The primary objective of the EB-5 program is job creation. There are multiple ways for EB-5 investments to accomplish this goal and several types of jobs that qualify as countable. Here we examine how construction and operations jobs are calculated and the documentation investors must furnish to prove they were created according to program requirements.
Calculating EB-5 Construction Jobs
An economist calculates construction jobs using an accepted methodology such as the RIMS II input-output model. The model generates a final demand multiplier, a number typically between 12 and 14 that represents how many jobs are created for each million dollars spent. This multiplier is applied to construction expenses to calculate job creation.
Besides the final demand multiplier, these variables should be taken into account:
Construction Time
In order to count direct construction jobs, the EB-5 project’s construction must last for at least two years. Only indirect and induced jobs count when construction takes less than two years.
The construction’s duration extends from the start of digging to the issuance of the certificate of occupancy (or the beginning of building use, for manufacturing facilities). If there is no waiting time between demolition and the start of construction, demolition may be included in the construction time.
USCIS requires construction projects that are expected to take more than two years to provide a schedule of predicted monthly costs with the I-526.
Expense
Not all expenses qualify as factors in EB-5 job creation. The criterion for eligibility is whether or not the expense stimulates the local economy. Soft costs such as fees for architecture, engineering, testing, and design are eligible, while a few hard costs, such as construction fees and contingencies, are ineligible.
Most USCIS adjudicators allow inclusion of hard costs related to general conditions, but many do not consider soft costs associated with building permits and fees, insurance, utility connection fees, taxes, marketing, or finance charges eligible.
Soft costs, hard costs, and furniture, fixtures, and equipment (FF&E) use different multipliers and are calculated independently.
Adjustment for Inflation
Inflation results in higher costs over time, but the multipliers and coefficients generated by the input-output models are usually based on data from several years prior. Using deflation figures supplied by the U.S. Bureau of Labor Statistics, the economist will need to align the dollar values of the current and future costs with the dollar values of the data to accurately calculate the final demand multiplier.
USCIS Documentation
To obtain USCIS approval, the I-526 application must be accompanied by the general contractor’s budget, including itemized construction costs and a per-square-foot cost comparison with similar projects in the area. This comparison must use recent and valid data (such as RSMeans data) to demonstrate that the costs of the project are justifiable.
I-829 approval requires proof in the form of canceled checks, wire transfers, vouchers, or other acceptable documentation to show the investment capital was spent appropriately.
Calculating EB-5 Operations Jobs
There are two ways to arrive at the total number of operations jobs. Since they should give comparable results, petitions that depend on these jobs but don’t generate similar totals using both methods are likely to be rejected by USCIS.
- Revenue method—Deflate revenue from the pro forma income statement to match the economic report, then multiply this value by the final demand multiplier
- Direct jobs method—Count direct jobs, then multiply by the employment multiplier
To demonstrate how operations jobs are estimated using the revenue method, suppose a hotel project expects accommodation will bring in $3 million in revenue per year. Deflating this figure by 8.6% to match the data in the economic analysis gives $2.76 million as the adjusted value. Multiplying this amount by a final demand multiplier of 16.9 gives a total of 46 operations jobs generated by accommodation revenue.
The hotel’s total of 46 jobs include direct, indirect, and induced jobs. We divide this amount by an employment multiplier of 1.7 to isolate the number of direct jobs. This gives us a result of 27 direct jobs, with the remainder of the 46 considered indirect and induced.
EB-5 Job Requirements
When calculating operations jobs, more than the calculations themselves must be considered. The EB-5 program guidelines describe qualifications for the positions, the employees, and the project that must be met in order for the jobs to count.
Full-Time and Qualified
A position that occupies a worker year round for an average of 35 hours per week is considered a direct job. This excludes seasonal jobs and independent contractors, but it can include a full-time position in which the hours are divided between two employees (as opposed to totaling the hours of multiple different part-time positions to make a full-time job).
These full-time positions may only be held by qualified employees. To be qualified, workers must be citizens or permanent residents legally authorized to work in the US, such as refugees, asylees, and foreign nationals granted a suspension of deportation. This excludes the investor and his or her family members as well as non immigrants such as H-1B speciality workers. Illegal immigrant employees discovered by USCIS will not be counted toward job creation requirements and could negatively affect EB-5 job creation totals, potentially resulting in I-829 denial.
Economic Data
Direct operations job counts are also affected by surveys that accompany the RIMS II economic analysis. For some job categories, the building’s square footage is a factor in measuring EB-5 job creation.
Significant Ownership
USCIS requirements specify that the developer must maintain “significant ownership” after the project has completed the construction phase in order to count operations jobs. Though there is no stated minimum for this requirement, ownership of 15% or more seems to be sufficient for approval.
EB-5 Project Type
The potential to create operations jobs seems to play a role in USCIS approval of some types of EB-5 projects over and above others. Since it can be difficult to provide sufficient evidence of actual job creation rather than shifting of revenue from existing businesses to the new business, making the case for a less favoured project requires the assistance of a team of seasoned EB-5 consultants.
In the past, shopping centers and office buildings were the projects most easily approved by USCIS. More recently, USCIS favour has turned to hospitals, medical offices, senior housing communities, restaurants, hotels, and residential developments.
Documenting Job Creation
USCIS requires that the economic impact report presents the details of each of the figures mentioned here, including multipliers, revenue, and values adjusted for inflation. With the I-526, the EB-5 investor must demonstrate the comparability of the project with other similar projects in the area. Referring back to your hotel example, this would mean showing figures for occupancy, rates, and direct jobs per room that resemble those of other nearby hotels. The investor is required only to show that the numbers are analogous.
In contrast to I-526 requirements, the I-829 application calls for proof that the projections yielded the anticipated results. To obtain an unconditional green card, the investor must provide the necessary documentation (pertinent tax forms such as W-2s) to confirm an adequate number of jobs were actually created.
For more information about calculating EB-5 construction and operations jobs, contact EB5 Economist online or at (800) 775-1988