Areas formerly known as TEAs?
A draft of proposed reform and reauthorization of the EB-5 Immigrant Investment program began to circulate Friday, March 9th. Among many revisions to the existing program, the draft included new definitions of areas that to be targeted for investment. These new definitions use several aspects of the trends that we’ve discussed before – and also introduce some new concepts.
In current practice, there is an incentive in the EB-5 program to drive investment into the “Targeted Employment Areas”, or TEAs. The proposed legislation appears to intend to drive investment not only into certain types of areas but also into certain types of projects. Furthermore, the proposed legislation seems to attempt to drive investment into these certain areas and/or types by continuing the concept of lowered minimum investment and by also introducing lowered job creation requirements and visa set-asides.
That said, the proposed legislation would increase both standard and lowered investment amounts and offers a differential of only $100,000 (compared to the current differential of $500,000). The proposed bill also would increase the job creation requirement to 12 jobs per investor (compared to the current 10); investors investing in the targeted projects would only be required to create 9 jobs each.
Details of the Proposed Definitions
The proposed legislation would allow for several types of incentives for projects to locate in certain types of areas and/or engage in certain types of development. In current practice, the incentive comes in one form, which is a lowered investment requirement, for projects located in certain types of areas, which are the TEAs. Currently, TEAs are either High Unemployment Areas (typically one or more grouped census tracts with a combined unemployment rate that is at least 150% the national unemployment rate) or a Rural Area (an area outside of an MSA that is also outside of any city/town that has a population of 20,000 or more).
The three forms of incentives in the proposed bill are:
- lower minimum investment requirement (similar concept as currently practiced, but with new values)
- lower job creation requirements (new concept, and with changed job creation requirements from current practice)
- visa set-asides (a concept that has been discussed within the dialogue around EB-5 reform, but which is not part of current practice)
These incentives can be achieved if projects are located in certain targeted areas and/or that meet certain characteristics, which are detailed in the table below. We analyzed the language in the proposed draft and built this table to showcase the project areas and the project types that are targeted by the proposed definitions.
Map of Areas That Would Qualify under Proposed Definitions
Below is our map that shows how census tracts would qualify under the proposed definitions above. The map shows census tracts that qualify as Priority Urban Investment Areas in BLUE and census tracts that do/may qualify as Rural Areas in GREEN.
The map shows poverty, median family income, and unemployment for all census tracts. The map highlights the tracts that are in MSAs and that meet one or more of the three criteria as outlined in the March 9, 2018 proposal: at least 20% poverty rate for all people, no more than 80% of the median family income of the State or MSA (whichever is greater), and/or at least 11.1% unemployment rate (a rate determined as 150% of the national unemployment rate).
The map also shows how census tracts may qualify as Rural Areas by highlighting tracts that are/may be outside of a city or place with a population greater than 20,000 and that also meet at least one of three criteria: outside of an MSA, within an MSA county with low population density (defined as less than 225 people per square mile), or within a census tract that has a large geography with low population density (defined as larger than 100 square miles with less than 100 people per square mile).
The map uses data from the American Community 5-Year Survey, 2012-2016, which is the most up-to-date data available from the Census Bureau.
As we’ve all known for some time now, there have been many indications that the definitions of TEAs might soon be changing – and our clients continue to ask us: will our project qualify if these changes occur? The definitions in the March 9th draft include the trend of using criteria informed by the New Market Tax Credit (“NMTC”) program and also raise some new concepts, such as targeting US territories and introducing lowered job creation requirements. See our article for a deeper discussion of the trends we’ve seen and for an overview of some previous proposals.
Trends in the legislative proposals over the last couple years are indicating that, whenever reform does come, it is quite likely that TEAs will be determined by criteria similar to those in the MTC program.
For now, we are watching to see what happens with the proposed legislation from March 9th and if the ideas for targeting investment in certain areas and certain types of projects, through three types of incentives, will continue to stay in future proposals and/or final legislation.
Please note that this map does not endorse or confirm any version of TEA reform that may or may not occur in the near future.
The Continuing Resolution has extended the EB-5 Program to March 23, 2019. As always, we will continue to closely monitor all legislative and regulatory developments.