The EB-5 Pilot Program (also known as the “EB-5 Regional Center Program”) has always required periodic reauthorization by Congress to continue as U.S. law. The Program has faced reauthorization numerous times since its original enactment in 1992, and in every instance the Program has been renewed for a fixed period of time without changes. Growing government concern about abuses in the Pilot Program, however, has led to an increasing impetus to updating and reforming the Program; although, as yet, U.S. Congress has failed to gather consensus to pass EB-5 reform bills into law. Will the industry see real EB-5 reform in 2017? Let’s take a look at recent reauthorizations and currently proposed reforms to better understand the landscape of EB-5 reform in 2017 and what may lie ahead.
September 2015: On September 30, 2015, the EB-5 Pilot Program was due for reauthorization after having been extended by the U.S. Congress for three years without change in September 2012. Absent reauthorization, the Pilot Program would have terminated on October 1, 2015. Prior to the deadline for reauthorization, Congress failed to produce a draft bill for consideration in both the House and the Senate, leaving Congress with the choice of either extending the Program without change, or cancelling it entirely. On September 30, 2015, Congress passed a continuing resolution that contained an extension of the EB-5 Program (along with extensions for E-Verify, the Conrad-30 Waiver Program, and the Non-Minister Religious Worker Visa Program). This short-term extension of the EB-5 Program through December 11, 2015 was a “straight reauthorization” – extending the Program without changes until December 11, 2015.
December 2015: As the September 30, 2015 EB-5 program sunset date approached, Senators Chuck Grassley (R-Iowa) and Patrick Leahy (D-Vermont) introduced a bill to reform the EB-5 Program that would have increased the minimum investment amount to $800,000 for investments in a Targeted Employment Area (TEA) and to $1.2 million for investments not located within a TEA. The bill would have amended the statutory definition of a TEA to include only rural areas, closed military bases, or areas consisting of a single census tract that had 150 percent of the national unemployment rate – greatly reducing the number of areas in the U.S. that would qualify as targeted employment areas. The proposed legislation would have also added major reporting and compliance requirements for both Regional Centers and enterprises associated with Regional Centers, including measures to address perceived abuses in the EB-5 program.
After much discussion, a compromise bill was on the very verge of passing when big developers in cities such as New York, Los Angeles, and Miami heavily lobbied Congress to kill the bill (which would have defined virtually all their areas of development as non-TEA, requiring their investors to participate at the higher $1.2 million investment threshold). The lobbyists succeeded in scuttling the bill. On learning that his compromise bill would not be adopted by Congress, Senator Grassley threatened to kill the entire EB-5 program (see https://www.c-span.org/video/?c4568895/sen-grassley-eb5). Despite the controversy surrounding reauthorization, the EB-5 Program was extended without changes until December 9, 2016.
September 2016: The House Judiciary Committee Chairman Bob Goodlatte introduced a House draft bill for EB-5 reform that largely paralleled the preceding Senate bill. Senator Grassley endorsed the bill –
Chairman Goodlatte and Ranking Member Conyers have put forth a strong bill that will bring the EB-5 immigrant investor program back to its original intent. It will level the playing field for investment projects in states across the country while ensuring that the bad actors are held accountable, whether they are seeking a visa or managing a project. We need strong measures to curb fraud, increase transparency, and make sure both U.S. regulators and foreign investors know where every dollar is coming from and going. Without reforms to protect U.S. interests, national security, and areas that need investments most, the program should expire.
Grassley’s comments mirrored his earlier assertions in December 2015 that the EB-5 program should be allowed to expire if reforms could not be agreed upon. Goodlatte’s House draft bill was scheduled for comment on September 14, 2016, but it never made it to the House floor for discussion. As a result, no EB-5 reforms were enacted in September 2016, but instead the program was reauthorized without changes until December 10, 2016.
