Fewer TEAs, Less Job Creation

On June 3, 2015, Senators Patrick Leahy (Dem.) and Chuck Grassley (Rep.) jointly proposed Section 1501 of the American Job Creation and Investment Promotion Reform Act of 2015 (“S. 1501”), a bill to renew and reform foreign capital investment and job creation in American communities through the EB-5 Immigrant Investor Visa program. Although the original Congressional intent behind establishing the EB-5 category was to promote U.S. job creation through the use of foreign capital, the proposed bill S. 1501 would drastically revise current law and would have the overall effect of decreasing the use of the EB-5 program. One major change proposed by S. 1501 concerns the legislation governing Targeted Employment Areas (“TEAs”), and may have an adverse impact on many EB-5 projects, ultimately limiting the ability of EB-5 programs to operate successfully.

Under current regulations, a TEA is defined as, “a rural area or an area which has experienced unemployment of at least 150 percent of the national average rate.” Placement of an EB-5 in a TEA allows foreign investors to decrease their capital contribution level from $1 million to $500,000, as one goal of the EB-5 program is to stimulate investment in struggling areas of the U.S.[i]

The second major proposed change of S. 1501 in regards to TEA designation is how many census tracts can be considered in assessing a designation. High unemployment areas will be determined by “using the most recent census data available, consisting of a census tract that has an unemployment rate that is at least 150 percent of the national average unemployment rate.” As such, the Secretary will use only one census tract, as opposed to using various census tracts and employment records of surrounding areas to reach the required unemployment rate, as it is currently calculated in many states.

Limiting the designation process to the use of a single census tract will be problematic because many areas that currently qualify as a TEA, due to the aggregation of statistics, will no longer qualify for TEA designation if the bill is passed. Making a high unemployment TEA designation based on only one census tract is contrary to the overall policy of the EB-5 program, which is to create jobs in rural or high-unemployment areas. The resulting TEA areas will not accurately represent the goal of fostering economic investment in high unemployment areas, as the census tract only records where people live, and does not consider where people work. TEAs should not be determined based on population statistics alone because many EB-5 projects are developed in areas with low populations. Thus, it is essential to aggregate surrounding areas to reach the unemployment rate to allow EB-5 projects to develop in these areas.

Overall, the enactment of the proposed legislative amendments to the EB-5 program may result in a significant reduction of foreign capital investment and job creation, rather than an increase, which is the goal of the program. Ultimately, fewer TEA designations will result in less foreign capital investment and U.S. job creation.

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