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EB5 INVESTORS MAGAZINE

A Talk with the TEA Guru

EB5 Investors Magazine sat down with TEA guru Elliot Winer to discuss what qualifies as a targeted employment area, state differences in designation processes, and his own experiences working with TEAs in the EB-5 program. He also offers his thoughts on gerrymandering—is the process of drawing TEA boundaries a way to circumvent the economy-boosting goal of the program for the personal financial goals of project developers, or is this sort of flexibility necessary and healthy for the program? As the former twelve-year chief economist and director of economic analysis for the Massachusetts Department of Workforce Development, and the current chief economist of the Northeast Economic Analysis Group (NEEAG), Winer is the go-to expert on TEA designations.

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EB5 Investors Magazine Staff: How did you get started in EB-5? Did your government background lead you to EB-5?

Elliot Winer: It was actually a little of both. I worked for many years in Massachusetts, and at one point I ran all of the federal state cooperative programs. One of them was the labor and local area unemployment statistics program, which is the basis for doing the unemployment rates—the background for working on the TEA. Around the early ‘90s—before we had PCs— somebody actually came to me with a poster board with census tracts. He needed me to verify that he had put together a high unemployment area. Over the course of the year, he came in about three or four times with different proposals, and then I didn’t hear anything about the program for a while, because it was dormant for all those years.

I retired in August 2009, but shortly before I retired, I got a call from the same person. He told me that the program was active again and that he wanted to check out an area. I told him it wasn’t something I could do right then, so I didn’t get directly involved, but after I left I gave him some advice. He passed my name on to other people, and I wound up with connections to California. They were using me to check out TEAs, so I had to work with the California authorities and figure out what the program was and how they were implementing it. One thing led to another, and I’d get a call from somebody else, who spoke to this person, who said I know how to do TEAs, and it started spreading to other states, regional centers, law firms, consulting groups, hotel chains, other legal firms, and everything, so it snowballed.

Staff: We all know the basic definition of a TEA—either a rural area or an area with high unemployment—but what actually goes into the designation?

Winer: They are two very distinct categories. The first one, the rural, is one that most people ignore. Obviously, if you think about it, it’s easier to build bigger projects [in an urban area]. But the huge advantage of the rural is that you automatically qualify, and the strange thing about the rural is that the states are actually prohibited from authorizing the TEA. You cannot go to a state to get a rural TEA, but you don’t have to go to anybody. If you know how to explain it according to the definition, you can do it on your own. It’s something I do on occasion—somebody will come to me and want something more official. I tell them they don’t really need me to do it, but I give them a letter and show, according to the regulations, why it fits the [definition]. 

The definition for rural is that if you are not in a metropolitan statistical area, or a city or town of over 20,000 population, you are rural. That’s all it is in simple language. People will come to me all the time and say, “I’m sure this is rural, there are no houses around, there is no development.” You could drive by and there could be farms and cows, and nobody lives there, but it’s still part of the outline of the metropolitan statistical area. On the other hand, you can have industrial cities of 18,000 population, but if they’re not in a metropolitan statistical area, those are all rural. And even though some states will publish them, the state cannot give you a letter.

Now the other part of it, and certainly 99 percent of it, is the unemployment criteria. For a high unemployment area, you have to have an unemployment rate of 150 percent or more of the U.S. average for the comparable period. So what is the com- parable period? USCIS wants the latest information, but what is that? In some states, it’s the latest annual data; in some states, it’s the latest fiscal year data; in a few states, it’s the latest moving 12 month average, so that changes on a monthly basis. Whatever you’re using, you have to compare that to the comparable U.S. data for that time period. But again, it varies by state, and when they update it varies.

For instance, annual data is available sometime around beginning-mid March, so some states will switch over at that time. The data gets published by the Bureau of Labor Statistics around mid-April, so some states will do their annual data at that time. Other states do it in June or July. There are a couple of states that don’t get around to it until the fall. So for State A, the annual data in April of next year might be the 2013 data, whereas in State B, come next August, they still may be using the 2012 data. So it all depends on the state, when they update, and what they choose to use for a reference period.

Staff: What is the relationship between regional centers and TEA designation? 

Winer: Some people come to me and think the regional center is a TEA, and I explain that the regional center and the TEA are two different things. Just because you’re designated for a county with high unemployment doesn’t mean that you’re a TEA. Or you can be a regional center where there are no established TEAs, but we might be able to find that there are some TEAs that you could do, so you don’t even have to be in a TEA. So it’s really independent.

Staff: Is it more accurate to think of it on a project basis then?

