Provides visas for foreign investors who invest $1 million in a U.S. business that creates or preserves at least 10 U.S. jobs. The main purpose: attract capital investment and create jobs.
US Chamber CEO responds
Audrey Singer, Senior Fellow, Metropolitan Policy Program
Sept 8, 2015
A sometimes controversial visa program for foreign investors is back in the news again, with a lawsuit filed by the Securities and Exchange Commission against a Seattle-based developer (a former Tibetan monk) accused of diverting millions of dollars to personal use.
The EB-5 Immigrant Investor Visa Program provides visas for foreign investors who invest $1 million in a U.S. business that creates or preserves at least 10 U.S. jobs. If the investment is made in a Targeted Employment Area (TEA), defined as a rural area, or one with one-and-a-half times the national unemployment rate, the investment threshold is reduced to $500,000. These investments permit immigrant investors and their families to live and work in the United States with conditional residency status, which becomes permanent after program requirements, are met.
The main purpose of the program is to attract capital investment and create jobs. While there have been many successful projects over the years, the program has also been riddled with high-profile cases of fraud and corruption.
Currently, the EB-5 immigrant visa program primarily operates under provisions of the Regional Center Program, enacted as a pilot program in 1992, and reauthorized seven times since. Regional centers pool investments across multiple investors. Although “pilot” has been removed from the program’s name, it is still temporary and up for reauthorization, and certainly renewed scrutiny, by the end of the month.
One reauthorization bill, introduced by Sens. Grassley and Leahy focuses on new measures designed to prevent fraud. It also raises the minimum investment amount to $800,000 within a TEA and $1.2 million otherwise. Most important for reaching the program’s economic development goals, however, are the bill’s new rules on defining TEAs. State governments currently define TEAs, and there are no guidelines for their size or geographic boundaries. Census tracts with high unemployment are often joined together with those that do not fit the criteria to create TEAs that qualify projects for the lower investment threshold. Hence, high-profile EB-5 projects have cropped up in places that appear to not fit the unemployment criteria, such as the Hudson Yards project on the West Side of Manhattan.
The bill would revise the TEA definition to include rural areas, closed military bases, or single census tracts within metro areas with an unemployment rate at 150 percent of the national average. To further increase the effect of EB-5 financing, at least 50 percent of the job creation would have to be within the metro area, or within the county in which a rural TEA is located.
Other proposed changes to the program address problems identified in an August GAO report that pointed out scam risks and uncertainties in verifying that investment funds were obtained lawfully. The report also critiqued U.S. Citizenship and Immigration Services (USCIS), the agency that runs the program, for not collecting adequate data nor using valid methodology to estimate economic benefits and job creation, two primary goals of EB-5.
Nevertheless, it seems likely that the EB-5 regional center program will be reauthorized, at least temporarily, and possibly without any revisions. However, the proposed changes to tighten the rules around defining TEAs are a good starting point for reform, though they do not address how the program might better meet the goal of increasing jobs for residents of TEAs and measuring those outcomes. I have previously raised questions of whether targeted communities benefit from EB-5 by the creation of more or better jobs, whether the jobs are long-term or short-term jobs, and whether employees for those jobs are residents of the TEAs or come from outside.
Researchers are asking similar questions of place-based programs such as the New Market Tax Credit (NMTC) and finding that the majority of jobs created in areas of subsidized investment do not go to residents of the targeted neighborhood. It is very plausible that the same is true of the TEA program.
With the reauthorization of the EB-5 Regional Center Program looming, changes to how targeted employment areas are defined should be considered. It is also a great time to refocus on the communities that are the intended beneficiaries. Adding a stipulation that would require some jobs go to local residents of TEAs (and not simply the larger metro area) should be part of the deliberation. Requiring the collection of data to better show the effects of EB-5 capital would demonstrate commitment to the goal of benefits to local communities.
Plenty of money is exchanging hands in the EB-5 program. Let’s ensure some of it is going to the people and places it is intended to aid.
