Impact DataSource’s EB-5 TEA map has been updated with the new 2012 annual average annual unemployment data which will carry us through April 2014.

Here are some headlines from the new unemployment data release.

National Unemployment Rate During 2012: 8.1%
Qualifying High Unemployment Area (HUA) Rate: 12.2% (150% of national average, rounded to 1 decimal place)

Number of TEA States: 0
Number of TEA MSAs: 17 (out of approx 372)
Number of TEA Counties: 189 (out of approx 3,141)
Number of TEA Cities: 163 (out of approx 1,777)

Comparison of 2012 to 2011
In 2011, the state of Nevada qualified as a high unemployment area however in 2012, no state qualifies as a high unemployment area.

The total number of high unemployment qualifying MSAs decreased by one, with three improving metro areas no longer qualifying and two worsening metro areas newly qualifying for targeted employment area status.

MSAs Losing TEA Status:

• Las Vegas-Paradise, NV Metro Area
• Palm Coast, FL Metro Area
• Riverside-San Bernardino-Ontario, CA Metro Area

MSAs Gaining TEA Status:

• Atlantic City-Hammonton, NJ Metro Area
• Ocean City, NJ Metro Area

More than one-half of the qualifying high unemployment cities are located in California, 83 out of the 163 qualifying cities. New Jersey has 22 cities that qualify as high unemployment areas.

The total number of high unemployment qualifying counties increased by seven overall from 182 to 189 counties, with 34 improving counties no longer qualifying and 41 worsening counties newly qualifying for targeted employment area status.

We’ve compiled a list of all qualifying MSAs, counties and cities according to the BLS 2012 average annual data that can be downloaded here:

List of High Unemployment Areas According to 2012 BLS Data

County Unemployment Change Relative to the National Unemployment
The county unemployment data are particularly interesting as the numbers drive the census tract unemployment calculation. The relationship between the local and national unemployment rate is at the root of the TEA determination. The national unemployment rate decreased fell from 8.9% to 8.1% (a reduction of approximately 9%), therefore, if an individual county unemployment rate (1) increased or (2) decreased by less than 9%, then the county’s comparison to the national has worsened. This does not indicate that the county whose unemployment rate worsened relative to the national average immediately qualifies as a TEA. It simply means that it has either (1) moved closer to becoming a TEA, (2) crossed over and is now a TEA or (3) remained solidly classified as TEA.

The unemployment rate in 1,316 counties (42% of the 3,141 counties) worsened relative to the national average. Among this group, 91% moved closer to becoming a TEA, 3% crossed over and gained TEA status and 6% retained TEA status from the previous year.

The county unemployment rate improved relative to the national average in 1,825 counties (58%). Among this group, 2% or 34 counties lost TEA status.

The unemployment status changes were generally dispersed throughout the country although Georgia saw 10 counties gained TEA status, the most among all states. Also, many states in the northeast affected by Hurricane Sandy saw 100% of their counties worsen relative to the national unemployment rate. These states include Connecticut, Delaware, Maine, New Hampshire, New Jersey, New York and Pennsylvania.

Please see our map to investigate specific census tracts and how learn how a site may qualify on a tract basis.

Questions about TEA’s, state certifications or EB-5 economic analysis? Give us a call or send us an email.

December 2011 marked an important milestone for the Texas economy in its recovery from the Great Recession. Total employment in December finally surpassed peak employment achieved in August 2008 prior to the recession. Approximately 427,600 jobs were lost between peak employment in August of 2008 and when the state began adding jobs in December 2009. As of March of this year, Texas employment is 101% of the prior peak.

Although state employment is now 1% higher than before the recession, some industries are still lagging far behind employment levels attained in 2008. Employment in the Construction industry is just 84% of the peak level employment. The Information industry and both Durable and Non-Durable Goods Manufacturing industries employment are still well below pre-recession employment levels. On the other side of the spectrum, Education and Health Services industry employment as well as Mining and Logging industry employment now exceed pre-recession employment by nearly 13%.

The final graph shows the path to job recovery for each industry. Each line tells an interesting story but here are some highlights as we see them:

• The Educational and Health Services industry saw no drop in overall employment, partially sustained by sufficient government funding for K-12 education during the recession and supported by the continuing demand for higher education and health services.
• Mining and Logging employment fell precipitously at the beginning of the recession but roared back as the Texas natural gas and oil industry was revitalized by new drilling techniques.
• Government employment shows a delayed response to the troubles in the greater economy and a small spike in employment related to the temporary employment of Census workers.
• Construction, Information and Non-Durable Manufacturing industry employment have fallen significantly from 2008 and these industries have failed to see any significant employment gain to this point. Although Durable Goods Manufacturing employment dropped significantly during the recession, this industry appears to be trending in the right direction.

