April 23, 2014

California Targeted Employment Areas (TEA) Designations – Shift in Policy

The California Governor’s Office of Business and Economic Development (GO-Biz) held a conference call on May 6th to discuss investment in California through the EB-5 program and its role in certifying Targeted Employment Areas (TEAs).  GO-Biz is the agency designated by the Governor of California to certify TEAs within the state.  Along with sharing the publication of the 2013 pre-calculated list of TEAs in California, GO-Biz announced an important shift in their policy for designating TEAs.  Backing away from their stricter 2012 guidelines eliminating custom TEAs, GO-Biz will now provide customized designations in limited circumstances as described below.  In April 2012, GO-Biz announced that the State would only provide TEA designation letters based on pre-determined areas updated and published annually.  With the new policy, beginning May 1, 2013 Special TEA designation will allow for projects to identify multiple contiguous census tracts to qualify based on the average unemployment rate.

GO-Biz provided new guidelines on requesting Special TEA designation when an EB-5 project does not fall within an existing pre-calculated TEA area.  To qualify for a Special TEA designation, applicants must satisfy the following criteria:

  • Be located within an area of twelve or fewer contiguous Census Tracts with a total average unemployment rate of 150% or higher of the national average.
  • Provide a table listing each census tract with its corresponding unemployment rate and a map showing the project address.
  • Provide a supporting letter from the local Economic Development Corporation (EDC), County or City in which the project is to be located. The letter must indicate that the organization agrees that the workforce for the project will be reasonably sourced from the proposed census tract.

Why is this important? EB-5 Investments that fall within a TEA reduce a foreign national’s required investment into a qualifying U.S. project from $1 million to $500,000.  Most investors seeking legal permanent resident status (green card) in the U.S. through the EB-5 category select projects that qualify for this lower investment amount.  Given this, U.S. developers are seeking to market EB-5 projects that are located in areas that qualify as a TEA.  States become involved when an EB-5 project needs a state TEA designation letter to take advantage of the lower investment amount.  States are given the authority to issue TEA designation letters in connection with EB-5 projects and the regulations provide the governor of each state with the authority to identify the agency responsible for designating TEAs.  Understanding this is important to understanding why a state’s policy and guidelines for TEA designation impacts the flow of EB-5 investments into a state.

The new and specific California guidelines are welcomed by developers, regional centers and the EB-5 community as a whole.  With the shift in policy and the new guidelines, the option of obtaining a new customized TEA provides more flexibility to projects seeking to use EB-5 capital as a source of funds and will support ongoing, increased and much needed investment in California. This partial reverse in policy illustrates the importance of dialogue in issues that impact the EB-5 program.

Copyright © 2014, Sheppard Mullin Richter & Hampton LLP.

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