What are TEAs and how do they work?

Every couple years, there’s a kerfuffle over the use and definition of the Targeted Employment Area (TEA) in the EB-5 program. People – recently Seattle Times journalists, for example – look at things like luxury hotels being built in wealthy downtown areas using EB-5 investment and ask wait a minute, is this right? Such projects nearly always get EB-5 investment in $500,000 increments (State Department stats show there’ve historically been very few Regional Center investments at the $1 million level), and the $500,000 reduced investment amount depends on the project being located within a TEA. The Seattle Times portrays the TEA reduced investment amount as a “loophole” being “exploited” by people who “gerrymander” a TEA by grouping high and low unemployment areas, then go on to develop a project in the prosperous part of the designated area. The Seattle Times editors believe that EB-5 program architects intended EB-5 investment dollars to be spent within depressed communities, that there aren’t centralized guidelines for defining TEAs, and that there’s a problem with state involvement in TEA designation. These points require some perspective.

First, the term “Targeted Employment Area” does have a set definition, articulated by Congress through law and elaborated by USCIS regulation. The term is not defined individually by states, and the term is not defined to equal “an economically depressed area.” The Immigration Act of 1990 that established the EB-5 program specifies that (in its own spelling): “the term ‘targetted employment area’ means, at the time of the investment, a rural area or an area which has experienced high unemployment (of at least 150 percent of the national average rate)” and “-The Attorney General may, in the case of investment made in a targetted employment area, specify an amount of capital required under subparagraph (A) that is less than (but not less than 1/2 of) the amount specified in clause (i)” (see PDF p 21-22 of IMMACT 1990). USCIS regulations and policy repeat this statutory definition, specify the reduced amount of capital, and elaborate practical issues in designation determinations (see the EB-5 Policy Memo p. 7-8 for discussion).

Because the TEA definition is in the law, changing the definition would be a statutory matter and a point to pursue with your Congressional representatives. But it’s worthwhile to look at the original intent. In 1990, Congress chose to define TEAs for the EB-5 program specifically in terms of employment (or rural areas). Congress could have defined TEAs based on poverty levels, crime levels, educational levels, exports, GDP growth rates, sales tax, or other metrics considered in other initiatives intended to benefit depressed areas, but it chose unemployment as the target. An area with median household income at $30,000 and unemployment of 7% would not currently qualify as a TEA; another area with median income at $100,000 and unemployment of 15% could qualify. The explicit intent with TEAs was to encourage job creation for high unemployment areas. Creating jobs for poor people and investing within poor neighborhoods are also worthy goals, but it happens that Congress did not choose to write such goals into the EB-5 law.

While the law and regulations define what constitutes a TEA, states are involved in implementation. Each state may choose an agency and give it authority to designate TEAs, which involves leeway to judge (1) appropriate boundaries of a geographic or political subdivision that constitutes the targeted employment area; and (2) which data set to use in calculating the area’s unemployment. In reviewing EB-5 petitions, USCIS generally gives deference to state designations, but double-checks that the data is acceptable and that calculations are consistent with methodologies established by the Department of Labor. The elements of state discretion lead to variation in TEA designations between states. Some state authorities will designate census tract groups and some won’t; states have different ways of deciding which geographic boundaries make sense; and a variety of unemployment data sets may be used. (Impact DataSource has a good article about state variation.) Just letting one agency decide for the nation using one yardstick would look cleaner, simpler, and more equal. But note what makes sense about local involvement. Based on population distribution and commuting patterns, for example, it might be reasonable to have a very large TEA area spanning certain suburbs, a very small one within a certain city neighborhood, and a banana-shaped one somewhere else along a busy highway. A local economic development agency could have a good basis for judging whether certain TEA boundaries make sense for the given region. I can’t visualize a federal agency coming up with one cookie cutter geography definition that fits from Alaska to Florida. Designated state agencies are typically labor departments or economic development authorities, which means their interests are aligned with the aims of the EB-5 program, making their discretion is as good as anyone’s. Of course project developers will try to draw geographic areas for their own advantage, but I can’t think of a better arbiter for this than the state authorities.

Under current rules, it’s possible to get TEA designation for an area whose average unemployment rate is high, even if parts of the area have low unemployment. So how do we feel about locating an EB-5 project in the healthiest part of the TEA? Would that subvert the intent of the EB-5 program? The Seattle Times suggests that TEA EB-5 projects in downtown Seattle fail the smell test. Let’s think about Potala Tower, which the Seattle Times describes as a $190 million hotel project in an upscale Belltown neighborhood. (Disclosure: I don’t know any more about this project than I learned from the Times.) I believe that Belltown is not depressed and that the hipsters living next door to the Potala project do not need the construction jobs or operations jobs that it will create. On the other hand, the hipsters next door probably won’t take the jobs. It seems more likely that the roofers and carpenters and housekeepers and managers who take the work will be residents of the less hip high-unemployment neighborhoods a few miles south. If Potala Tower would likely employ South Seattle residents, isn’t it reasonable to package those contiguous South Seattle neighborhoods with Belltown as a Targeted Employment Area? That’s gerrymandering, but could make economic sense, unless there’s a barrier around Belltown that isolates the jobs created and money spent there. And let’s consider the impacts of the $190 million Potala Tower project as compared with impacts of the $9 million Econolodge project that might be feasible to build smack within a depressed part of South Seattle. The luxury hotel would be a much larger new employer, but more distant from where most unemployed people reside. If I were advocating for those 20% unemployed residents of South Seattle and had to choose one project to encourage on their behalf, the Potala or the Econolodge, I’d have to consider carefully – maybe even in consultation with my good old state economic development authority. It’s not a simple question, and I wouldn’t bother asking why the upscale business can’t just locate to a downscale street. Assuming that Belltown+South Seattle can reasonably, practically be called “an area,” and that Potala Tower could make a dent in the high unemployment concentrated in South Seattle, I’m not getting bad whiffs off this situation. As the EB-5 program is currently set up, a TEA EB-5 project should not fail the smell test simply because it’s luxury or in an upscale neighborhood, but only if it seems unlikely to create jobs in a high-unemployment area.

It’s possible to argue that the current TEA rules set a bar that’s too low, allowing too many areas to qualify; or that the $500,000 reduced EB-5 investment amount is too low, considering investor visa thresholds in other countries; or that the TEA definition wrongly focuses on unemployment when other metrics may be more urgent today. Those points are worth debating. I don’t think you can argue that TEA definitions and rules do not exist or are incoherent or endemically subverted, unless you begin by not grasping what the existing definitions and rules are. To avoid debating from ignorance, consider re-reading Carolyn Lee’s article on State Designations of EB-5 Targeted Employment Areas.

And while I’m on the topic of TEA misconceptions, let me caution you about paying someone to “discover if your site qualifies as a TEA.” The variation among states means that, unless your entire county or MSA has high unemployment or you’re in a rural area outside an MSA (in which case, no special designation is required), there is no universal data source or one simple calculation that will reliably determine a TEA around your site. It’s not very helpful to buy a report predicting a favorable census tract combination based on proprietary 2014 unemployment data, for example, if your state won’t designate census tract groups and uses 2013 BLS/2011 ACS data. If in doubt about TEA possibilities for your site, I’d start by getting the policy from your area’s designated authority (there’s one list of designated agencies here). Then you can start assessing TEA qualification, and consider assistance from professionals who are current on your state’s geographic area procedures and unemployment data sets.