Download a PDF version.

A fiscal impact analysis will identify costs and benefits over a period of time accruing to a city or county from an economic development project. Since the timing of the individual costs and benefits is important, the analysis should take into account the time value of money. The way to account for the time value of money is to discount the flow of revenues and costs and evaluate them based on their present value. The present value is a way of expressing dollars to be paid or received in the future, in today’s dollars. A dollar today is worth more than a dollar a year from now, since an invested dollar would yield a rate of return or interest over the year.

Discount Rate
The connection between future dollars and today’s dollars is the discount rate. The discount rate represents the decision maker’s patience – the lower the discount rate the more patient one is, the higher the discount rate the more impatient. We recently evaluated energy efficiency investments which included significant upfront costs and incremental savings each year during the 20-year life of the efficiency measure. Only with a discount rate below 1% would the present value of benefits exceed the present value of costs. In this case the organization would have to be extremely patient.

So what is the right discount rate?
Theory suggests the discount rate should be the opportunity cost of the project relative to other investments. Since a city or county may invest in other projects or capital investments, municipal bond rates are a good measure of this opportunity cost. Right now, 10-year municipal bond rates are about 2.06% to 2.37% based on credit rating (AAA to A). The project’s opportunity cost may also be considered against other private investments. In this case, the 10-year corporate bond rates are 2.49% to 3.15%.

Currently, these bond rates are extremely low as a result of the overall interest rate environment in the economy. Remember, a low discount rate means the organization is very patient. We believe using a discount rate in the 2% to 3% range may distort the city or county’s decision-making process. Recently, we’ve recommended economic development organizations use a discount rate of 4% to 5%.

Ultimately, the discount rate should be evaluated regularly based on interest rate conditions and the city or county should feel comfortable with the rate. The city or county may already use a standard discount rate, in which case you may choose to use this rate to evaluate economic development projects.

Although critics may view the use of economic development incentives as corporate welfare, local governments can improve the social welfare by supporting private economic activity. It is important that economic development organizations implement a consistent, objective process to evaluate economic development deals, using clear evaluation criteria to ensure the organization is using scarce economic development funds wisely.

The decision to offer incentives can really be thought of as a two step process.

Step 1: Should an incentive be offered to this firm?
Step 2: What is the appropriate value of the incentive?

Click on the links above to learn how economic development organizations can use incentives wisely.

• Target Industries: Incentives should be used to to advance the strategic vision of the community and economic development organization. Therefore the organization should limit the use of incentives to projects in specific target industries.
• Generate New Economic Activity: Economic development incentives should be limited to businesses that will support new economic activity in the area, rather than reshuffle existing economic activity.
• Jobs for Current Residents: In addition, the organization should consider the employment impacts of the project. Will the business employ current residents or require in-migration? Will the business result in net new income for residents?

Collecting information from the prospect firm and preparing an economic and fiscal impact analysis will go a long way in answering these questions.

If the EDO has determined that a firm or project is worthy of an incentive, the question becomes: What is the appropriate level of the incentive?

Once an economic development organization has determined that the business or project is worthy of an incentive offer, the organization must determine the appropriate value of the incentive. An appropriate incentive can only be determined once the economic and fiscal impact of the business or project has been estimated. Our website addresses the components of a comprehensive economic and fiscal impact analysis.

The firm or project will generate taxes and other revenues for the community and impose costs on various taxing authorities. The fiscal impact analysis will itemize the benefits, costs for each local taxing authority over a period of time. Assuming the project will result in positive net benefits, the incentive-granting organization should base the incentive offer on the net benefits to be received as a result of the project.

Incentives in the form of job grants can be viewed as an investment in the project. The flow of net benefits represent the return on this investment. Within this framework, an average annual rate of return can be calculated for a given incentive level. In addition, the length of the payback period can be estimated. The payback period is the number of years before the taxing authority is paid back.

Communities should only consider incentives with a rate of return greater than 10 years and a payback period of fewer than 10 years. Given the level of uncertainty surrounding economic development projects, communities may impose specific limits such as requiring a rate of return greater than 20% or a payback period shorter than the firm’s initial lease length.

Continue to follow our blog as we address proper discounting, uncertainty and evaluating other types of incentives or contact us to learn more about our Local Economic Development Incentive Training Course or to discover how one of our customized impact models will help you protect public funds by using economic development incentives wisely.