New TEA Definitions Proposed in December 2016

Another Round of TEA Proposals

The future definitions of Targeted Employment Areas (“TEAs”) still hangs in the balance as both potential regulatory changes and new legislation continue to make the rounds. Right now, the EB-5 community is in a tizzy about potential new regulations from USCIS (see, for example, GreenbergTraurig’s recent article).

In the meantime, legislation regarding the reauthorization of the EB-5 Regional Center Program continues to be passed around Congress. While the proposed bills introduce many points of interest regarding the Regional Center Program, this post focuses on the impact the bills have on TEAs – which would affect both Direct and Regional Center investments.

Most recently, a bill was circulated that would change the definitions of TEAs to include three types of areas: military base areas, rural areas, and priority urban investment areas. The process for determining if a project location could be designated as a TEA under these proposed definitions is shown in our flowchart below.

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Highlights of “Grassley 2.0” Proposed Definitions

This most recent legislation regarding the EB-5 Program circulated Congress in December 2016. As illustrated in the flowchart, it introduced potential new definitions that would both expand and restrict the designation of locations as TEAs.

The new definitions would allow for areas to be designated as military base TEAs, and the rural area definition would be expanded to include outlying counties of MSAs and census tracts with low population density. Additionally, the concept of “special projects” – which are infrastructure or manufacturing projects – would be introduced as another option for lowered minimum investment amounts.

On the other hand, the new definitions would severely restrict the ability of projects in urban areas to qualify as being in TEAs. The proposed definitions would confine urban-based projects in two new ways. First, the ability to create an area out of multiple census tracts would essentially be eliminated – the census tract in which the project is located must meet the requirements of the TEA by itself alone. Secondly, the definition would require that the single census tract meet not one, but TWO of three targeted area qualifications: high unemployment, high poverty rate, and/or low median income.

Interestingly, the bill uses language that says that an urban project can seek designation as a priority urban investment area using a combination of census tracts – however, the definition states quite clearly that every census tract in that combined area would need to meet two of the three criteria. Therefore, the ability to combine census tracts would be appear to be moot for almost all projects, as the census tract containing the project would need to qualify on its own.

The new bill proposed other important revisions relating to TEAs as well, including revised minimum investment amounts and the introduction of “visa set-asides”. Minimum investment amounts would immediately increase from $500,000 to $650,000 – and yes, it is believed that projects that currently qualify as TEAs but may not have qualified under the proposed definition would be required to increase their minimum investment amount from EB-5 investors who had already committed. Over the next few years, the TEA investment amount would be increased to $800,000 in phases.

Similarly, an allocation of the visas made available under the EB-5 Program would be reserved for investments in specific TEAs; the allocation would be increased over two years. The feasibility of actually implementing the visa set-asides, however, seems questionable, as the timing between when an investor makes his/her investment in the TEA-based project and when that investor obtains his/her visa often lasts well over two years.

TEAs and the Future of EB-5 Regional Centers

The idea behind TEAs in the EB-5 Program is to promote investment in areas that typically do not attract development – typically, these areas exhibit low scores on economic indicators, such as high unemployment rates, high poverty rates, and low median incomes. Currently, the process for determining whether a project is located in a TEA is more straightforward than the proposed bills. A TEA can be determined in one of two ways: as a rural area, or as a high unemployment area. When an EB-5 project is located in a TEA, the investors qualify for a lowered minimum investment amount. At this time, the lowered investment amount is $500,000, while EB-5 projects in non-TEAs require a full minimum investment of $1,000,000 – which are the values set when the Regional Center Program was introduced in 1992.

Right now, the Regional Center Program is up for reauthorization – and is under scrutiny by many. Plans to reauthorize the Regional Center Program now include many reforms to the EB-5 Program as a whole, including changes to how easy (or hard) it is for a project to be located in a TEA. The proposals show a tendency to build on one another – and they have shown a trend towards more and more restrictive definitions of TEAs. For urban projects, the trend indicates the possibility that urban TEAs may be restricted to a limited number of contiguous census tracts, if not a single census tract. For non-urban projects, there has been a trend toward more lenient definitions.

We have closely monitored and illustrated the proposed definitions of each of the major bills – you can access them through the following links:

To the consternation of most of the EB-5 industry, we have been waiting for several years for any proposed changes to take effect. The Grassley 2.0 bill discussed in December was not approved, and we must continue to wait for the next proposal, which may or may not be a significant revision of Grassley 2.0. Clearly, it is impossible to pinpoint how the definitions of TEAs will look in the final legislation – and even then, the definitions will most likely need to be refined by USCIS. But until then, we will continue to keep a close eye on the matter – and we are available to discuss any details, questions, or concerns now and moving forward.

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