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February 20 2014

Reading the TEA Leaves

An upcoming change in the data used to determine the unemployment rate for certification of targeted employment areas (TEAs) may have consequences for funding current and future projects.

The project must principally do business in a TEA at the time of the immigrant’s investment for the minimum amount to be $500,000. Whether the area later loses TEA status is not relevant.

Certification of TEAs is based on high unemployment, and is left to the states. To determine whether census tracts (CTs) have high unemployment, most states use the “census share” technique. Those that rely on the 2010 census tract boundaries must use the most recent labor force data available. However, some states – including California, Arizona, Illinois, New Jersey, New York, and Massachusetts – have been relying on decennial census 2000 and older labor force data.

Changes in the labor force since 2000 can mean a substantial difference in the unemployment rate when recalculated using current data. Thus, areas that qualify as TEAs now may not qualify in a few months (or vice-versa) if states switch over to using the 2010 census data. California, Illinois and Arizona will switch this year; Massachusetts will not. Other states using old data have not confirmed when they will make the switch.

If you are thinking of capitalizing a project in a particular area based on a single CT or group of CTs in a state that is still using 2000 data, it is best to double-check the unemployment rate using 2010 data to make sure the project remains in a TEA when the state switches over.

Double-checking the TEA will allow you to develop new strategies for qualifying the area as a TEA for future investment. It is unclear whether any states will allow re-certification of TEAs based on 2000 data after switching to 2010 data. For some projects, reconfiguring the area may result in a TEA. Let me know if we can help with this.