Notwithstanding states’ regulation by the DOL, USCIS reserves for itself oversight of states’ designations.  USCIS’s policy is to “ensure compliance with the statutory requirement that the proposed area designated by the state in fact has an unemployment rate of at least 150 percent of the national unemployment rate.” Consistent with its regulations, USCIS generally defers to states’ TEA designations.  However, USCIS “will review state determinations of the unemployment rate and, in doing so, USCIS can assess the method or methods by which the state authority obtained the unemployment statistics.”

    USCIS’s deference policy does not mean that it simply gives state TEA letters a pass.  USCIS regularly issues requests for evidence for updated state designation letters. This is consistent with DOL guidance for states to use “the latest 12-month average or latest annual average of data.” If EB-5 investor petitions for a large project are filed over a long period of time, often the next year’s BLS unemployment data will be available by the time the last ones are filed.  In these instances, USCIS requests a new TEA letter to ensure that the project re-mains within a TEA for the latter filings.

    USCIS has thus struck a considered policy balance between deferring to state agencies for the map and calculations, while reserving and reasonably exercising its authority to further review for compliance with EB-5 program rules.

    The Project Site and A Non-High Unemployment Consensus Tract

    Where the project site itself is not a high unemployment census tract, adjoining census tracts with high unemployment are brought within a contiguous geographic area to designate a TEA. This approach is consistent with how (1) the BLS measures unemployment and (2) economists measure job creation impacts of stimulation.

    The BLS does not use place of employment (i.e. where the business is located, operating, or principally doing business) when producing unemployment rates.  Rather, it uses workers’ place of residence using the Current Population Survey (CPS).  For states and local areas, the LAUS program uses a combination of CPS, Current Employment Statistics, State Unemployment Insurance programs, and BLS building-block and disaggregation techniques.  Households, not employers, are surveyed to determine unemployment.  Accordingly, a project site unemployment rate does not determine whether unemployment will be reduced at that site, whether that single census tract on which the project sits itself has high unemployment or not. This is because labor at a place of construction or operation comes from a much larger commuter area surrounding the construction site or place of business.  Indeed, the project site census tract may have no residents (and hence zero unemployment, necessitating inclusion of other areas to reach the 150% threshold).

    The fallacy of focusing narrowly on project site unemployment rates is further illuminated by economists’ method of calculating project employment impacts.  Economists choose a study area surrounding a project site of usually at least the county and more often several surrounding counties constituting the commuting area. This is because in choosing the study area, economists look to location of inputs of production – labor, capital (including supplies), and land.  As labor is a significant input, economists find commuter patterns to the project area totaling a significant percentage of the total labor force for that area – in the 80-90 percentile range. Economist typically use that labor force area for job creation impacts modeling.

    This labor force area is not limited to the single census tract on which the project sits. The RIMS II Handbook, published by the U.S. Department of Commerce’s Bureau of Economic Analysis (BEA), confirms that even one-county study areas, an area far wider than a single census tract, sometimes under-estimate impacts.   RIMS II is an economic impact modeling system created by the BEA.  Many current EB-5 projects use RIMS II multipliers to estimate a project’s job creation impacts. In its discussion of the user’s choice of study area, the RIMS II Handbook states: “if the study seeks a comprehensive estimate of the factory’s impact, then the region of choice is the economic area.” The BEA’s “economic area” is an area typically comprised of regional markets surrounding metropolitan or micropolitan statistical areas, which can include several counties. There are about 179 economic areas. There are about 3,000 counties in the United States, so economic areas are multi-county areas.  Clearly, in examining employment impacts of a project – EB-5 or other – looking at just the census tract project location yields no significant information.

    Conclusion

    The very purpose of state designations is to find unemployment in irregular sub-county areas, as the BLS does not generate unemployment statistics for these areas.  In doing so, states must follow BLS methodology and use the most recent available federal employment data.  It is not difficult for states to find high unemployment TEAs if areas surrounding the project site have pockets of high unemployment.  On the other hand, if there is no high unemployment in a project’s commuting area, it is highly unlikely that a state will find a TEA.  USCIS’s policy of deference strikes a measured balance between deferring to states’ use of BLS methodology, while reserving authority to review state designations to ensure proper use of federal data. ■

    RCBJ Retrospective articles are reprinted from IIUSA’s Regional Center Business Journal trade magazine. Opinions expressed within these articles do not necessarily represent the views of IIUSA and are provided for educational purposes.