The Reform and Integrity Act (RIA) has changed many key requirements for developers and regional centers. EB-5 economist Michael Kester offers his perspective on best practices for projecting job creation: a proper job cushion is vital to mitigate changes that often arise during project development. And while the RIA has changed eligibility for high-unemployment targeted employment areas (TEAs), it hasn’t changed those for rural projects. Kester notes that we still need guidance from USCIS on some key job-creation and TEA issues. And until we do, the best approach is to be conservative.
The RIA still allows economic modelling for job creation
Kester interprets the RIA to mean that economists can continue to use model-derived direct jobs from both construction and operations to satisfy the new requirements. “That’s the biggest key overall assumption,” he tells EB5 Investors Magazine. “So from a practical standpoint, there's really not a huge difference in the economic studies from the old law jumping to the new.”
The importance of job buffers
A job buffer is essential in EB-5 economic forecasting as it can account for potential uncertainties with the project and provide a safety net. For instance, if a project estimates 100 jobs and there are ten investors, what would happen if actual job creation falls short, such as dropping to 95 jobs? A job buffer — having more jobs than the minimum required — can avoid jeopardizing the tenth investor.
A cushion, such as 100 projected jobs for six or seven investors, mitigates risks if the project deviates from the initial plan — or unforeseen USCIS decisions.
While USCIS approves the project early based on projections, later on at the I-829 stage, there needs to be proof of actual job creation. And the two numbers may not align. Initial projections reflect projected construction expenditures, and for some projects, projected operational revenues.
However, Kester notes that many projects will not use operational jobs in initial projections — but these jobs can later serve as a cushion. When projects only rely on construction jobs, if the project gets built, then there should be sufficient job numbers for EB-5 investors.
For projects that do count operational jobs in initial projections, the job cushion, which may be smaller, might be vital later if the project doesn’t materialize as planned.
Usually, when things don’t go as planned with a project, costs go over budget, rather than under. And while a budget overrun may not be positive for the overall wellness of a project, it is a good thing for EB-5 job creation numbers, Kester says.
Kester has seen a wide range of job buffers, often ranging from 30% to 100%, depending on factors like job creation and the amount of EB-5 investment required.
Job multipliers are regional
Economic studies assess the impact of a project on job creation; they use job multipliers to estimate the additional jobs indirectly created by the initial employment.
EB-5 job multipliers are regional, Kester says; he uses the example that a new hotel in Dallas will create a different number of jobs than a hotel in New York. Dallas, in this example, will have significantly lower construction costs as the Dallas area has more construction-related suppliers and activity.
And while there is some variance in different big-city areas, variance with rural projects can be even more “unpredictable,” according to Kester. The difference can swing 50% either positively or negatively, he advises.
Variance doesn’t just exist with construction. Kester now sees far more manufacturing projects in EB-5 and says that the multipliers with manufacturing operations can vary greatly in different regions.
The general principle, Kester tells us, is “the cheaper the labor source, the more jobs it creates.”
Manufacturing projects create the most operational jobs
When projecting operational job creation, Kester sees the highest job numbers come from When estimating the projected number of a project's operations jobs, Kester sees the highest numbers come from manufacturing projects. This is not always due to high multipliers but very high revenue projections.
Thus, for operational job projections, revenue is a key input, and combined with multipliers will provide the final job-creation number.
The RIA impact on job creation
Under the old law, there was a restriction that construction projects lasting less than two years could not include any model-derived direct jobs in their job-creation count. However, the new law has brought about a positive change for projects with a duration of under two years; such projects can ratio out the direct job-creation numbers.
For instance, if there is a 12-month project like a small hotel, pre-RIA regulations would not have counted any direct job numbers — only indirect and induced jobs. However, under the RIA, a calculation can be made by dividing the project's duration (12 months) by 24 (months in two years), resulting in 50% of the direct job being eligible.
This provision can have a substantial impact on smaller EB-5 projects, as it allows them to include a portion of their direct jobs, which was not possible before.
When is construction considered finished?
