When the U.S. Congress introduced regional center-based investments into the EB-5 mix in 1991, the new program was a “Pilot Program,” which is to say that it was something of an experiment. Congress was required to periodically review the program and renew it, if they saw fit. Because the Congress never marshaled enough energy to reform the program in years past, the minimum investment amount has remained as it was when created in 1992 – a bargain at $500,000.Also left unchanged is the authority to decide what is and is not a “targeted employment area” (TEA). This power remains with state officials, who naturally want the development in their state, so they have greatly stretched TEA designation – originally meant to help rural and high-unemployment areas in the U.S. – to cover 80% or more of the USA, including many wealthy big-city geographic areas.
The program has come under increasing criticism in recent years, and Congress was expected to change the program by September 30, 2015 (the end of the 2015 USCIS fiscal year). But, once again, Congress had too much else on its plate, and decided to “kick the can down the road” by passing a reauthorization that extended the Program without change until December 11, 2015. As the new deadline approached, however, the Congress was better organized. In late November 2015 Congress was able to release detailed draft legislation with bipartisan support that would have raised the minimum investment amount to $800,000 and the non-TEA amount to $1,200,000. It would also have greatly reduced the number of geographical areas to qualify as TEA, and would’ve implemented numerous other reforms to try to eliminate abuse in the industry. The legislation was almost universally expected to be implemented by December 11, but in the end the legislation was sunk by big-city developers and their Congressional lobbyists who didn’t want to see TEA designations changed.
Will Congress act this September 30? Many observers expect that they will not because Congress tends to avoid passing substantive changes to the law during presidential election years. I don’t think we should exclude the possibility of Congress-initiated reform of the EB-5 Program, however. There is an unprecedented amount of momentum behind reform this year – with Congress having held three hearings on abuses in the EB-5 program so far this year – and the Jay Peak scandal has just added high-octane fuel to the fire.
But Congress doesn’t have to act in order for the minimum amount to be increased or TEA designation reformed. The USCIS has stated that it has the power to change the minimum amount and reform TEA designation without Congressional involvement through issuance of new EB-5 regulations. I have looked at the statues in question, and my view is that the USCIS does in fact have this power. The USCIS can’t make these changes overnight, however. It will have to publish the new regulations and allow for at least a 30-day comment period before implementing the new regulations.
So, investors who want to invest at $500,000 and/or want to invest in a big-city project should keep an eye on both the USCIS and the U.S. Congress as they consider when to start preparing for their EB-5 investment.
John Roth | 29 May 2016
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