Inc. (REMI), the Regional Input-Output Modeling System
(RIMS II), the Impact Analysis for Planning (IMPLAN), and
the Regional Dynamics Economic Analysis Model (REDYN).
There are also additional, more geographically-specific models,
such as the Washington State Input-Output model, which have
a history of successful adjudications.
Even though the decision as to which model is most appropriate for a particular project is usually decided between the
regional center and economist well before they draft a template
I-526, investors and their attorneys must still review the project’s economic report. A careful review must ensure that, not
only does the report make cogent sense of which kinds of jobs
are countable and whether calculations are based on realistic
inputs, but also whether those inputs can be easily documented
for the purposes of Form I-829.
For example, generally a project may include the economist’s
direct construction employment impacts, only if construction lasts
longer than two years. Beyond reviewing a projected timeline, one
must ensure that there are mechanisms in place to adequately and
accurately document the actual timeframes, which might not
commence until well after an I-526 is filed. The same holds true
for all inputs. If such mechanisms are not in place, then there may
be significant difficulties in calculating job creation. Investors and
counsel should not be shy in asking whether there are procedures
in place to document economic inputs.
Common inputs
Perhaps the most common input used by leading EB-5
economists today is construction expenditures. By using expenditure models, economic reports analyze a common EB-5 deal
structure where the new commercial enterprise loans capital to
a job-creating entity which undertakes construction, generating
indirect EB-5 jobs. Using expenditures requires substantiation
that EB-5 money was loaned and spent; therefore, qualifying
employment may be deemed as created per the economic report.
Invoices and copies of corresponding checks to show
payment are the best evidence for substantiating construction
expenditures. Voluminous expenditures can be summarized
(with an extra level of credibility) by using an independent
auditor’s report. Expenditures should be consistent with the
job-creating entity’s income taxes and bank statements. At
a bare minimum, the adjudicating officer should be given a
spreadsheet that clearly summarizes costs in particular industry
fields, in order to enable him/her to check the inputs against
the economic report’s multipliers. If the report leverages the
economist’s direct construction impacts, an investor must be
able to show construction lasting longer than two years. This
can be done through the use of timelines, contractor/developer
reports, photos, permits, and even media articles.
Rather than rely solely on expenditures, many projects
leverage the direct economic effects of a particular project. The
most common direct effects used to measure EB-5 job creation
include revenues, salary expenditures, and tenant occupancy.
The revenues of a project-affiliated business can be used as
an economic input. For example, future revenues to a hotel
may be forecasted to derive induced job creation through associated industries. An economist may be able to calculate the
indirect employment impacts that visitors to a city may have
on local businesses. In such cases, it is of vital importance for
the regional center to secure the contractual right to copies of
the hotel (or relevant entity’s) business and tax documents. In
order to prove revenues, the I-829 filing should provide copies
of financial statements (audited is clearly preferable) for each
year of the particular investor’s conditional period residency,
as well as the corresponding filings showing reported revenues
to the IRS. If contracts granting the regional center the rights
to receive such documents are not included with the I-526,
prudent investor counsel should inquire as to how the inputs
are to be documented.
Similarly, a common input, which may involve the business
operations of a particular entity within the project, is salary
expenditures of employees. In this input, an economist demonstrates that the salary paid to employees affiliated with the
project leads to economic gain—without the EB-5 investment,
the employees would be earning and spending much less. To
prove this input, the investor must be able to leverage payroll
expense records from the relevant job creating entity. These
records should be substantiated by the latest income tax filings
and employees’ W-2s. IRS Form 941 should also be used to
substantiate the number of employees, given that most investors
will probably not be filing around tax time. Continued on page 44
w w w. E B 5 I n v e s to r s . c o m
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