Continued from page 41
Reading through the initial reform legislation proposal, it
is hard to imagine that the many points of disagreement with
the original reform proposals will in fact be resolved prior to
the EB-5 Regional Center Program’s current expiration date
of Sept. 30, 2015. While it is possible a reform bill could pass
before Sept. 30th, stakeholders should be prepared to see the
legislative process continue past that point with a temporary,
short-term extension.
Turning more specifically to the matter of TEAs, S.1501
proposes to make significant changes to current TEA policy.
First, the proposed reforms include a significant tightening to
the definition of what areas can qualify as high unemployment
rate TEAs in metro areas. The reform legislation (page 62)
appears to limit sub-municipal high unemployment rate TEAs
in metro areas to only one census tract that “...has an unemployment rate that is at least 150 percent of the national average
unemployment rate.” The exception to that definition is if the
EB-5 project is located “...within the geographic boundaries of
any military installation closed...” during the past 20 years. In
that case, the high unemployment rate TEA appears to be able
to include the entire geographic area of a closed military base.
Second, the reform legislation (page 63) also includes language
to place TEA certifications exclusively with the Secretary of
the Department of Homeland Security thereby eliminating
the states and localities (as well as other federal governmental
and non-governmental entities) from approving-certifying high
unemployment rate TEAs. Those are both major changes in
TEA policy. Add to that the apparent new requirement that
50 percent of the total EB-5 eligible job creation will now need
to occur within the legislation’s newly defined urban and rural
TEA job areas,2,3 and the reauthorization legislation is a near
total rewrite o f existing TEA policy.
While the legislative language for defining “high unemployment rate” TEAs is still somewhat unclear, it appears the intent
of the initial EB-5 reform legislation is to start deliberations
within the EB-5 stakeholder community from a highly-limiting
starting point. The term “limiting” is used because the proposed
legislation essentially seems to eliminate what have become
known as custom high-unemployment rate TEAs except for
those within military bases that have been closed over the past
20 or so years. It is those custom TEAs that have recently been
used to allow the larger metro area projects to occur under
the EB-5 program. So, it would appear that this re-definition
proposal is designed to limit the use of the EB-5 program by
these larger metro area projects.
In fact, by limiting the definition of high unemployment
rate TEAs to only one census tract, the reform legislation
appears to want to make “high unemployment rate” TEAs a
very exclusive club. In effect, it takes a step beyond what the
State of California recently did on its own a couple of summers
ago when it imposed what was the first numerical limit on the
number of contiguous census tracts that could be included in
a custom high unemployment rate TEA (to not more than 12
contiguous census tracts in total). At the time, the intent of the
state was in fact to limit EB-5 project activity within its borders
to areas that policymakers thought to be most in need of EB-5
investment capital. Skyscrapers in metro areas like Los Angeles
or San Francisco do not need EB-5 capital, this reasoning went.
For California, limiting the use of the program by constraining
TEAs also helped the state solve an inability to meet the explosion in demand for TEA review and certifications that had
simply overwhelmed the state at that time.
Constraining custom high unemployment rate TEAs to only
one high unemployment rate census tract in the EB-5 reauthorization legislation will likely be limiting on EB-5 deal flow
throughout the country, but especially in states like Florida,
New York, Texas, Arizona, Illinois, Louisiana and the state of
Washington. All of those states have placed a high importance
on using EB-5 investor capital as an economic development tool
to encourage capital investment and job creation within their
boundaries. Proponents of limiting the size or scope of custom,
high unemployment rate TEAs say this is necessary to return
the EB-5 program to its original early 1990s roots of providing
investment capital to the parts of the country, such as rural areas
and economically distressed urban areas which are most in need
of such investment. However, this reasoning involves a bit of
grey area because usage of TEAs in a regional center context was
not contemplated in the original 1990 legislation, and regional
centers were only added into the EB-5 program mix in 1992.
The net effect is that such a proposal—if passed—would in fact
curtail a significant amount of existing EB-5 project activity by
more than doubling the minimum investor amount for EB-5
projects from $500,000 to $1.2 million. Projects, particularly
for those projects outside of rural areas, would likely be particContinued on page 44
ularly disadvantaged.
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