Winer: Yes, absolutely. You might have a regional center in a county with a high unemployment rate. There aren’t too many where the [whole] county qualifies, but one example is Riverside County. You could be a regional center in Riverside County and do any project in the county, and it qualifies. You’ve probably seen the articles where people get bent out of shape that the size of a TEA is too big—that you went out and did six census tracts, or went five miles outside the city to get the TEA. I’ve found that the states that have sat down with USCIS are the ones that have the strictest requirements. Most of the states never sat down with USCIS initially, so they interpret it the way the regulations are- that there never were any restrictions. The qualifications are 150 percent of the U.S. average for a comparable reference period, and the areas have to be contiguous. Those are the two things, and you can’t jump from one area to another—contiguous in a geographical and political subdivision. So USCIS went and took the language that was written on the geographical and political subdivisions and completely misinterpreted what that was. If you look at the census, the census tract is defined as a geographic subdivision; therefore, a group of census tracts is a legitimate geographic subdivision, but some states won’t allow combinations of census tracts unless it fits into natural boundaries.

Staff: Are there any states in which it tends to be easier to obtain TEA status than in others?

Winer: We could do the whole interview on that alone. There are no two states that do the process the same. When you say ease, there are two things to really consider: on the one hand, there are the numbers themselves. Nobody can invent the numbers; where the unemployment rate is high, it’s easier to get TEAs. The second part of it is that some states are easy to deal with and have knowledgeable staff who are efficient, understand the program, and have quick turnaround times. In other states, it takes a much longer period of time; the staff you’re dealing with doesn’t have the knowledge and you have to explain to them what’s going on, or they may have roadblocks. For the most part, the states are very good and the personnel are very good. Right now, there is really only one state—New Mexico—where you cannot do a TEA. 

There are about a half a dozen states that do not have a process of authorization in place, because if the states are small, they generally don’t get any requests. If I put in a request, they would go over it and consider it at that time. In one case, the state representative was very cooperative and said he’d be more than willing to authorize TEAs, but said he’s not going go through the process unless there’s a viable project. So you have about a half a dozen states that may not be authorized and that may not have a process in place, but it’s because either they’ve never gotten a request, or they’ve never gotten a request where a project was viable.

Staff: How has the significance of TEAs in the program been affected by the changing economic climate over the years? 

Winer: There is more interest in opportunities for economic development, and the question of who it is beneficial to. It’s beneficial to the foreign investors, through green cards; the people who head the projects, who need that money, with the economy being weak; and it guarantees, as long as everything is on the up and up, that there will be jobs created for Americans. 

Overall, has it gotten easier or harder? The answer is, it hasn’t changed at all, because of the way the program is written. Certain states have gotten easier and certain states have gotten harder, because you have to be 150 percent above the national average. The only thing that matters is how that changed last year. As an example, getting TEAs in California became harder because the rate in California in 2012 dropped faster than it did in the United States. Likewise, Nevada used to be the only state where the whole state qualified, and while it’s still the highest unemployment state, the state no longer qualifies in total. On the other hand, states like New York, Pennsylvania, and New Jersey—where the rates essentially stayed the same, while the U.S. was dropping—created significant opportunities for TEAs, because now many areas that could not have been done before have been made eligible.

Staff: We hear a lot about “gerrymandering.” Are these sorts of situations an appropriate use of the EB-5 program?

Winer: There was a project in Marina Del Ray that was crazy. It could’ve been done with 10 or 12 census tracts, but that wouldn’t fit into natural boundaries. You could do combinations of planning districts, so we came up with a combination of five or six planning districts, which are 150 tracts. The crazy part about it is that this project was directly across the street from the city of Los Angeles. If it had been the other side of the street [within city limits], it would have automatically qualified as a TEA, because last year, all 3,000 census tracts in Los Angeles qualified. People will get concerned about taking 8 or 10 tracts where the unemployment rate is low, but nobody is concerned about, well if the city of Los Angeles qualifies, why can I build in the most exclusive area in Bel Air? Or Nevada, which until this year wholly qualified. You could live in the richest census tract, with the lowest unemployment rate, and you could build your project anywhere—in the middle of Las Vegas, Reno, the Lake Tahoe area. But somebody would be upset if you went and looked at five or six tracts. You have to have some kind of criteria. I’m not arguing against it, but I’m just saying how you can get too ridiculous

I did not work on [the Barclay’s Center], but I thought that controversy was off-base. It very well may be the case that it would’ve been built anyway, and that they were just using [EB-5] to get money, so I’m not debating that aspect of it. If they’re approaching the TEA the way it should be approached—doing it honestly and creating opportunities for people in a high-unemployment areas—then there was nothing wrong with it. Obviously, if their intention was to hire the people that didn’t live in those areas, or to exclude people from that area, then you have more of a moral problem than a program problem.

The reason I didn’t have any problem with it was because the unemployment rate in that area was low, but the high unemployment areas were close by. There are many projects that are done all over the country like that, within a mile or two of high unemployment areas. So why not give people in close-by areas an opportunity? What I oftentimes find is that unemployment rates in downtown areas of cities will be low. The unemployment rate may be low because the systems just don’t allow you to be that accurate. 