For the purpose of meeting USCIS requirements, when is construction considered finished? Is it the end date of the actual construction with the tenant occupancy certificate? Or can it include the period of tenant improvements that can go several months past the occupancy certificate?
Kester considers the certificate of occupancy to mark the end of construction but admits that he has not seen proper guidance from USCIS on this matter. But he says that for most projects it’s not likely to be consequential as the job cushion should be sufficient for job counting, and the fact that the RIA allows projects taking under two years to use a ratio of their direct job count.
Evidence of jobs lasting 2 years
When USCIS reviews I-829 petitions, what evidence does the agency seek as proof that construction jobs lasted two years? For example, if a general contractor, not on the payroll, was used, does USCIS look at the contractor’s payroll or just the project’s payments to the contractor?
Kester says that, once again, there’s no useful USCIS guidance on this matter, and it’s often up to a petitioner’s immigration attorney to show evidence of the duration of the jobs. Regarding USCIS adjudicators, Kester believes they will use tools like Google news reports on the project to understand how long construction occurred.
The economist at the I-829 stage
While Kester conducts most of his work at the beginning of a project, he will later be brought in at the I-829 stage to do a report. This often requires going back several years to reference the original economic studies he provided.
For I-829 reports, he will base his findings on actual activity and need to know a project’s real construction expenditures and revenues. And these numbers will not match exactly with the original projections as “projects have different things pop up” that may require a revision to the original economic study.
If real job-creation numbers don’t match the economic study projections, an economist can often still find proof of meeting the requirements. “There are a lot of different ways to try to get more jobs reasonably, if possible. It's not an ideal situation, but there are usually some extra things we can try to do to help out if possible.”
How amenable is USCIS to these slight variances from the original study? Kester says the agency is often “somewhat flexible.”
The 2-year lock-in period for TEAs
The RIA significantly limits the areas that qualify as high-unemployment targeted employment areas (TEA). Now, only directly adjacent census tracks are allowed. In many cases, areas that qualified under the old regulations can no longer qualify.
However, the new law introduced a two-year lock-in period for a TEA, which the old law did not have. The lock-in period starts with the filing of the I-956. So if a regional center worries that data might soon change and disqualify a high-unemployment TEA, this lock-in provision can secure eligibility — providing the I-956 is filed before the data changes.
The two main methodologies for high-unemployment data release data in December and April of every year, respectively.
Rural is the more ‘stable’ TEA category
Compared with high-unemployment TEA requirements, rural requirements are much more “stable,” says Kester.
There are two main requirements to qualify for rural designation, neither of which changed since the RIA.
First, a location must be outside a metropolitan statistical area (MSA). Some MSAs are vast, like New York City, and can comprise 25 or 30 counties. Kester also warns that while some counties in larger MSAs may appear rural, they do not qualify as rural for EB-5 proposes because of inclusion within an MSA.
The second requirement for rural designation is that a location must be outside a town with a population of 20,000 or more, using numbers from the latest decennial census. As the last census came out in 2020, regional centers with rural projects don’t have to worry about population changes for several years.
The RIA introduced a new category for TEAs: infrastructure investments. This category reserves 2% of the total number of available visas in a given year for petitioners who invest in qualifying projects.
However, Kester admits that no one knows the exact requirements for infrastructure TEAs as USCIS has not issued any such guidance.
RFEs show how USCIS interprets the new law
The RIA still presents some uncertainty with understanding and fulfilling project requirements. Until official guidance provides certainty, the industry must rely on project-specific communication from USCIS, especially in the form of Requests For Evidence (RFEs). “We haven't really started seeing RFEs from the new law,” Kester says. “And that's when really, lately, that's how they talk to us, is through RFEs. That's how we know what they're thinking is: through the RFEs.”
So what’s the plan until RFEs let us know how the Immigration Service interprets the RIA? Kester advises developers to “be conservative” in their projections.
Listen to the EB5 Investors Magazine podcast “How developers should measure a project's economic impact to secure EB-5 funding, with Michael Kester”