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costs, where USCIS economists encouraged practitioners to
provide sufficient line item detail rather than aggregating items,
how third party feasibility studies are very useful in grounding
and supporting the reasonableness of the developer’s budgets,
and then went through a number of specific items that most
experienced economists already know can be included. The
most important line of demarcation in understanding allowable
versus non-allowable items came during the question and
answer session wherein USCIS said that generally, items used in
support of the actual project development are allowable, while
costs associated with EB-5 compliance are not. Thus, the usual
items in construction hard costs, such as labor and materials for
items such as site work, iron work, cement, plumbing, masonry,
flooring, surface preparation, furniture, fixtures & equipment
(FF&E), etc. are allowable. Also allowable are many soft costs
related to the non-EB-5 compliance component of the project.
Examples include architects & engineering (A&E), legal fees,
marketing, some real estate transaction related expenses, such as
document preparation fees, and realtor expenses, as long as EB-5
capital was deployed at the time. As most economists in the field
know, land transactions and other transfer payments were again
cited as non-allowable, as they do not generate jobs or contribute to Gross Domestic Product (“GDP”). Examples of such
non-allowable items are title payments, stock and brokerage fee
transactions, and other state and local government permitting,
licensing and tax expenses. In addition, any soft costs specifically
to meet EB-5 compliance, such as immigration and private
placement memorandum attorney fees, economist costs, and
securities documentation were strictly ruled out. Another
noteworthy point from the discussion was that if the construction timeline lasts 24 months or longer, all direct, indirect and
induced jobs would be considered by USCIS for associated soft
costs even if the time period for these costs did not actually last
that long, i.e., USCIS would not parse out items (in particular
A&E) that migh t be used for, say, nine months.
Probably the two most surprising allowable items mentioned
were construction contingencies and non-EB-5 related
financing costs. Both make sense as they create jobs, and of
course, contingencies have always been allowable at the I-829
stage if these expenditures were in fact spent. But in a complete
about-face from all previous guidance provided in RFEs for
years, USCIS indicated that contingencies “that adhere to
acceptable industry practices” can be included in economic
studies for I-924 and I-526 submissions, and that at the I-829
stage USCIS will review whether these funds have been spent.
As a practical matter, since the dissemination of this information from this call, most of our clients still prefer not to use
contingencies. Non-EB-5 financing costs also make sense as
banking and interest fees create jobs at financial institutions,
and many jobs have been created by the non-EB-5 financing
component of the capital stack in recent years as project size
and numbers have increased.
While the bulk of the information provided by the USCIS
economists was not necessarily new to experienced EB-5
economists, all of it was very helpful as an affirmation of how
we conduct our analyses on a daily basis. That said, there are a
number of other issues that affect our work product and items
that can be sizable dollar amounts in developer budgets on
which this economist would like further guidance. Among these
issues and items are the relevant size of the economic study
area, which in essence addresses the use of local versus state or
national multipliers/economic regions, construction overhead
and profit, insurance expenses, and real estate sales commissions,
especially on large timeshare developments.
General guidance from USCIS on the appropriate selection of
the economic study area in terms of local versus state or national
regions would be especially helpful. Federal regulations seem to
be at odds with USCIS guidance, and practitioners sometimes
wonder if is it logical to use an economic area of, say, a local
three to five county area based on Metropolitan Statistical Areas
(MSAs) and/or commuter data, or could the area be the entire
state or country? Sometimes the size of the project, access to
labor and other supply chain governs this choice, but in other
situations, it is not that clear. In using a national area it is
rationalized that the analyst does not necessarily know where the
materials or FF&E for construction are actually produced, so a
national model will capture this when a local model may count
almost none of it as the Local Purchase Percentage (the share of
a commodity sourced locally) may be very small. On the other
hand, national multipliers could also be used for any of the
items in the developer’s budget, including basic construction.
Current EB-5 regulations, 8CFR 204.6(m)(3)(iv), requires
the applicant to provide a detailed prediction of the regional
center’s positive impact on “…the regional or national economy
in general as reflected by such factors as increased household
earnings, greater demand for business services, utilities, maintenance and repair, and construction both within and without
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