ABOUT THE AUTHOR
Audrey Singer is a senior fellow at the Brookings Metropolitan Policy Program. Her areas of expertise include demography, international migration, U.S. immigration policy, and urban and metropolitan change. She has written extensively on U.S. immigration trends, including immigrant integration, undocumented migration, naturalization and citizenship, and the changing racial and ethnic composition of the United States.
US Chamber op-ed originally appeared in The Hill.
Below the often passionate debates in Congress focusing on the mega issues of the day, there are many worthy programs which need to be attended to and not lost sight of. One of these is the EB-5 Investor Visa Program and its EB-5 Regional Center Program, which grants visas to capable and dedicated immigrants if they commit to invest in development projects in the U.S. These investments drive economic growth and job creation in the U.S. at no cost to taxpayers. This kind of smart government policy should be preserved and unless Congress renews the program before it expires at the end of this month, this successful job creation tool could be damaged–or disappear altogether.
Under current law, the program allows foreign investors to obtain permanent residency by investing at least $1 million in U.S. projects that will generate at least 10 new jobs for American workers. In rural or high unemployment areas–where project financing is often scarce–investors are only required to invest $500,000 to qualify under the program. The program, which awards 10,000 visas a year, helps direct global capital into our economy rather than our competitors’ economies.
The program has a strong track record of generating investment and job growth. A recent study commissioned by the EB-5 Investment Coalition found that between 2005 and 2013, the EB-5 program generated $5.2 billion in foreign direct investment for U.S. projects. In 2013 alone, foreign investors pumped $1.6 billion into the U.S. economy through the program. Many EB-5 projects are still being implemented, but when they are completed, the money provided by these foreign investors could help create 31,000 new jobs for Americans. Moreover, EB-5 investments have financed projects that might not otherwise have secured the capital needed to make it past the planning stage.
The list of projects that have been fueled by EB-5 investments is deep and diverse, including construction of hotels, schools, technology centers, and nursing homes across the country. The program has also provided funding for multiple infrastructure projects, such as port expansion in Baltimore or the building of a highway interchange in Southeast Pennsylvania. If Congress fails to renew the EB-5 Regional Center Program, these and other significant economic development projects, along with thousands of pending investor petitions, will be stopped in their tracks. There is no justification for allowing it to lapse.
Now, even a good and worthy initiative can be improved, and this one is no exception. The U.S. Chamber of Commerce and other industry groups support reforms to prevent fraud and abuse. The handful of bad actors who have engaged in misconduct must be held accountable and we should work to prevent future abuses of the program, but that should not cause an overreaction by Congress. The program should be updated to ensure proper oversight, security, and integrity. However, any changes should not hamper economic development.
Undermining the program’s positive economic impact or interfering with the market-based approach that has made the Regional Center Program so effective would be unfortunate. Efforts by Congress to direct EB-5 investment into certain areas at the expense of others would be an unwelcome development, considering the program was designed to be national in scope and focused on the goal of job creation, not creating jobs in politically-favored areas. Congress’s role should not expand to picking winners and losers or tilting the playing field; all worthy projects should be given due consideration.
Other concerns are focused on how to properly account for jobs created by the EB-5 investments. We share the concerns of members in Congress that job creation needs to be properly verified, but efforts to unreasonably limit or restrict which jobs can be counted are misguided. The focus of the program always has been and should remain on job creation–not on where those jobs are created.
Finally, there are currently more than 13,000 EB-5 applications pending approval. They should not be subject to any changes that may be incorporated into the program through reauthorization–such as increases in minimum investment amount. Suddenly upping the ante for investors who are already in the process and following the rules would unfairly penalize them and could disrupt both current and potential projects.
The U.S. Chamber appreciates the bipartisan efforts of lawmakers in both houses of Congress who are working to reauthorize the EB-5 Regional Center Program–along with three other key immigration initiatives, including E-Verify–ahead of the deadline. As negotiations move forward, we urge them to make thoughtful, measured reforms that will maximize foreign investment in the United States, not undermine it.
Smart government policies–backed by facts, data, and statistics–are needed now more than ever to ensure that the United States can compete in the global marketplace to attract foreign capital and help finance projects that put Americans to work.
Thomas J. Donohue is the president and CEO of the U.S. Chamber of Commerce.