EB-5 Immigrant Investor Program: Proposed Changes on the Horizon
Proposed Regulations and Reforms
Congress has yet again extended the temporary EB-5 Regional Center program for another five months from April 30, 2017 to September 30, 2017, as part of its Continuing Resolution. Although the EB-5 Regional Center (“RC”) program was created 25 years ago by Congress in 1992, it still remains a “temporary” program.
By way of background, the RC program allows foreign investors who are interested in obtaining U.S. permanent residence or a “green card” to pool their investment funds into a U.S. Citizenship & Immigration Services (“USCIS”) authorized project that is part of a RC in order to create 10 full-time jobs directly or indirectly for U.S. workers. Once an investor has lawfully made the current $500,000 or $1,000,000 EB-5 investment and subsequently obtained a 2-year conditional green card, the investor needs to demonstrate that 10 jobs were created and sustained directly or indirectly within the 2-year conditional period in order to remove the conditions and obtain a full-validity 10 year green card. The RC program is noteworthy because it allows the counting of indirect jobs (e.g. most jobs created down the supply chain) along with direct jobs that were created as a result of the investor’s EB-5 investment. Therefore, the RC program has by far been the favored EB-5 investment option for a vast majority of foreign investors given its flexibility over the permanent direct EB-5 investment program.
Congress’ recent short-term extension is nothing new as it has extended the EB-5 RC program continuously since 1992, as Congress has tried and continues to work towards a consensus regarding the specific details of the temporary program. In 1997, the program was extended for three years; in 2000 for two years; in 2003 for five years. However in recent years, the extensions have gotten shorter, as legislators have sought to draft and agree to a comprehensive reform bill.
In the absence of legislation, USCIS issued proposed regulations in January 2017. Since then, two notable “Staff Drafts” have been unofficially released for consideration by Congress to reform the EB-5 visa program. One draft is by Senator Cornyn (dated 4/30/2017) and the other is by Senators Grassley and Leahy (dated 4/15/2017). A comparison to the USCIS proposed regulations reveals disagreements regarding how the EB-5 program should continue to operate. EB-5 investment amounts and the definition and designation of Targeted Employment Areas (TEAs), are the two most hotly contested issues which will be addressed below.
Increases to EB-5 Investment Amounts
There has been no increase in the EB-5 investment amounts since the EB-5 Program’s enactment in 1990. Currently, the minimum investment amount in a TEA is $500,000 and the minimum investment amount in a non-TEA is $1 Million. TEAs are geographic areas designated by individual states that have either a high unemployment rate (at least 150 percent of the national average) or are located within a rural area (as defined by regulation). The minimum investment amount is lower for a TEA-designated area in order to attract greater foreign investment into these economically distressed urban or rural areas.
To account for inflation, USCIS has proposed to raise the minimum investment amount in a TEA to $1.3 million, an increase of 170% from the current amount of $500,000. USCIS has also proposed to raise the investment amount in a non-TEA to $1.8 million, an increase of 80% from the current amount of $1 million. These increases in investment amounts are controversial because they are significant compared to the current investment amounts. Further, the differential between TEA and non-TEA investment thresholds would decrease to 25% from 50%. As such, many major EB-5 stakeholders have voiced concern over USCIS’ proposed investment amounts.
In contrast, the two recently released unofficial legislative proposals take a more graduated approach to increasing the EB-5 investment amounts over the span of several years. For example, the Grassley/Leahy draft proposes an initial increase from $500,000 to $800,000 for investments in a TEA, and $1 million for investments in a non-TEA. The draft proposes subsequent and periodic increases to the investment amounts every three years. Similarly, the Cornyn draft proposes an increase from $500,000 to $800,000 for investments in a TEA, and even lowers the $1 million to $925,000 for non-TEA investments with subsequent increases every three years. For many stakeholders within the EB-5 industry, the proposed gradual increases to the EB-5 investment amounts are favored to USCIS’ exponential investment increases.
Definition and Designation of TEAs
As stated above, under existing rules, a TEA is a rural area or one that has an unemployment rate of 150 percent of the national average. Individual states currently have broad discretionary authority to designate high unemployment areas and program regulations allow state officials to set TEA borders that best reflect local demographics.
Under the proposed USCIS regulations, the Department of Homeland Security itself would adjudicate the definition and designation of TEAs. USCIS proposed to allow any city or town with high unemployment (at least 150 percent of the national average) and a population of more than 20,000, a census tract, or a group of contiguous census tracts as a TEA. This would limit urban TEA investment to narrowly demarcated areas that can demonstrate a weighted unemployment rate of at least 150 percent of the national average.
Under the Grassley/Leahy and Cornyn legislative proposals, the Secretary of Homeland Security would also confirm the designation of a TEA. Both legislative proposals offer alternatives other than unemployment to qualify as an urban TEA as it considers additional factors including poverty rates and median family incomes. However, while the Grassley/Leahy proposal does not specify any limit on the allowable number of census tracts or shape of the area for an urban TEA, the Cornyn proposal does limit urban TEAs to a single census tract.
In reviewing and comparing USCIS’ proposed regulations with the legislative proposals, the USCIS regulatory measures are more restrictive especially with regards to the increased EB-5 investment amounts. Most EB-5 stakeholders would agree that increased investment amounts are not controversial provided that the increases are proportional and reflective of the significant financial risk investors must make to qualify for the EB-5 program. Similarly, a more balanced regional distribution of EB-5 investor financing is not necessarily controversial provided that urban projects and regions are not completely disadvantaged.
While many EB-5 stakeholders may look to Congress for a legislative answer to these EB-5 issues, given the current political climate, USCIS regulations may have a better chance of being enacted. The notes and comments period of the proposed regulations ended on April 11, 2017, over a month ago, and USCIS can determine whether it will proceed with, edit, or terminate the rulemaking based on its reasoning and conclusions on the rulemaking record at any time. Once the agency publishes a final rule, generally the rule is effective no less than 30 days after the date of publication in the Federal Register. If the agency wants to make the rule effective sooner, it must provide persuasive reasons for why this is in the public interest.
The Trump Administration had previously stated that it would freeze any Obama-era regulation that would have an annual effect on the economy of $100 million or more. However, on May 24, 2017, during the U.S. Senate Judiciary Committee’s confirmation hearing of Mr. Lee Francis Cissna, the Trump Administration’s pick for the Director of USCIS, Mr. Cissna expressed his strong interest in finalizing the proposed USCIS regulations. Therefore at this time, it is critical for any EB-5 stakeholder to closely monitor this dynamic and evolving situation surrounding the EB-5 RC program’s future.
 DHS, EB-5 Immigrant Investor Program Modernization, Federal Register, Vol. 82, No. 9, January 13, 2017 at https://www.gpo.gov/fdsys/pkg/FR-2017-01-13/pdf/2017-00447.pdf
Author: Chad Ellsworth, Partner, Fragomen Worldwide