Changes on the Horizon: The TEA Overhaul That Almost Happened, Part 1

The Future of TEAs in EB-5

As we reviewed in the previous post, the EB-5 Regional Center Program (“the Program”) is facing some changes in the coming year. Obviously, new legislation has not been finalized – therefore, we cannot know for absolute certain, but it seems more than likely that these changes will be pretty drastic.

In particular, the future of Targeted Employment Areas (TEAs) is pretty uncertain. Controversy over the proper role of TEAs has led to myriad attempts to revise the definitions of TEAs and the process of obtaining TEA-designation. Throughout 2015, we saw numerous attempts to revise the legislation regulating TEAs, ranging from severely stringent to completely lax. It is impossible to say exactly what the overhaul will look like once it comes around.

Fortunately, however, in mid-December, we did see a discussion draft circulate Congress that came the closest to passing into real legislation out of all of the proposed EB-5 reforms. This discussion draft, Discussion Draft MDM15J40, may therefore provide some insight into how the approaches to reforming TEAs might be converging.

Let’s examine what TEA legislation would have looked like under MDM15J40, as it is possible that future TEA reform may be informed by the definitions proposed therein.

The TEA Overhaul That Almost Happened

The new definitions of TEAs in MDM15J40 added a lot of complexity to the TEA part of the Program. The current requirements to be a TEA are based on location (to determine Rural Area TEA-eligibility) or unemployment rates (to determine High Unemployment TEA-eligibility). (See our TEA Determination Tree under Current Legislation.)

The TEA definitions set forth in MDM15J40 appear to be both more stringent and more liberal than before. For example, high unemployment TEAs constructed out of census groups would be limited to no more than 12 census tracts. However, the definitions in MDM15J40 would also expand TEA-eligibility by introducing new TEA optionss in additional types of areas, such as areas that:

  • straddle the line between rural and urban,
  • exhibit low income (either through high poverty rates or low median family income),
  • and/or are in closed military bases.

Instead of the two determinates of current practice, the proposed legislation would allow for five types of TEAs based on location, unemployment rates, and/or income levels.

Table 1: What determines TEA-eligibility in the proposed TEA Overhaul?
TEA Type Determined By:
Priority Urban Investment Area Unemployment Rates
Income Levels
Rural Area Location
Special Investment Zone Unemployment Rates
Closed Military Base Location
Non-urban Special Area Location
Income Levels

If a project was determined to be in one of these TEAs, investors would qualify for the lower minimum investment amount – currently $500,000 vs. $1.0 million, but expected to increase with legislative reform.[1] Furthermore, the project could qualify for the lower investment amount if it was an infrastructure or manufacturing project.

Notably, the proposed legislation also eliminates the States’ role in the determination of TEA-eligibility. Under the proposed revision, USCIS would be the only TEA-certifying authority.

So, What’s Next?

Again, the new rules have not been finalized; it is likely that the final legislation will be similar to that in MDM15J40, but there is no way to know for sure. Furthermore, even the “final” legislation will likely be open to interpretation, and it may take several months at least for the final eligibility rules to be clearly defined.

The Program, which has been extended without changes for now, is set to sunset next September. The current laws will stay in place until (a) new legislation is passed within the next nine months or (b) we meet the sunset date again.

Stay tuned for deeper dig into these new proposed definitions of TEAs.

 


[1] It is very probable that the final legislation will increase the minimum investment amount to $800,000 for projects located in a TEA.

 

Photo Credit: FreeImages.com/Irum Shahid