Let’s say you’re building downtown where the department stores are or the financial centers are, and nobody lives there. Or maybe you’ve got a couple of luxury condos there, and then half a mile away you’ve got unemployment rates of 20-25 percent, where poorer people live. You’ll look at the census tracts, and sometimes you’ll find zero unemployment, because there’s nobody that lives there—period. So if you held it to the fact that it has to be in low unemployment areas, that would be ridiculous, because you might have a waterfront area with no unemployment but it’s poor all around, so you’ve got to have the flexibility to include that.

Even if it was a simple census tract with an unemployment rate of 40 percent, there is nothing in the law that says employees have to be hired from that area. You could have a project in Los Angeles, and the owner would be in his rights to employ 20 people from Arizona, or have people drive in from San Diego every day and fill those jobs. But the idea is, just like with any economic development, if you’re creating opportunities in an area where there is high unemployment, you’re raising the opportunities for employment. In any economic development program, if you build a project, it doesn’t mean that everyone is going to be hired from that area, but there are going to be more opportunities, and businesses are going to need people. That’s a likely source of employment, and that’s all you can do, other than writing it into the law or making it a requirement, and I don’t know how you would enforce it.

Staff: What effect do you think these sorts of controversies have on the program as a whole?

Winer: It definitely has a negative effect. Whether it’s a legitimate beef because it was fraud or a scandal, or it’s something that gets blown out of proportion, it’s going to create negative perceptions. What the average person gets out of that is somebody is doing something underhand to skim money—government bureaucracy, a scandal, people being paid off, free money, illegal immigrants are coming in, the country is falling apart—all of that comes to mind. It’s unfortunate when you find that a project marketed in China was misrepresented—those stories need to be out there, because they’re true, you can’t hide that, and people need to know about it and be protected. But it obviously gives a black eye to the program.

The ones that I have the issue with are stories like Barclays. If they could prove that all the investors would have invested anyway, or if they could prove that nobody was hired from high unemployment areas, then I’m fine with it. But the angle I had a problem with was that you shouldn’t use those areas. If the problem was that it was a huge project and EB-5 was just used to help the developers get free money, then they took advantage of the program, the program was not the problem. I think the way that it comes out is that there is a problem with the program that allows that to happen.

Staff: Gerrymandering certainly has a negative connotation, but is this sort of flexibility necessary for the program?

Winer: Gerrymandering in itself comes from USCIS. I think states often say that they restrict certain things because they don’t want to approve something that’s going to get turned down by USCIS as gerrymandering, and they don’t even always know what they’re talking about. The question is: what is gerrymandering? California has a good compromise—they allow 12 census tracts. Now is 12 the perfect number? Well, there’s no perfect number, there’s no perfect system. You could make exceptions, but you have to have some kind of criteria, other than just somebody sitting down and independently saying this is good, this one isn’t. The 150 percent criterion is good, and the 12 tracts do limit the crazy so-called gerrymandering. You can’t come up with 500 census tracts, which would be clear gerrymandering, or you can’t take something where five tracts away from the project the unemployment rate is still two percent and you’re using one hundred tracts to get the unemployment rate.

I know of one state where the TEA has to be somewhat symmetrical. They don’t care how large it is—it has to be kind of a rectangular or square shape, and they don’t want it jumping all over the place. Another state doesn’t have a particular rule in terms of symmetry, but it has to be somewhat logical in terms of commuting patterns. You know, near enough to highways. Or some will do it on a case-by-case basis. Another state, you have to show an economic connection, you can go out a ways, but this city has to be connected by the highway to that city. Different states have come up with their own ideas, some might be better than others, to put in some constraints on what can be done.

Some states make it project specific and reserve the right to say they don’t like the project. Whereas some states don’t even want to know what the project is. And most states, even if they don’t care what the project is, need to verify that it is in the census tract. Some states don’t even care about the address, because they’re just verifying three census tracts, and they’ll verify those census tracts for that project and anybody in the future who comes looking for a project in one of those census tracts. In other states, it’s project specific. You could come with 123 Main Street on the second floor and you could come back with 123 Main Street on the third floor, and you’d have to have a separate letter. The downside of this is that a project could be shot down because it was not seen as a significant enough project for the economy, when it really wasn’t intended to be that way, and that’s something that USCIS should be determining. You shouldn’t be penalized just because you’re a mom and pop versus a multi-million dollar company from the same area.

Staff: What is your take on important developments of 2013?

Winer: The May memorandum, for TEA purposes, clarified things and makes it somewhat easier. There was a lot of confusion before in that if you got a TEA from a state, even though it had the state letter, that you could then find out that it didn’t get approval. Now the May memo says that USCIS will defer to the states, except that they reserve the right to check that an acceptable methodology was used, the rates were calculated correctly, and the areas were contiguous. So they’ll check that out, but they no longer will go in and question what the state TEA rules are, other than verifying that they calculated it correctly, and that they used the official numbers. 

EB5Investors.com Staff

EB5Investors.com Staff

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