Calculating Construction Jobs for EB-5 Projects
- January 22, 2016
- Posted by: eb5-economist
- Category: EB-5 Economics, EB-5 Job Creation, RIMS II Multipliers
Construction jobs are counted by expenditure: For construction, jobs are NOT counted directly, but rather by expenditure on construction costs. Specifically, the amount budgeted for construction spend is broken down into hard and soft costs and then each is multiplied by the RIMS II final demand multiplier issued by the Bureau of Labor Statistics for the location of the project. This final demand multiplier is a specific number that determines exactly how many jobs are created by each category of spend. The final demand multipliers are published for each $1M of spend in a given cost category for a given region. This final demand multiplier is central to determining exactly how many jobs from construction a project will create. Of course final demand multipliers vary by state as some areas create more economic activity per dollar spent (example: South Dakota VS New York). However, in general, final demand multipliers for hard constriction expenditures tend to be in the 10-15 range.
In addition to the final demand multiplier, there are several other important aspects to calculating construction jobs that must be considered.
Construction duration is critical: If the construction period of the development in question lasts longer than two years, then this means that direct, indirect, and inducted jobs may be counted toward the required 10 jobs per EB-5 investor. However, if the project construction lasts less than two years, than only indirect and induced jobs may be included for EB-5 job calculation purposes.
How to define construction time period? The most conservative definition for construction time is from when the final permits have been issued and direct actually begins to move on the site itself. The construction period is ends when the building successfully receives a certificate of occupancy.
Some construction costs will not count toward EB-5 job creation: specifically, costs that are not actually spent and stimulate the local economy will not count – – usually these are limited to contingencies and some permitting fees.
Different types of costs count differently: development hard costs, soft costs, and FF&E expenses should all be broken out separately and assigned their respective final demand multipliers when calculating EB-5 job creation. Soft costs that are eligible are usually limited to architectural, engineering, and site testing costs. Most other soft costs including development fees, permits, utility fees, taxes, insurance, marketing, etc. are not able to be counted toward EB-5 job creation. The best way to begin is to provide a complete sources and uses table for the project and then create an updated version with only EB-5 eligible costs isolated.
Inflation and cost adjustments: Since costs will increase over time, we must make adjustments due to inflation. Project development/construction costs are always provided in the year of the project commencement, but the RIMS II final demand multipliers are currently based on 2013 data and so the construction costs must be deflated to account for the difference in data year.
Calculation of jobs: once the EB-5 eligible construction expenditures have been isolated and deflated from current 2016 costs to 2013 levels then the costs are multiplied by the RIMS II final demand multipliers for the specific project area and the resulting EB-5 eligible jobs can be determined by cost type.
Reasonable construction cost and timeline assumptions: when USCIS reviews immigrant investor I-526 Petitions they are looking to see if the costs and construction timeline submitted for the project are reasonable (ie. you cannot say it will take 2.5 years to build a single family home). Best practice here is to provide a letter from a reputable (and local) General Contractor (and/or an RS Means data report) explaining the detailed construction budget and timeline so that USCIS will be comfortable that the assumed costs and timeline are reasonable and then plan presented by the immigrant investor is credible.
Proving job creation at I- 829: Once the individual investor’s I-526 Petition has been approved, the only other item that must be completed is the submission of the I-829 form once the project has been developed and the projected construction expenditures have actually taken place. As part of the I-829 stage, each investor will be required to demonstrate that the projected amount of expenditures required to create the required 10 jobs actually occurred since the EB-5 investment was made. Usually this means providing the USCIS with the receipts / invoices / financial statements showing that all of the construction expenditures that were projected actually took place and the required 10 jobs were created.