RCBJ Retrospective: Regional Center Designation: Refining the Basic Approval

05.14.15 | Archived

lincoln stone1Regional Center Designation: Refining the Basic Approval (Volume 3, Issue 1, March 2015, Pages 36-38)

By Lincoln Stone, Partner, Stone, Grzegorek & Gonzalez, LLP

The Obama Administration has sought fresh ideas from stakeholders on how to reduce existing burdens and uncertainties on the part of participants in the Immigrant Investor Program and ensure the Program is achieving the greatest impact in terms of job creation, economic growth, and investment in national priority projects that the capital markets would not otherwise competitively finance. Here’s one. In the interests of promoting economic growth, job creation, predictability and efficiency, and with-out compromising program integrity, USCIS should revise its template regional center (RC) approval letter for general proposals to promote economic development.

USCIS issues a letter of approval, the Charter letter, advising the nature and scope of the new RC authority.  Over time these Charter letters had veered this way and that as Program policy evolved, see L. Stone, Trends in Approvals of Regional Centers in the EB-5 Investor Visa Program (RCBJ, May 2013), and S. Lazicki, 2013 Regional Center Approval Letters (RCBJ, June 2014), but nowadays USCIS has settled on two templates.  Charter letters are of two kinds – a basic RC designation (Basic Approval), or a RC designation coupled with a specific approved project (Project Approval).  This dichotomy follows the “hypothetical project” and “actual project” terminology that first surfaced with the USCIS adjudications memorandum of December 11, 2009 (note, not statutory), and has continued in practice and policy to the EB-5 Adjudications Policy Memorandum of May 30, 2013 (Policy Memo) and ever since.  If the RC proposal merits approval but the proposed plans for EB-5 investment lack the specificity of the EB-5 precedent decision Matter of Ho, then USCIS frames the proposal as “hypothetical” and meriting no more than Basic Approval.  But if the proposed EB-5 investment meets the high level of particularity in documentation required by Matter of Ho then the Project Approval will be given deference in later adjudications.  The overall USCIS effort is laudable; it fosters predictability in adjudications by providing a pathway for the RC to get Project Approval for a specific project that is ready to go, and it allows a different pathway for the RC that is not so far along in its transactions or regional economic development efforts.  Importantly, the Basic Approval pathway adheres to the 2002 statutory directive to facilitate RC designation based on a general proposal and general predictions about the kinds of jobs that will occur.

As reflected in Training Materials used by USCIS to train new EB-5 adjudicators, the Charter letter should outline all RC elements approved in the RC’s initial designation.  The Training Materials (obtained by IIUSA via FOIA) further instruct that the Charter letter should indicate that the following are approved (italics supplied):

  • Geographic area
  • Industry sectors
  • Job creation forecasting tools
  • Amount and source of capital committed to the RC
  • Promotional efforts

By comparison, here’s the essential content of the Basic Approval — acknowledging the underlying economic impact analysis, and having approved of that analysis, USCIS makes the following statements:

  • The applicant entity is approved as a qualifying participant in the Program
  • A specific geographic area has been approved, in which area the approved RC would focus, promote economic growth, and offer capital investment opportunities
  • A specific set of industry sectors (also identified by NAICS) has been approved, in which sectors the approved RC would focus, promote economic growth, and offer capital investment opportunities
  • Given that the proposed EB-5 capital investments are deemed hypothetical, “USCIS’s approval of the hypothetical job creation estimates presented in the Form I-924” will not be given deference in later adjudications

Focusing on the final item – “approval of the hypothetical job creation estimates” – it’s clear a more robust statement by USCIS would better comply with the instruction in the Training Materials to indicate the job creation forecasting tools have been approved. It’s not clear why the Basic Approval neglects this duty.  Also, a clearer statement should advance the cause of predictability for stakeholders and thereby advance the mission of economic development and job creation.   Rather than emphasize the negative (i.e., no deference in later adjudications) USCIS should unequivocally state in the Basic Approval that it has approved the job creation methodology proposed in the I-924 filing. In short, USCIS should revise its template language for the Basic Approval to state the following:

“USCIS approves the job creation methodology presented in the Form I-924 and the economic analysis dated ____, and the approval should be accorded deference in later adjudications.  However, in view of the determination that the business plan for EB-5 investment presented in the Form I-924 lacks the specificity required by Matter of Ho, it is hypothetical.  Therefore USCIS has not approved the application of the approved job creation methodology to a specific business plan for EB-5 investment, and in future adjudications of Form I-526 the business plan and related job creation estimates will receive a de novo review by USCIS.”

