EB5 Investors Magazine - Page 10

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.