December 2016: Following a tumultuous Presidential election, a draft of a bill that included sweeping EB-5 reforms circulated among staff members in U.S. Congress; however, an official draft bill was not published for comment. At the critical hour before the EB-5 program was set to expire on December 9, 2016, the EB-5 program was extended without change until April 28, 2017.
January 2017: The Department of Homeland Security (DHS) issued a notice of proposed rulemaking in which the U.S. Department of Homeland Security (DHS) proposed to amend its regulations governing the EB-5 immigrant investor classification and associated regional centers to reflect statutory changes and modernize the EB-5 program. The proposed changes that are most relevant to EB-5 investors and practitioners are increases in the minimum investment amount for targeted employment areas (TEAs) and non-TEAs, and revisions to the TEA designation process. In order to reflect the present-day dollar value of the investment amounts established by Congress in 1990, DHS proposes to increase the standard minimum investment amount to $1.8 million in non-TEA areas and to $1.35 million for TEA areas. DHS also proposed to reform the TEA designation process to ensure consistency in TEA adjudications and ensure that designations “more closely adhere to Congressional intent.” Under the current rules, authority for designating an area as TEA is given to state officials, who are under pressure from their state capitals to encourage business development in their own state. As a result, the state authorities have engaged in “census tract aggregation” and other forms of “gerrymandering” to expand the areas in their states that are designated as TEA far beyond the original intent that TEA areas should be the exception rather that the rule for minimum EB-5 investment. DHS now seeks to eliminate the ability of states to designate TEA areas and proposes instead to make such designations itself – a proposal that will likely make it harder for regional center projects to acquire TEA status for lower minimum investment amounts.
Comments on proposed reforms are due back to DHS by April 11, 2017. Discussion and implementation of the new regulations will likely take until June 2017 to be completed.
February 2017: Senators Diane Feinstein (D-Calif.) and Chuck Grassley (R- Iowa) introduced S. 232 to eliminate the EB-5 visa program.
With the mounting pressure over the last two years to reform the EB-5 Program, it is very likely that reform will happen this year. We do not believe, however, that the USCIS will be able to reform EB-5 law through the introduction of new regulations. The current administration is well known to be hostile to U.S. government agencies changing the law through regulatory reform in areas where Congress should assume the lawmaking authority. Indeed, one of the first acts of the new administration was to issue a memorandum to all executive departments and agencies to freeze new or pending regulations for 60 days so that the new administration will have time to review them.
We also do not believe that Senate bill S.232, proposing a termination of the EB-5 visa, will pass, or even advance to markup, due to the widespread support in Congress for the job-creating EB-5 program. Senator Feinstein is one of the rare members of Congress who seems to genuinely favor a termination of the Program in its entirety. Senator Grassley, in our opinion, is merely backing up his threat to terminate the program if the EB-5 industry, including big-city developers and their lobbyists, fail to adopt a unified stand and back proposed EB-5 reform.
We do, however, expect Congress to pass reform this April. The September 2015 and September 2016 reform efforts failed despite broad bipartisan support because Congress was distracted by the effort to pass a budget at the end of the fiscal year. Congress simply failed to find time to complete the lawmaking process. This past December the problem was a reluctance to change any law with a new Administration about to take over the White House. This April, however, the country will be approaching the end of the “First 100 Days” of the new administration, and we expect that both chambers of Congress, with fewer distractions, will finally find time to pass a reform bill for EB-5 along the lines of the previously proposed Senate and House bills.
EB-5 investors are cautioned to be aware of potential changes in the program and to be prepared for increases in the minimum investment amount and in the methodology behind TEA designations. Submitting your I-526 application prior to the adoption of any reforms gives investors a chance to meet USCIS requirements with an investment of $500,000, assuming that “retroactivity” (the subject of our next blog post) will not be a part of any final bill. EB-5 Analytics is closely monitoring the EB-5 reform process and will provide our clients and industry partners with updates as information becomes available. Please feel free to contact us directly to discuss the impact of proposed reforms and any other EB-5 related questions you might have.