I had said in last month’s newsletter that I would discuss the BEA (Bureau of Economic Analysis)’s announcement that it would be discontinuing RIMS II at the end of this year. But I don’t think we can discuss that without discussing how exactly “indirect” jobs are counted. Please remember that the only difference between a Direct EB-5 and a Regional Center EB-5 is that you are allowed to count “indirect” jobs only for Regional Center projects. But what does that mean?
How Do You Count Indirect Jobs? – The EB-5 Economic Report
When filing for a Regional Center EB-5, an EB-5 Economic Report that shows how many indirect jobs will be created from this particular project will be included when filing the I-526. EB-5 Economic Reports are economic impact analyses using “reasonable methodologies” that have received the blessing of the USCIS. (RIMS II, IMPLAN, REDYN are examples of these methodologies.) Economic impact analyses attempt to measure the effect that a policy or a program or an event has on the economy of a given region. For example, Rutgers University published an economic report estimating that Hurricane Sandy resulted in 4200 jobs lost in Q4 of 2012 in New Jersey; the New York City Economic Development Corporation can quantify the economic impact that Fashion Week or the NYC Marathon has on the local economy, and even how marriage equality impacts the wedding industry in New York City.
In the context of EB-5, an economic report will measure how a certain EB-5 project has the economic impact of creating jobs in the given region. These economic impact jobs are what are called indirect jobs.
Here is an extremely simplified explanation of how indirect, economic impact jobs are measured using RIMS II: An economist inputs three factors – the industry, the region, and the amount of expenditure – into the economic model. Let’s say, for example, the EB-5 project at hand is a hotel construction in New York. The construction costs are estimated at $20 million dollars (not including the cost of land). By using the three known variables – the industry (non-residential construction), the region (New York) and the investment amount ($20 million) the economic report will tell us that based on the RIMS II employment multiplier for this region, (if the project lasts for 24 months or more) the EB-5 project will have the effect of creating 187 jobs. (Trust me on this one.)
So at the I-526 stage of a Regional Center EB-5, the investor needs to submit an EB-5 economic report that outlines the number of jobs that this project is expected to create. And, just like in the Direct EB-5 scenario, the USCIS looks to see if the job projections are based on reasonable and verifiable assumptions. The main difference between the Direct EB-5 and the Regional Center EB-5 comes at the I-829 stage. In a Direct EB-5, the investor shows the USCIS the payroll and tax records to prove people have been hired. But how do we show that 187 jobs were created in the $20 million hotel example? When counting indirect jobs, we are not counting the construction workers who built the hotel or the staff employed by the hotel – remember, these are real people, hence direct jobs. At the I-526 stage in the EB-5 Economic Report we have said that based on a reasonable economic model accepted by the USCIS, $20 million spent on construction in New York will create 187 jobs. If the USCIS agrees with us, the individual investor’s I-526 will be approved.
Accordingly, at the I-829 stage, we are not showing actual job creation; rather, the investor needs to show that $20 million was in fact spent on construction in New York as set forth in the original business plan. To show this you would submit invoices of the construction expenditure, pictures of the construction in progress, and the completed hotel, etc. Once the USCIS is comfortable that the project in fact did what it said it would do at the I-526 stage, the jobs in the economic report will be deemed to have been created. In other words, if the project spent $20 million on construction in New York, as a result, the USCIS will deem the 187 jobs to have been created as a result of the spending. And, if because of delays the project is only half done so only $10 million has been spent? Then, only one-half of the 187 jobs, so only 93 jobs will be deemed to have been created.
And, because any given project will have more indirect, economic impact jobs than direct jobs, the Regional Center EB-5 program makes it possible for qualified U.S. businesses to get more investment than through the Direct EB-5. To use the example above, let’s say a $20 million hotel somewhere in New York City that is not Manhattan gets you a 100-room outfit. Think of a Marriot Residence Inn near one of the airports. How many full-time workers would such a hotel hire? I would say, no more than 40 maximum. (Front desk staff for 24 hours, room service, housekeeping, etc.) That means 4 EB-5 investors could invest $500,000 each and the project job numbers allows you to raise $2 million total. Compare that to 187 jobs – that means 18 EB-5 investors could claim 10 jobs each, and at $500,000 each, the hotel project could raise a total of $9 million. This is the effect of indirect job counting through Regional Centers.
 For those economists or EB-5 enthusiasts out there who want to point out that I am comparing indirect construction expenditure to direct operations jobs so that is not really comparing apples to apples, I just want to say that I’m trying to simplify the example to illustrate the difference in magnitude.