USCIS questioning TEA designation

—- UPDATE —-
The issues in this post no longer apply since the 5/30/2013 EB-5 Policy Memo, which commits USCIS to defer to state determinations of the appropriate boundaries of a targeted employment area. To quote from page 8 of the Policy Memo:

b. A State’s Designation of a Targeted Employment Area
The regulation provides that a state government may designate a geographic or political subdivision within its boundaries as a targeted employment area based on high unemployment. Before the state may make such a designation, an official of the state must notify USCIS of the agency, board, or other appropriate governmental body of the state that will be delegated the authority to certify that the geographic or political subdivision is a high unemployment area. The state may then send a letter from the authorized body of the state certifying that the geographic or political subdivision of the metropolitan statistical area or of the city or town with a population of 20,000 or more in which the enterprise is principally doing business has been designated a high unemployment area. 8 C.F.R. § 204.6(i).
Consistent with the regulations, USCIS defers to state determinations of the appropriate boundaries of a geographic or political subdivision that constitutes the targeted employment area. However, for all TEA designations, USCIS must still ensure compliance with the statutory requirement that the proposed area designated by the state in fact has an unemployment rate of at least 150 percent of the national average rate. For this purpose, USCIS will review state determinations of the unemployment rate and, in doing so, USCIS can assess the method or methods by which the state authority obtained the unemployment statistics. Acceptable data sources for purposes of calculating unemployment include U.S. Census Bureau data (including data from the American Community Survey) and data from the Bureau of Labor Statistics (including data from the Local Area Unemployment Statistics).

—–OLD POST FROM 2011 —–

The USCIS quarterly stakeholder meeting on 10/14/2010 raised an important question:

A stakeholder inquired if it was acceptable, for purposes of defining a TEA, to link a high unemployment area with census tracts or political subdivisions with low unemployment in order to arrive at an aggregate finding of high unemployment when the intent is actually to invest in the low unemployment area.

At that time USCIS didn’t really answer the question (consult the Executive Summary linked above for detail), and the matter came up again in the 03/17/2010 stakeholder meeting. This time USCIS defined its position more clearly, emphasizing that the agency expects your “TEA area” to make sense as a unit, either geographic or political, and not just be a random assemblage of census tracts that happens to average a high unemployment rate, and that your designated state authority happens to approve. To summarize from the presentation (see slides 42-48):

1. It’s not enough to just have a TEA letter from the designated state official, but “A state-issued TEA designation must be supported by evidence, including a description of the boundaries of the geographic or political subdivision and the method or methods by which the unemployment statistics were obtained. The statistics used in the state’s analysis must reflect the national and local unemployment rates for these regions at the time of the alien investor’s capital investment.”
2. The TEA must be based on a “geographic or political subdivision” whose boundaries can be defined. (The presentation says that “elections districts such as congressional districts, state representative districts, state senatorial districts, county supervisor districts, city council member districts… appear to meet the legal definition of a political subdivision” and does not explain what constitutes an acceptable geographic subdivision.)

Now the community is buzzing over a 3/11/2011 Notice of Intent to Deny issued to an RC in Florida that calls out as unacceptable a strategy that many Regional Centers currently use. To quote from the notice:

In support of counsel’s contention that the job-creating enterprise is located within a TEA, the petitioner provided a letter dated March 25, 2010 from a State of Florida official. The official concluded that by joining several census tracts which are contiguous to census tract [tract number], the combined area experienced high unemployment at least 150 percent of the national average unemployment rate for 2009. Thus, according to the letter, the combined area qualifies as a targeted employment area.
The plain language of the regulation indicates that TEA must be “a” single geographical or political subdivision. … Nothing in the regulation suggests that a petitioner may qualify for the reduced investment amount by seeking government confirmation of the fact that adding several high unemployment census tracts to a low unemployment census tract produces a higher average unemployment rate. Census tract [tract number] does not qualify as a TEA by itself. Census tract [tract number] qualifies as a TEA only by combining adjacent census tracts and averaging the unemployment data. Such an analysis renders the reduced investment amount meaningless as any alien could qualify for the reduced amount simply by adding high unemployment census tracts to a census tract that is otherwise not a TEA. Rather, the investment must be in “a” geographic or political subdivision officially designated as a TEA.

If your project address doesn’t fall in a TEA census tract, how do you show that your larger qualifying area or group of census tracts is not random but counts as “a” geographic or political subdivision? Here is how the State of California Governor’s Office breaks down the requirements for special state designation:

If the location of the proposed new business does not fall into a qualifying area described in Step 2, justification for high unemployment area qualification might be possible by special designation of a smaller area within the otherwise non-qualifying area.  The state government may designate a particular geographic or political subdivision located within a metropolitan statistical area or within a city or town having a population of 20,000 or more as an area of high unemployment and having at least 150 percent of the national average rate.
In order to consider special area designations, applicants for such designation must observe the following criteria:
A)   The entrepreneur asking for designation should include a description of the boundaries of the geographic or political subdivision:
a.  A geographic subdivision would be an area carved out based on the physical features of the Earth’s surface.  (Good examples would be XYZ Valley, XYZ Bay, etc.)
b.   A political subdivision would be a division of a state that exists primarily to discharge some function of local government, such as a civil administrative unit of a county or city.  (Administrative units of the federal or state government do not qualify for special designation.)
B)   The proposed area must have an unemployment rate equal to or exceeding 150% of the national unemployment average based on the weighted average of the unemployment rate of the contiguous census tracts comprising of the desired area.