Dude, Where's My TEA?

Changes to data used in unemployment calculations may have significant impacts on a site’s ability to qualify as a Targeted Employment Area (TEA)

On April 18, 2014, the Bureau of Labor Statistics (BLS) released the final 2013 annual unemployment rates for counties and other geographic areas. For many states, these annual data serve as one key component of their TEA calculations and many states have or may soon update their calculations to reflect the recently finalized 2013 labor force data. At the same time, states like California and Illinois have also updated another key component of the census tract-level unemployment calculation; they have transitioned from 2000 Census data to more recent American Community Survey (ACS) data. While previous year-to-year changes in census tract unemployment estimates had been relatively minor, the transition from 2000 Census data to ACS data may result in significant changes to local area unemployment estimates and could have potential negative consequences for planned EB-5 projects.

Primer on the Census-Share Calculation

Targeted employment area determinations typically rely on the most recent annual average unemployment rates published by the Bureau of Labor Statistics (BLS). In practice, targeted employment area determinations are commonly made at the census tract level. However, the census tract is a smaller geographic area than what the BLS reports in its Local Area Unemployment Statistics program, thus requiring supplementary data to be used jointly with the BLS data to estimate the unemployment rates for these smaller areas. The method used is called the “census-share calculation” and relies on two data components: (1) the aforementioned most recent annual average unemployment data from BLS for a larger geographic area (such as a county) and (2) previously collected unemployment data for a subarea (such as a census tract). The census-share method uses a census tract’s share of employment and unemployment, respectively, to disaggregate the current BLS estimates of employment and unemployment for the larger geographic area.

To illustrate the census-share calculation, consider Census Tract 53 in San Diego County. According to the 2000 Census, the tract accounted for 0.12% of the county’s employment and 0.21% of the county’s unemployment.

Table 1: Employment & Unemployment Shares Based on the 2000 Census
	Employment	Unemployment	Unemployment Rate
Census Tract 53 (2000 Census)	1,530	166	9.8%
San Diego County (2000 Census)	1,241,258	78,259	5.9%
Census Tract 53 Share	0.1233%	0.2121%

These shares calculated from the 2000 Census can then be applied to the newly released 2013 annual unemployment data from the BLS to determine the census-share estimate of unemployment for Census Tract 53. The table below shows the result of these calculations and reveals the unemployment rate in Census Tract 53 to be 12.3% for 2013 when relying on 2000 Census data.

Table 2: Census-Share Estimate Based on 2013 BLS Annual Unemployment and the 2000 Census
	Employment	Unemployment	Unemployment Rate
San Diego County (BLS 2013)	1,470,029	120,009	7.5%
Census Tract 53 Share	0.1233%	0.2121%
Census Tract 53	1,812	255	12.3%

The 2000 Census is one acceptable source of census-tract level data used to calculate employment and unemployment shares. However, the most recent source of employment and unemployment data for subareas such as census tracts is the American Community Survey. The American Community Survey began in 2005 and replaced the long form questionnaire component of the decennial census that previously provided these data. The May 30, 2013 Policy Memorandum from USCIS indicated the Service would accept ACS data for the purposes of calculating TEA unemployment. As a result, some states have switched from the 2000 Census to the ACS as the source for calculating employment and unemployment shares at the census tract level.

Transition to the American Community Survey

Prior to May 1, 2014, the State of California, for example, used data from the 2000 Census as the basis for its census tract employment and unemployment shares but has now transitioned to the American Community Survey 2007–11 data for this component.[1]

Table 3: State of California Census-Share Data Sources
Period	Data Component #1 Current Unemployment Data—Larger Geography e.g. County	Data Component #2 Previously Collected Unemployment Data—Subarea e.g. Census Tract
May 2014 to April 2015	2013 Annual BLS County Unemployment	American Community Survey (2007–11)
May 2013 to April 2014	2012 Annual BLS County Unemployment	2000 Census
May 2012 to April 2013	2011 Annual BLS County Unemployment	2000 Census

The census-share calculation described earlier for Census Tract 53 in San Diego County, relying on the 2000 Census, does not reflect the current method used by California. The tables below repeat the census-share calculation for Census Tract 53 but uses ACS data as the basis for the calculation of employment and unemployment shares, consistent with California’s current methodology.[2] Now, according to the American Community Survey (2007–11), the tract accounts for 0.16% of the county’s employment and 0.04% of the county’s unemployment.

