State Designations of EB-5 Targeted Employment Areas (Vol.2, Issue 2, March 2014)
By Carolyn S. Lee, Partner, Miller Mayer, LLP
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 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.
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.