EB-5 business plan writer Suzanne Lazicki has written about the difference between “legally direct jobs” versus “economically direct jobs.” The first definition separates the Regional Center Program from the direct-investment program; the second definition is employed by economists. Direct jobs in the legal context are only those created outside of the New Commercial Enterprise (NCE). Thus, any jobs not directly under the payroll of the NCE (like construction workers and hotel staff in a hotel project) are legally “indirect” even though economists see such employment as “direct”; and this is why regional center job creation can’t be used in the direct investment program.The term direct job creation is used often in EB-5. But business plan writer Suzanne Lazicki wants the industry to know that there are actually two very distinct definitions of this term. And it’s something that both Congress and the EB-5 industry needs to understand.Most people in EB-5 believe that “direct” jobs are those created directly by the project in question — such as, in the case of a hotel investment project, construction workers who build the hotel, or the employees that operate the hotel. This is how economists view direct job creation. And it’s a valid definition. But it is only one of two definitions. And it should not be used in all contexts.
‘Indirect’ job creation defines the regional center program
Lazicki explains that in the EB-5 context (as opposed to the economist’s definition) indirect jobs define typical regional center job creation in its entirety. This important distinction separates the Regional Center Program (which has been historically reauthorized for different periods) from the permanent EB-5 direct investment program.
Why regional center structures make almost all such job creation ‘indirect’
In the EB-5 context, any job resulting from the EB-5 investment that occurs outside of the entity in which the investor is an equity member is “indirect.” As Suzanne reminds us, almost 100% of regional center investments are structured in this way: the new commercial enterprise (NCE) makes an investment into a separate job-creating entity (JCE).Even if the NCE and JCE are under common control, the JCE is never set up to be a wholly owned subsidiary of the NCE, says EB-5 due diligence expert Rupy Cheema who has reviewed over 150 EB-5 investments.Thus, in this context any job creation outside of the NCE by the JCE (unless the JCE is a wholly owned subsidiary of the NCE) is indirect.That’s not the way economists define indirect and it’s not what many EB-5 stakeholders or investors interpret as indirect job creation. But the difference exists and it needs to be understood by the EB-5 community and Congress.
Why Congress needs to know this
Lazicki is on an EB-5 educational crusade to enlighten lawmakers who may decide the fate of the Regional Center program. She refers to Senator Grassley, one of the authors of the imminent EB-5 Reform and Integrity bill, as being confused by what “indirect” means. “Senator Grassley has apparently remained under the mistaken impression that ‘indirect job’ means an unreal and unverifiable job.”Grassley is confusing the EB-5 definition of “indirect,” with the economist’s standard definition. The senator seems to want to ensure that jobs created by the program are “direct” and thus quantifiable and real — but he doesn’t understand that all regional center jobs are labelled as “indirect.”Lazicki wants Congress to understand that in the EB-5 sense, “indirect” jobs include the people directly employed by the investment project, and not just the tangential employment in suppliers industries or the local economy.
Regional center jobs don’t qualify under the EB-5 direct program
If the regional center program were to expire permanently, the EB-5 direct investment program would still exist. But, contrary to popular belief, in such a scenario, investors in the regional center program would not be able to “transfer” their regional center jobs to the direct investment program.As the typical investment structure of the regional center program means all job creation is indirect — yes, even the construction and operations jobs that economists deem “direct” — any regional center job creation would not qualify for the direct investment program.
The USCIS distinction: ‘legal’ vs. ‘economic’ definitions of direct and indirect jobs
The USCIS Policy Manual defines “direct” very differently from the definition understood and used by economists:“Direct jobs are those jobs that establish an employer-employee relationship between the new commercial enterprise and the persons it employs. Indirect jobs are those that are held outside of the new commercial enterprise but are created as a result of the new commercial enterprise.”Further, in USCIS training they explicitly compare legal” vs. “economic” definitions of “direct” and “indirect.” Here are the exact definitions they give to adjudicators:
- 1. Legally Direct Jobs Employed by the NCE
- 2. Legally Indirect Jobs Employed by the JCE (when different from the NCE) or other employer supporting the work of the JCE
- 3. Economically Direct Jobs Economic Model Created Output (Simulates NCE/JCE employment)
- Economically Indirect Jobs Economic Model Created Output (Simulates supply chain jobs)
- Economically Induced Jobs Economic Model Created Output (Simulates jobs created due to increased spending from direct and indirect jobs)
Decision of the USCIS Administrative Appeals Office
In the appeal of an EB-5 investor whose petition was denied due to the regional center being terminated, USCIS shut down the idea that regional center job creation could be considered as qualifying direct EB-5 job creation:“For individual investors (not associated with a regional center), job creation must occur within a new commercial enterprise or within a wholly-owned subsidiary,” states the decision.
If you’re a politician — or advocating on behalf of EB-5 to one — understand that “indirect” job creation in the regional center context is quantifiable and includes jobs directly tied to an investment project. Regional center “indirect” jobs can still be seen as “direct” by the standards of economists.If you’re an investor, understand that jobs created by a regional center investment will only qualify for that program — and cannot be counted in a direct EB-5 investment outside a regional center. It’s not just semantics; it’s USCIS policy.Read the Suzanne Lazicki blog “What indirect job creation means in EB-5”