With President Trump’s signing of the Omnibus bill, the most current attempt at EB-5 reform officially goes into the dustbin of history. There is a saying that goes something like, ‘when god convened a committee to create a horse, they came up with the camel’ (no disrespect intended to camels, of course). And so it went with the now aborted EB-5 legislation. It went from bad to worse to a point where there was enough in it for absolutely everyone to hate it. It’s at times like these when it is worth to take a step back so maybe we can take step forward.
Firstly, where are we now? With the passage of the Omnibus spending bill, the Regional Center program has secured yet another short-term extension through September 30, 2018. That victory, if it can even be called one, may be extremely short lived. The entire push for the legislation was to thwart the DHS proposed rule on EB-5 from becoming final. In fact, the publication date had been accelerated from April to February, due to reported heavy lobbying by the large Regional Centers who urged delay precisely so the legislative process could have a chance. Now that the process has run its course, and failed (again), there may be nothing left to stop DHS from promulgating the final rule. When that happens, most notably, the minimum investment amount will likely increase to $1.3 million. There is a real possibility that the lack clear TEA rules and standards (as USCIS will administer instead of the states) will force all but the most risk-prone (or desperate investors) to invest at the higher, non-TEA, amount of $1.8 million.
For investors currently contemplating an EB-5 investment, you have just gotten a second chance at the $500,000 investment level, and that window of opportunity may not last for too long. As little as four or five days ago, most in the industry believed the legislation would pass and with it the increase to $925,000. What seems certain, is that at some point and perhaps soon, the $500,000 investment level will be gone forever.
Next, what should we be doing as an industry? It seems pretty clear that a repeat of this current legislative exercise is not going to be productive. More importantly, the outcome highlighted an important takeaway, namely, this bill, in any of its incarnations would not have been what the industry really needed. The policy premise of the EB-5 program is to create jobs, within that, the TEA policy is to direct some of the job creating dollars to areas that need it the most, namely distressed urban areas and rural areas.
For any EB-5 reform to be meaningful, it has to deal with the white elephant in the room, and that is the backlog and retrogression of mainland Chinese born investors (and perhaps soon Vietnamese and others). That backlog has already significantly reduced the capital flows coming from China from several billion dollars a year to a small fraction of it. As other countries enter a retrogression status, they too will see declines. Even if new rules or a new bill allows rural/distressed urban investors to claim priority visas, the EB-5 program as a whole will quickly top out at a billion per year or less in deployed capital. That simply isn’t big enough to warrant the attention of a critical mass of serious project sponsors or the amount of time and effort on the part of the government it takes to administrate the system.
The first fix of any meaningful reform will be to ‘go big’ (or go home). In 2015, according to DHS’s yearbook of immigration statistics (https://www.dhs.gov/immigration-statistics/yearbook/2015/table6), there were 1,051,031 green cards issued. EB-5 is capped at 10,000; that’s 0.951%. So as a policy, we’re allocating less than 1% of all green cards to people who are generally highly educated, have significant wealth and are investing in businesses and projects that directly support the US economy and American jobs. The simple fix is to allocate another 30,000 or 40,000 visas to the program. The difference is pretty much rounding error and an extra several billion dollars a year of job creating capital is meaningful and important. The US currently has negative population growth rate without immigration. So without an influx of immigrants, our nation will shirk. Regardless of where a person falls on the highly charged questions of US immigration policy, the question cannot be whether or not we need immigrants, but which are the best for America. Without getting into the entire debate here, it’s pretty safe to say, allocating 3-4% of the pool to educated, wealthy, job/investment oriented people should be at the top of everyone’s list.
With this, other fixes to the program would make a lot of sense. Foremost is the TEA regime. It’s a boldfaced lie to claim that the TEA policy works as intended. The vast majority of all capital flows into projects that qualify in TEAs irrespective of where they are located. You can see my testimony on this point in front of the House of Representatives Judiciary Committee here: https://judiciary.house.gov/hearing/is-the-investor-visa-program-an-underperforming-asset/. We should all ask ourselves a question: At this point do we even care about TEAs? Some money does flow to non-rich urban areas currently, so maybe we should just get rid of TEAs and stop pretending like we’re meeting the lofty policy goal of helping distressed areas. If we really do want to help them, then we need the policy implementation to be meaningful. Firstly, the investment amount between TEA and non-TEA areas must be enough to change some investors’ project selection from non-TEA projects to TEA based projects. In the final bill, the difference was $100,000. So the discount to motivate people for an important policy objective was a grand total of 9.7%, down from what is now 50%. That was laughable. If that will be the difference, then the policy will fail. Based on my personal experience, I would say that the difference would need to be at least $250,000.
Another area for improvement would be to give TEA-based petitions an adjudication preference. The current two-year processing time is virtually at a point of killing the EB-5 market generally. For TEA based investors, guarantee six-month processing. On the same topic, there should be a premium processing option for all investors. It’s a fee funded program. Investors would easily pay an extra $5,000, $10,000 or more to get their petitions processed in months instead of years. USCIS cannot claim it’s a resource issue as the funds would come from the investors. There is no reason why this can’t be done (unless USCIS has its own agenda).
There are many other needed changes with respect to ensuring investor protection and true national security interests. Many were in the bill and most were not contentious. The point of this article was not to create an all encompassing checklist but rather to focus the big picture topics that were absent from the recent process and can hopefully become a part of the solution in the near future. Otherwise, none of it will matter if and when reform finally does happen.