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Construction & Operations – EB-5 Job Creation
EB-5 Construction Jobs
Construction jobs are calculated by applying the final demand multiplier to construction expenses. The final demand multiplier represents the number of jobs created per million dollars. For most projects, this multiplier is between 12 and 14.
When calculating how many jobs will be created during construction, several additional factors should be considered.
If the construction period of the project takes less than two years to complete, only indirect and induced construction jobs may be counted; however, if the project takes more than two years to complete, direct jobs may be counted as well.
Digging is often considered the start of construction, but demolition may be considered the start as long as construction commences without delay after demolition is complete. The safest way to measure start time, however, is from the onset of vertical construction.
Construction ends either when the certificate of occupancy is issued or, in the case of manufacturing facilities, when the building begins to be used.
Different Expense Types
A project’s hard costs, soft costs, as well as any furniture, fixtures, and other equipment (FF&E) are calculated separately and use different multipliers.
Some hard construction costs, such as contingencies and fees, are not EB-5 eligible. Costs associated with general conditions may also be ineligible, but this is presently a minority opinion among USCIS adjudicators.
EB-5 eligible soft costs include architectural, design, engineering, and testing fees. Many soft costs may or may not be eligible, depending on the adjudicator. These costs include building permits, building fees, utility hookup fees, insurance premiums, finance charges, taxes, and marketing.
Over time, costs increase due to inflation. Input/output model coefficients and multipliers, however, often use data from previous years. Consequently, current dollar values must be deflated to the values used in the input/output model to properly arrive at the final demand multiplier. Deflation figures are reported by the U.S. Bureau of Labor Statistics (BLS).
USCIS Supporting Evidence Requirements
For an investor’s I-526 petition to be approved by the USCIS, the form must be supported by evidence that the project’s costs are reasonable. The USCIS expects to see the general contractor’s detailed construction budget with costs itemized by category. This budget must also be compared to the cost per square foot of equivalent projects in the region using relevant, up-to-date data such as RSMeans data.
For construction projects expected to last more than two years, the USCIS requires a monthly schedule of anticipated construction costs.
For USCIS to approve an investor’s I-829 petition, the form must be accompanied by evidence the funds were spent. Such evidence includes wire transfers, canceled checks, vouchers, and so on.
EB-5 Operations Jobs
Operations jobs can be calculated in two ways, by direct count and by revenue—both of which should yield the same result.
For the first method, direct jobs are counted and then multiplied by the employment multiplier. For the second method, revenue from the pro forma income statement is used to calculate EB-5 job creation by deflating the revenue to the values used in the economic analysis and then multiplying these deflated dollars by the final demand multiplier. If the two methods do not produce similar results, the USCIS may deny any investor petitions that rely on these operations jobs.
For example, a new hotel project might anticipate $3 million in annual revenue from the accommodation. To calculate EB-5 job creation from this revenue, the economic analysis must first deflate this figure appropriately—in this case, by 8.6%—which yields a deflated value of $2.76 million. Next, the hotel’s accommodation revenue is multiplied by the final demand multiplier of 16.9. This means that a total of 46 operations jobs will be created by the hotel’s accommodation revenue. To calculate the number of direct jobs created, the total number of jobs (which includes indirect and induced jobs) must be divided by the employment multiplier—in this case, 1.7. So, of the 46 operations jobs created, 27 would be direct jobs; the rest would be indirect and induced.
The scenario above provides a basic example of how operations jobs are calculated. A number of other factors, however, must be considered when determining how many operations jobs can be counted toward the employment creation requirement of the EB-5 program.
EB-5 Job Requirements
For jobs to be counted toward the employment creation requirement, they must be full-time positions for qualified U.S. workers.
Full-time positions are those in which the employee works an average of 35 or more hours per week year round. Therefore, seasonal positions cannot be counted as direct jobs.
A full-time position may be filled by two half-time workers as long as the position itself is a single job. For instance, a full-time chef position filled by two separate employees can be counted as long as the two employees work a total of 35 hours or more. But two separate part-time job positions cannot be counted as one full-time job.
In addition to the requirement that these jobs be full time, the positions must be filled by qualified U.S. workers. Qualified U.S. workers are those who are authorized to work by way of citizenship or permanent resident status and include asylees, refugees, and individuals under suspension of deportation. Nonimmigrants, for example, those with H-1B visas, are not qualified employees and do not count toward EB-5 employment creation.
If the USCIS determines that an illegal immigrant has been employed using false papers—whether the developer was aware of the pretense or not—the job will not be counted and investor I-829 petitions may be denied due to insufficient EB-5 job creation.
EB-5 Job Data
Various surveys are used in concert with the RIMS II estimates to calculate direct operations jobs. Depending on the job category, the EB-5 job creation metric may be based on the square footage of the building under development.
Currently, the USCIS counts operations jobs only for projects in which the developer maintains significant ownership after construction is complete.
While the USCIS has indicated the requirement for significant ownership, the agency has not defined what significant ownership entails. “Significant” does not mean a majority interest—as little as 15% ownership seems to satisfy this requirement.
EB-5 Project Type
The USCIS tends to favor certain projects over others—though this tendency has changed over time.
The project types most likely to be approved by the USCIS include restaurants, hotels, medical offices, hospitals, senior living centers, and single and multi-family residential dwellings. On the other hand, the USCIS is less likely to approve office building and shopping center projects, even though these have been popular in the past.
The USCIS rationale for the approval of certain project types over others seems to be directly related to the creation of operations jobs. The assumption is that for office buildings and shopping centers, no net increase in jobs occurs—revenue simply shifts to the new office spaces and retailers.
While the USCIS will consider arguments that an establishment does produce a net increase in jobs, for example, due to a shortage of particular retail goods, proving that new operations jobs are created in the region as a result of the project can be challenging and will require an experienced EB-5 company.
USCIS Job Documentation Requirements
All of the necessary figures (e.g., revenue, deflation, final demand multiplier, etc.) must be presented and discussed in the project’s economic impact analysis and business plan.
An investor’s Form I-526 must show only that these figures are consistent with similar projects in the area. If, for example, the project is a hotel, the I-526, and accompanying documentation must demonstrate that the occupancy rate, average daily rate, and the number of direct jobs per room line up with other local hotels.
When an investor submits Form I-829, however, the accompanying documentation must prove that the figures and estimates of the economic analysis were realized—that the projected number of operations jobs exists. Proving this requires the investor to submit relevant tax forms (e.g., Form W-2, Form I-9, Form 941, etc.).