EB-5 Economist Scott Barnhart presented a lecture on the new job creation rules contained in the EB-5 Reform and Integrity Act of 2022 (RIA) at the IIUSA Spring 2022 Industry Forum convention in Orlando, FL (IIUSA web site).
Among other changes in the bill, the new job creation rules had three basic items that are specifically applied to job creation estimated with economic models such as IMPLAN or RIMS:
1) Indirect and induced jobs on regional center projects cannot count for more than 90% of total jobs.
2) If the construction period of a project is less than 24 months, the amount of direct jobs that can be counted is the estimated direct job count multiplied by the fraction of the 24 month period that the construction lasts.
3) If the construction time period lasts less than 24 months, indirect and induced jobs cannot count for more than 75% of the total job count.
Several comments about the new job creation rules above:
Item 1) above will seldom have any impact on job creation estimates because the 90% indirect and induced threshold is so high. Few projects have that large of a percent indirect and induced job count, or put a different way, few projects have that few direct jobs. On average, most traditional EB-5 projects have +/- 50%/50% direct to indirect jobs.
Few seemed to understand when the RIA was first passed that item 2) above was a large gift to the industry as prior to passage of the RIA, if the construction period was less than 24 months zero direct jobs could be counted! A simple example of item 2) is the following: if the original direct job count is 100 jobs and the construction time period lasts 12 months, the amount of direct jobs the project could count is 12/24×100 or 50 jobs.
Finally, item 3) above can interact with item 2) in very unexpected ways if the construction time period is quite short. Let’s change the example above to make the construction time period 6 months rather than 12. If the original direct job count was 100 jobs and the indirect job count was an additional 100 jobs, the total original job count would be 200 jobs. Now we would need to apply the ratio of the construction period to the 24 months to the direct job count, i.e., 6/24×100=.25×100=25 direct jobs that could be counted. So the new total would be 25 direct jobs plus 100 indirect jobs or 125 total jobs. However, now we run into the 75% indirect job constraint in item 3) because the indirect job count as a percent of the total is now higher, 100/125=80%. But item 3) indicates that indirect jobs cannot exceed 75% of the total job count, so we must reduce the indirect job count such that it is 75% or less of the total job count. So how do we determine how many indirect jobs we must cut? This can easily be calculated by multiplying the new direct job count by 4 to reach the total allowable job count, i.e., 25×4=100 total jobs that can be counted. Now we have met both constraints as the indirect job count is exactly 75%, i.e., 75 indirect jobs divided by 100 total jobs is 75%. I owe this latter insight to my smart friend and colleague Adam Greene from NewGen Worldwide.
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