There is no doubt that approval of the job creation methodology is an essential part of the I-924 review process, even in the case of Basic Approval.  For more than 20 years regional centers have received Charter letters advising that the job creation methodology has been approved.  The current Policy Memo acknowledges the applicable regulations:  8 CFR 204.6(m)(3) requires the RC proposal, now the I-924 filing, to include a proposal that “provides in verifiable detail how jobs will be created indirectly… [and that] is supported by economically or statistically valid forecasting tools, including, but not limited to, feasibility studies, analyses of foreign and domestic markets for the goods or services to be exported, and/or multiplier tables.”  This regulatory language mirrors the regulation at 8 CFR 204.6(m)(7)(ii) relating to the EB-5 investor’s obligation to demonstrate that ten or more jobs are created indirectly by the business using “reasonable methodologies” including “multiplier tables, feasibility studies, analyses of foreign and domestic markets for the goods or services to be exported, and other economically or statistically valid forecasting devices which indicate the likelihood that the business will result in increased employment.”  The I-924 Instructions also note that a regional center application “must contain sufficient detail to provide valid and reasoned inputs into the economic forecasting tools.”  In practice, therefore, in order to ensure that the proposed regional center will be using a job creation methodology that would satisfy the regulation for “verifiable detail” and is an economically or statistically valid forecasting device for estimating future job creation, USCIS requires all I-924 filings to include reference to a specific commercial enterprise or project that will receive EB-5 capital.  The proposed EB-5 investment into a specific commercial enterprise or project – whether it leads to a Basic Approval or a Project Approval – provides an illustration of how the job creation will be estimated using the job creation methodology that is advanced in the I-924 filing.   If USCIS disagrees with the proposed job creation methodology it will not approve the I-924 application.  Consequently, in view of the fact that a central aspect of the I-924 review is USCIS consideration of the job creation methodology, the Training Materials require the RC approval letter to state that a particular job creation-forecasting tool has been approved.  It would be utter waste of government resources to do anything less.

Considerable confusion persists in identifying exactly what is a job creation methodology.  Given that all, or nearly all, EB-5 petitions for RC investors are grounded in input-output (I-O) models as a forecasting tool, limiting the following statement to cases involving I-O models is hardly a limitation.  A job creation methodology for purposes of EB-5 practice is (i) a clear description of a specific process or method for arriving at the specific inputs that are to be used in connection with an I-O model, and (ii) identification of a specific I-O model that would be used to transform the input data into forecasts of job creation.  For item (ii) above, RIMS II multiplier tables and IMPLAN are the most common forms of I-O devices used in EB-5 practice.  They are based on data from the Bureau of Economic Analysis of the US Department of Commerce, and they are routinely if not always accepted by USCIS.  But RIMS II and IMPLAN are not job creation methodologies.  A complete job creation methodology also requires item (i) above, an explanation of the specific inputs that will be used in the I-O process.  For a further explanation of I-O models, see P. Sommers & L. Stone, Regional Economics and Job Creation in EB-5 Practice, Inside Immigration (AILA 2012).

On the straightforward side of things, specific inputs might include – estimated and validated construction expenditures as input for estimating total job creation in the construction phase of a commercial enterprise; on-site workers as input for estimating total job creation in the operations phase of a commercial enterprise; or estimated and validated annual revenues as input for estimating total job creation in the operations phase of a commercial enterprise.  These forms of input data, if the inputs are validated as commercially reasonable for the particular industry in the particular region, are routinely accepted by USCIS.  There also can be variations or a few more steps in deriving the inputs for the I-O model.  The construction expenditures input could be derived by an estimate grounded in industry data for a particular type and size of construction project, without reference to a specific or actual project.  The number of estimated on-site workers could be derived by reference to studies indicating the number of workers-per-square foot for particular worker classifications.  Or, the estimated future revenues of a particular kind of operating business could be derived by use of a capital-output ratio that effectively translates the amount of investment in hard capital assets into an estimated revenue figure.  All of the above examples for deriving a set of inputs for use with the I-O model are legitimate and have been accepted as reasonable by USCIS in specific cases.  When the process for deriving the input data is combined with a particular I-O model we then have a job creation methodology.

A comprehensive discussion of “what if” scenarios that USCIS might encounter is beyond the scope of this brief plea.  Suffice to say, to clarify that the Basic Approval includes approval of the job creation methodology is not to green light even a single I-526 petition.  It’s only the methodology that has been approved; the application of the methodology to a particular actual EB-5 investment is a different matter.  Moreover, as in the case of Project Approval, USCIS has retained authority to change course in instances of fraud, mistake, and material change.  For instance where due to passage of time a foundational research source is outdated and is no longer a reliable data set for a particular job creation methodology, there’s no continuing need to defer to the earlier approval of the methodology in the case of the particular commercial enterprise.  If USCIS thinking about a particular methodology has evolved to a point that it has established certain pre-conditions for its use (e.g., as with Tenant Occupancy), it can pronounce its standards to stakeholders and apply those standards proactively in new cases.

By the time the Charter letter arrives, the newly-minted RC has been at it for about two years, half in preparation with very expensive consultants, advisors, economists, and lawyers of different stripes and half in anxious anticipation for USCIS review.  The Charter letter should state that the job creation methodology has been approved.  Without such clarity, the new RC is incapable of reasonably measuring its immigration risks with future EB-5 offerings.  Inability to calculate immigration risks is a deterrent to RC activity and contributes to stifling inbound EB-5 investment.  A revision to the Basic Approval is an easy step for USCIS to take, it could prove very beneficial for the Program, and it has no downside.

Lincoln Stone leads the Investor & Entrepreneur Practice Group at Stone Grzegorek & Gonzalez LLP, www.sggimmigration.com

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. 

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