Table 4: Employment & Unemployment Shares Based on the American Community Survey (2007–11)
	Employment	Unemployment	Unemployment Rate
Census Tract 53 (ACS 2007–11)	2,279	55	2.4%
San Diego County (ACS 2007–11)	1,382,856	135,379	8.9%
Census Tract 53 Share	0.1648%	0.0406%

The ACS-derived ratios are then applied to the same 2013 annual unemployment data from the BLS for San Diego County to determine the census-share estimate of unemployment for Census Tract 53. The table below shows the result of the census-share calculation using ACS data and reveals that the unemployment rate in Census Tract 53 is 2.0% for 2013 when relying on ACS data.

Table 5: Census-Share Estimate Based on 2013 BLS Annual Unemployment and the American Community Survey (2007–11)
	Employment	Unemployment	Unemployment Rate
San Diego County (BLS 2013)	1,470,029	120,009	7.5%
Census Tract 53 Share	0.1648%	0.0406%
Census Tract 53	2,423	49	2.0%

What does this mean and how will it affect a planned EB-5 project?

In one sense, estimating census tract unemployment using ACS data will be more reflective of the current unemployment trends in an area and will more accurately identify areas of high unemployment as they stand today. However, in the transition from 2000 Census data to ACS data, local area unemployment estimates may change significantly, meaning a site that previously qualified as a high unemployment area TEA may no longer qualify. Conversely, this transition may allow a site that did not previously qualify as a TEA to now be TEA-eligible. The transition may also have no effect on a site’s TEA-eligibility.

To illustrate how these changes can have drastic effects, take the case of two census tracts in San Diego County. As described above, the State of California used the 2000 Census data until this year. Accordingly, the census tract unemployment rate fluctuated only slightly year-to-year as a function of the changes in the county unemployment rate—moving in concert with the direction and magnitude of the county level unemployment. The unemployment rate in San Diego County has steadily improved over the last three years, falling from 10.1% in calendar year 2011 to 8.9% in 2012 and 7.5% in 2013. With the transition to the ACS 2007–11 data this year, the unemployment rate for some tracts has changed significantly. The graphic below shows two extreme cases which are not uncommon. Census Tract 53 in San Diego County qualified as a high unemployment area for the previous two years but no longer qualifies as an individual tract.[3] Conversely, Census Tract 87.01 did not qualify as a high unemployment area as an individual tract in previous years but now currently qualifies.

 

Figure 1: Changes in Selected Unemployment Rates from 2012 to Present

Notice in the graphic how all three unemployment rates fall by approximately 12% from the 2012–13 period to the 2013–14 period but the census tract unemployment rates change significantly and in opposite directions from the 2013–14 period to 2014–15 period as a result of the transition to the ACS data.

Summary

Each state has its own process and methodology for designating TEAs, some of which have or may soon change significantly. To perform the proper due diligence, new potential EB-5 project sites should be analyzed for TEA-eligibility based on how the state plans to designate TEAs going forward.

Furthermore, on the February 26, 2014 USCIS Stakeholder Meeting Call, USCIS specifically mentioned outdated TEA letters as a persistent problem with I-526 applications. For the parties involved in an existing EB-5 project that may have concerns that the project’s TEA designation has or will become outdated by the time any of the individual immigrant investments are made, or by time the investors’ I-526 applications are submitted, it would be prudent to discuss the matter with the project’s EB-5 attorney.

Additionally, depending on specifics of investor timing, it may also be wise to enlist an economist experienced with TEAs to review the site for the likelihood that the location remains or will remain TEA-eligible, taking into account any changes a state has or might be making the next time they update their TEA data, if known. In general, most state agencies are approachable and will provide information on their current processes, and also how they intend to designate TEAs in the future.

[1] Illinois is another example of a state that has recently transitioned from 2000 Census data to the American Community Survey data. Whereas California relies on ACS 2007–11 data for its census-share calculation, Illinois uses the most recent ACS data covering 2008–12. New York State, for the time being, continues to rely on subarea unemployment data from the 2000 Census for part of its census-share calculation.

[2] The designation and certification of high unemployment areas in the State of California has been delegated to the Governor’s Office of Business and Economic Development (GO-Biz). Such certification is based on official estimated unemployment data provided by the Employment Development Department of California.

[3] In the case of Census Tract 53 in downtown San Diego, now with an unemployment rate of 2.0% and no longer qualifying as a high unemployment area individually, a Special TEA certification could be obtained by combining the tract with nearby high unemployment tracts.