The potential fallout from all this would be a black eye for
both the EB-5 program and the state of California. We all know
how various media folk don’t miss an opportunity to attack
EB-5. Think about the field day they would have if they come
across a TEA (and if there is one, they inevitably will) where they
can show, for example, that a developer used the Pacific Ocean
as a link to combine an area like Newport Beach—with low
unemployment—with high unemployment areas in Los Angeles
or San Diego for the sole purpose of getting a TEA designation. I
shudder to think how the spin would go and the negative impact
it would have on the integrity of the EB-5 program.
“GO-Biz needs to still be diligent and pro-active
in screening out frivolous TEA requests through
their new system, as it is to everyone’s benefit
in the EB-5 community to prevent blatant
attempts to circumvent the spirit of the law.”
Continued from page 7
down the coast and come back in to whichever area has some
high unemployment in close proximity. This can easily be done
without exhausting your limit of 12 tracts.
Also disconcerting is the potential use of exceptionally large,
but sparsely populated, tracts that could be used to configure
areas hundreds of miles across. For example, one sparsely
populated census tract in Riverside County, south of the San
Bernardino County border, is approximately 60 miles across
and 30 miles long, while another census tract further to the
north in San Bernardino County encompasses an even larger
area. These types of census tracts can be used to indiscriminately
jump around and create huge distorted TEAs that maintain no
economic or social connection.
GO-Biz would probably counter, and rightfully so, that their
safeguard should be the support letter where the local government
has to concur that the proposed census tracts will reasonably be
a source of workforce for the project. Unfortunately, this will
not always work in practice, except perhaps for the most absurd
configurations. Local governments are anxious to encourage
economic development so some would have no issue with
providing a letter, knowing that employment could certainly
be drawn from the nearest areas in the TEA configuration. On
the other hand, while most agencies would not support a totally
unreasonable area, the process allows a support letter from any
local economic agency, so if a county or EDC will not provide
a letter, one could always try the city or a different planning
or economic development agency or person within the region,
county, city, etc.
8
Demanding diligence
GO-Biz needs to still be diligent and pro-active in screening
out frivolous TEA requests through their new system, as it is to
everyone’s benefit in the EB-5 community to prevent blatant
attempts to circumvent the spirit of the law. They should adjust
their mapping tool so as not to allow the use of 9900 water tracts
for combining TEAs, except for those where there is a bridge
connection. Even some of those states that have no limitations
to the number of tracts that can be used for a TEA will still not
allow the use of these water-only census tracts with zero labor
force that span many miles of coastline, and will also not allow
the use of certain connector tracts for TEA purposes because they
tend to create very distorted areas with no relationship to the
actual place of business.
Use of other questionable census tracts needs to be reviewed
on an as-needed basis and GO-Biz, at a minimum, should clearly
state on their website that all TEAs must show a reasonable
geographical configuration and that GO-Biz may choose not to
approve a qualifying area if they feel it does not meet the proper
criteria. For example, the previously referenced sparsely populated
Riverside County census tract has a legitimate qualifying rate and
it would also be appropriate to combine this tract with adjoining
tracts, but it should not to be used solely for purposes of connecting a faraway low unemployment area with distant areas of high
unemployment. It is not sufficient to leave the screening process
up to local government officials and assume they will deny any
inappropriate support letter request, when not everyone is fully
cognizant of the program or the process. GO-Biz needs to make
it clear to all users that they will still thoroughly review all TEA
requests and make the final determination as to suitability.
★
Elliot Winer
EB5 INVESTORS MAGAZINE
Elliot Winer is the founder and chief economist of Northeast Economic Analysis Group.
The company provides professional economic
analysis and assistance, focusing on analyzing
targeted employment areas in the EB-5 program. Elliot works with his clients to organize documentation
needed for TEA approval. Elliot
is the economist behind EB5Investors.com’s TEAChecker.