“TEA Designations – Final Rule Leaves Many Questions and Risks”

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“TEA Designations – Final Rule Leaves Many Questions and Risks”

by Michael Kester, Economist, ImpactData Source 

The final rule for The EB-5 Immigrant Investor Program Modernization regulation was published by the Department of Homeland Security (DHS) in the Federal Register on July 24, 2019 (“Final Rule”), and will go into effect on November 21, 2019. Besides a few minor clarifications, The Final Rule language related to TEAs does not differ much from the Notice of Proposed Rulemaking (“Proposed Rule”) that DHS released more than two years ago in January 2017. So, by now most EB-5 industry stakeholders are familiar with the following main TEA-related changes in the Final Rule:

  1. Drastically limits census tract combination for high-unemployment TEAs: census tract aggregation will be limited to the project tract(s) plus some or all of the tracts that are “directly adjacent” to the project tract (i.e. a TEA can only consist of the tracts that touch the project tract for aggregation purposes). While this article will not go into great detail on this topic of the new census tract aggregation restrictions, please see the prior Regional Center Business Journal article “TEA Designations – Proposed DHS Rule Would Significantly Alter the Process” which covers the topic in-depth (and is still relevant as the Final Rule does not differ from the Proposed Rule, besides a few minor language clarifications). DHS also will no longer allow census block groups to be used (only census tracts), which also significantly reduces the amount of possible TEAs.
  2. Significant increase in investment levels: Minimum investment in a TEA will be $900,000 while minimum investment outside of a TEA will be $1,800,000.
  3. DHS eliminates the ability of states to designate high-unemployment areas, and instead, DHS will make such designations. Investors will be required to provide sufficient evidence demonstrating the location would qualify for the reduced investment threshold.

While the main takeaways above have understandably garnered most of the attention of the industry, a deeper look at the TEA-related language in the Final Rule reveals many unresolved questions and the need for further clarity from DHS on the following topics:

  1. now that the onus is on the investor to prove the location is a TEA (instead of just providing a state-issued letter as under current TEA standards), what data/methodologies must be used for unemployment rate calculations at the census tract level?
  2. how and when do you know if your TEA has been approved?

This article will discuss these topics along with a few other takeaways of interest to stakeholders related to the Final Rule.

November 20th, 2019|Categories: Dept of Homeland Security (DHS), Government Affairs, Uncategorized|

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