The Impact of TEA Changes in the New Regs with Jeff Carr – Episode 89

The Impact of TEA Changes in the New Regs with economist Jeff Carr

The Impact of TEA Changes in the New Regs with Jeff Carr – Episode 89

How will the new rules around Target Employment Areas (TEAs) impact the EB-5 program? On this episode, Mona and Mark are joined by Jeff Carr to explain the intent behind the changes to TEA designations and their potential unintended consequences. Listen in to understand how shifting the responsibility for determining TEA away from states to USCIS caseworkers will impact the program.



As of November 21, 2019, what constitutes a Targeted Employment Area in EB-5 will change dramatically and much fewer census tracks will qualify, making TEAs the exception rather than the rule. But will the changing standards for TEAs really bring economic growth to rural areas, as intended? What are the potential unintended consequences of the new regulations?


Jeff Carr is the President and Senior Economist at Economic & Policy Resources, Inc. With 35 years of experience as an analyst, he has developed EB-5 project business plans in 45 states and completed more than 225 economic impact studies. On this episode of EB-5 Investment Voice, Jeff joins Mona and Mark to discuss how the changes to TEA will impact the EB-5 program as a whole, explaining how the standards were designed to eliminate so-called ‘spaghetti diagrams’ and incentivize investment in rural areas—and why overall deal flow may decline as a result.


Jeff covers the challenges associated with making USCIS caseworkers responsible for determining what projects qualify for TEA, describing how this might impact urban projects and addressing the gray area around contiguous census tracks. Listen in for Jeff’s insight into the benefits of the REDYN economic model and learn the USCIS guidelines for what constitutes the principal location of a business with multiple sites for TEA purposes.


Why the TEA Guidelines Changed

  • Under the new EB-5 regulations, the minimum investment in a Targeted Employment Area will increase from $500K to $900K, and the minimum investment in a non-TEA will increase from $1M to $1.8M. The new regulations also raise the standards around TEAs, meaning that the minimum investment for many projects is increasing from $500K to $1.8M after November 21, 2019.


  • The intent of the new regulations is to make Targeted Employment Areas more restrictive and eliminate what Jeff calls the spaghetti diagrams. As a result, a TEA designation will become the exception rather than the rule.


  • The theory behind the new regulations is that the EB-5 money that was going into urban projects will automatically shift to rural ones. But Jeff argues that the dramatic increase in minimum investment will significantly decrease the number of investors with the resources to participate in the program—and overall deal flow will drop.


  • In addition, urban projects that would have used EB-5 money will simply utilize traditional financing methods. Jeff anticipates that EB-5 will become less attractive to urban developers, considering all the things you have to do to plan for, qualify, monitor and administer projects over a long period of time.


State TEA Designations vs. USCIS Verification

  • Under the new DHS rules, states will no longer determine what qualifies as a Targeted Employment Area. Instead, the burden will fall to USCIS caseworkers as another line item to address upon filing.


  • This change requires that Regional Centers and project developers submit evidence of high unemployment rates for metro-area projects. Jeff worries that though the data is publicly available, there are different data sets and the definition of contiguous is open to interpretation.


  • Jeff is also concerned that the change adds yet another responsibility to the role of USCIS case officers—who are already spread thin. On top of everything else, we are now asking caseworkers to understand the technical aspects of local labor markets and how that information relates to census tracks.


  • It is fairer for USCIS to make TEA determinations since case officers have no vested interest in the outcome. However, the absence of TEA pre-certification may translate to fewer EB-5 projects, as many managers will be unwilling to go to the expense of putting together investor documentation if the TEA determination is unclear.


  • The regulations do state that projects can get a sort of pre-certification through exemplar approval, but that process currently takes as long as three years! Not having a separate process for designating TEAs is inconsistent with the capital stack planning necessary to put together an investor petition filing.


  • USCIS anticipates that the portion of projects in high-unemployment rate TEA designations will drop from 98% of projects to 10 to 15% after the regs go into effect. However, Jeff fears that they haven’t thought through the way project documentation is actually developed, and he wonders how projects will be able to raise money in the marketplace while a TEA designation is still pending.


The Gray Area Around Contiguous Census Tracks

  • The high-unemployment TEA designation is clear cut in qualifying census tracks and cases where census tracks have a substantial shared border. But Jeff worries about census tracks that don’t have a long line of contact but are touching just at the tip, for example. Does that qualify as contiguous?


  • Very good EB-5 projects in this gray area may not move forward due to the risks associated with qualifying for TEA certification when the evidence is not clear cut. Jeff predicts that the new rules will result in fewer urban projects in the short-term but will by no means put cities at a disadvantage in the long run.


  • Large cities still have a strong reputation in the marketplace and some urban areas WILL qualify for high-unemployment TEA. In addition, Jeff believes that EB-5 players will eventually accept the higher minimum investment amounts as the new normal.


Projects with Offices in Multiple Locations

  • What if a project developer’s home office is located in an area that DOES qualify for TEA, while the project location itself does not? The USCIS guidance on what constitutes the location of a business is clear—it’s where most of the economic activity occurs.


  • For example, a project may have home office in rural Montana that does the payroll, while the manufacturing facility is located in downtown Seattle. In this case, the Targeted Employment Area is defined by where the equipment is located, where the majority of employees are, and where the investment is made to support economic activity.


The Benefits of the REDYN Economic Model

  • Jeff advocates for the tools that produce the most accurate results, and that’s why he uses the REDYN model. As one of the popular computable general equilibrium models, REDYN provides the most geographically comprehensive impact results.


  • Other models measure only the jobs created locally and miss the jobs created by the supply chain. For instance, for a project located in downtown Miami, REDYN captures the jobs created at steel fabrication facilities in Ohio and lumber mills in Washington.


Have a topic or question you would like covered on a future episode of EB-5 Investment Voice? Let us know!