TEA Overhaul Dissected
The other week, we skimmed the surface of what the future of Targeted Employment Areas (TEAs) might look like by introducing the changes presented in Discussion Draft MDM15J40 – a bill that circulated Congress in mid-December and almost passed.[1] This proposed bill is the newest incarnation of Grassley-Leahy’s American Job Creation and Investment Promotion Reform Act; it never got a real title like S. 1501, as it was the last in a flurry of revisions distributed as the deadline loomed in December (IIUSA provides a nice chronology of these drafts). This bill introduced enough changes to provide blog topics for over a year, but right now we’ll focus on the reforms of TEAs.
In the next two posts, we dive into the language in MDM15J40 regarding TEAs, to see what the changes would have looked like, had this Discussion Bill passed. Please note that I talk about the legislation in MDM15J40 as if it has passed – obviously, this bill did not pass and so the definitions and discussions in this post are all hypothetical.
So why bother dissecting the language of the bill? Well, as we’ve discussed over the last few weeks, the EB-5 Regional Center Program (“the Program”) will certainly undergo some form of revision within the year, and one of the hottest topics of reform is the role of TEAs. We think it’s likely that the final TEA reform will be influenced by the legislation in MDM15J40.
It is important to note that many other draft bills circulated Congress around the same time as this particular Discussion Draft. However, the reforms proposed in this bill seem to have garnered the most support out of all the other proposed bills (you can check out the NYU Stern paper for more information on the others), but we’re betting that final legislation will look similar to MDM15J40 and that it’s worth figuring out the changes introduced in it.
Overview & Flow-Chart
In this new legislation, there are six ways that a project can qualify for the lower investment amount (compare that to the way TEAs have been defined for the past 15 years!).
First, if a project qualifies as a manufacturing or infrastructure project, then investors can invest at the lowered minimum investment amount, equal to the minimum amount for a TEA (which will probably be $800,000 per investor in the final legislation).
After that, there are five types of TEA definitions. Here’s our flowchart that summarizes how one could determine if a project is in a TEA. A detailed discussion of the definitions and the potential problems with these definitions follows; this post covers the first three types, while the next covers the remaining two.
First, let’s look at the TEAs that are determined solely by location.
Non-MSA-based Projects
Military Base TEA (New)
This TEA is by far the simplest definition in the Overhaul, requiring only that the project be located within the geographic borders of a military installation that has been closed within the last 20 years.
Rural Area TEA (Revised)
The Rural TEA option still has a two-level requirement, as before, but the second of those requirements has been revised to be slightly more inclusive.
First, the project must still be outside any city or town that has a population of 20,000 or more people. Second, the project must also meet one of the three following criteria:
- outside of a metropolitan statistical area (“MSA”);
- within an outlying county of an MSA;
- in a census tract that is larger than 100 square miles with a population density lower than 100 people per square mile.
This expanded definition means that a project located in an area that seems pretty rural, but is still in a county that is technically part of an MSA, can still qualify as a TEA.
For example, a project in Nashville, Indiana – the county seat of Brown County – would not qualify as a TEA under the previous Rural TEA definition, because Brown County is technically part of the Indianapolis–Carmel–Anderson, Indiana MSA (see map). However, Brown County only has a total population of roughly 15,200 people – that is, Brown County is pretty rural, even if it is technically part of an MSA. Furthermore, Brown County is an outlying county of the MSA.[2]. Hence, under the new Rural TEA definition, this same project now qualifies.
One aspect that is still a bit unclear regarding the Rural TEA is what constitutes an “area.” From the Discussion Draft, the language for the Rural TEA is “…‘rural area’ means an area that…” meets the stated criteria. Hence, as it is in the criteria, a rural area can now apparently be as small as a census tract. This interpretation could broaden the reach of the Rural TEA from before – unless the census tract area option is only applicable to projects qualifying under criterion (c).
The addition of the third criteria (the large census tract with a low population density) is a bit confusing, as it seems a bit unnecessary – I would suspect that, in general, a project that would qualify under this criteria would likely already qualify under one of the other two.
Anyway, if the interpretation of the new Rural TEA follows the same line of thinking as the previous definition, then an area should also qualify at the town-level or at the county-level – although these areas clearly only apply to criteria (a) and (b).
The final interpretation on what types of areas are allowed for the Rural TEA likely won’t be clarified after the legislation has passed and USCIS has issued guidance on the issue (as was the case with the previous definition). It seems reasonable to assume that this aspect will continue to remain the same, though.
Non-Urban Special Area (New)
The legislation doesn’t give this TEA a name, but it is essentially a TEA option for projects outside of MSAs but that have too many people to qualify as a rural area, so long as certain income requirements are met. For our purposes, we call it the Non-Urban Special Area.
The Non-Urban Special Area has a two-level requirement as well. First, the project must be in an area that is entirely outside of an MSA. Second, the project’s area must either have a poverty rate that is at least 20% (that is, at least 20% of the population is living below the poverty line) or have a median family income that is lower than 80% of the statewide median family income.
An “area” for this TEA is defined as consisting of a census tract or contiguous census tracts, and, if more than one tract is used, all of the tracts must meet both requirements – which essentially defeats the purpose of allowing the grouping of tracts. Furthermore, USCIS will need to clarify any requirements or limitations in the grouping of tracts (if, for some ridiculous reason a project would want to group census tracts).
USCIS will also need to clarify how these income-based criteria will be measured. The legislation says that the poverty and median income levels will be determined using “the most recent census data available” – but unfortunately for this TEA definition, the Census provides multiple data options for both poverty and median income. Specifically, Census data regarding poverty levels are available for either “All People” or “All Families.” Similarly, data regarding median family incomes are available for either “Total Households” or all “Families.” It is unclear which rates will be the correct ones to use to determine if an area meets the TEA criteria.
Next time: TEAs for Urban Areas
The three TEA types that are specifically for projects outside of MSAs have been summarized above. In the next post, we’ll look at the TEAs for projects in MSAs or for last-resort attempts, as proposed in MDM15J40.
[1] The most recent, publicly available version of this Discussion Draft is the version released on December 2, 2015, MDM15J00, available at http://www.leahy.senate.gov/imo/media/doc/MDM15J00.pdf. The reforms discussed in this post are from MDM15J40, which is the most recently revised version of the same bill.
[2] According to the current, official definition of the Indianapolis–Carmel–Anderson MSA by the Office of Management and Budget.
Banner Photo Credit: FreeImages.com/Irum Shahid
