TEA Timing: THE MERITS OF LEGISLATION TO LOCK-IN A TEA DETERMINATION BY MICHAEL KESTER ECONOMIST, IMPACT DATASOURCE
or such a huge piece of the overall EB-5 puzzle, the nuances of the existing TEA standards can confuse even experienced EB-5 practitioners and are certainly tricky for newcomers to the industry to understand. “Is my project in a TEA?” is often (and understandably so) the first question asked about a project under consideration for EB-5 funding. In many cases, a simple “yes” or “no” response based on a single point-intime analysis will not provide a sufficiently detailed answer for a project stakeholder to make a decision on whether or not to travel down the EB-5 path. TEA-eligibility for a project can change over time and so there is no guarantee that a site that is currently TEA-eligible will remain so in the future. In short, TEA “timing” can be problematic. Decisions involving potentially hundreds of millions of dollars are made based on the perceived TEA status of a project. The absence of predictability and lack of clear-cut guidelines can lead to poor decision making, wreak havoc in the EB-5 marketplace and potentially stifle projects that might have otherwise created jobs. Urban and rural projects would both greatly benefit from increased predictability. More predictability regarding the length of validity of TEA certifications would vastly improve the decision making at the initial planning stages and ameliorate one aspect of the challenging task of marketing an EB-5 project. This would also lead to a greater comfort level for the investors making the important, potentially life-changing decision to invest an in an EB-5 project.
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Recent legislative maneuverings and debates focused on the merits and drawbacks of more restrictive statutes in relation to what kind of “areas” or “shapes” may be considered a TEA. Somewhat lost in the shuffle is the enormous benefit that would be realized through statutes that would lock-in a TEA determination for a significant time period. Assuming TEAs persist, this less controversial and seemingly straightforward change would remove a significant amount of uncertainty and concern for all EB-5 stakeholders from developers to investors.
CURRENT TEA STANDARDS AND PRACTICE Under the current TEA standards, states have been given some flexibility in providing high-unemployment TEA certifications, however are not involved in rural TEA determinations. This flexibility related to high-unemployment TEAs, however, has led to some ambiguity. In current practice, most high-unemployment TEAs involve the aggregation of one or more contiguous census tracts. While most states update the data utilized in the labor force estimates at the census tract level just once a year, the timing of this update varies. Furthermore, many states utilize different data and methodologies and provide differing language in their respective TEA letters regarding the validity of the certification. These specifics, combined with lack of clear-cut guidance from USCIS, makes it difficult to provide a simple answer to the often-asked question “how long is this TEA certification valid for?” As TEAs come into play at the time of filing of the investor’s I-526 petitions (or time of the investment), a general rule-of-thumb for TEAs is to ensure that the certification utilizes the most recent data that the state is
using at that time. In many projects, big and small, it is difficult to anticipate exactly when investors might subscribe or when the I-526s might be filed. The lag time between when the EB-5 stakeholder asks the initial question “is this project in a TEA” and the successful marketing of a project is usually significant (often more than a year). Similarly, USCIS adjudication times for exemplar petitions are currently more than a year. For those waiting for an exemplar approval before filing investor petitions, the data that would be used to determine TEA-eligibility (most states update annually) will have changed between exemplar and investor filings. This lack of clarity and certainty regarding TEA validity can cause issues at the initial planning stages and also for projects that are to the point of subscribing investors. Project developers, based on the initial perceived TEA-status of the project, can expend a significant amount of time and money to prepare the application for project approval only to find out later that the project is no longer TEA-eligible and hence possibly no longer marketable. Similarly, for projects subscribing investors over a longer period of time, the earlier investors in the project might be safe at the TEA investment level. However, due to TEA data changes, the later investors might be required to invest the higher non-TEA amount. Again, the project might not be marketable at the higher investment amount. These types of uncertainties can cause significant issues with not just successfully completing the EB-5 raise, but successfully funding and completing the overall project and creating the requisite number of jobs for the investors. As an economist analyzing project sites every day, I encounter a variety of issues re-
VOL. 4, ISSUE #1, APRIL 2016