On Dec 16 2015
Reauthorization of EB-5 Program Likely Bringing Restrictions
By Anu Nair and William A. Stock
The EB-5 Reform and Integrity Act of 2022 brought many changes to the EB-5 program. For the latest information, please click here.
Congress created the Immigrant Investor Program, more commonly known as the EB-5 immigrant visa, in 1990. The program stimulates the U.S. economy through job creation and capital investment by foreign investors. In exchange for investing capital in a job-creating business in the United States, the investors are allowed to enter the United States as immigrants (with green cards). To allow a broader range of investment opportunities, the Regional Center Pilot Program was enacted in 1992 and allowed foreign investors to invest through EB-5 regional centers, which are allowed to count jobs created directly in a job-creating business, as well as indirect jobs created by the economic activity spurred through their investment.
EB-5 investments through regional centers became very popular during the financial crisis of 2007-09, when many large development projects could not access traditional financing. The program was so successful that many thousands of investors have entered the program in recent years, mostly through the regional center program. Regional centers allow for the aggregations of tens of hundreds of investors to fund large projects, creating tens of thousands of jobs.
While U.S. Citizenship and Immigration Services has reported that the EB-5 program has brought in over $11 billion in investments and created almost 74,000 jobs since its inception, that calculation was only based on the minimum statutory requirement of creating 10 jobs per investor. After reviewing petition files, the U.S. Government Accountability Office found that projects often created more than the 10-job-per-investor minimum.
Locally, EB-5 regional center projects have changed the face of Philadelphia and created thousands of jobs. In the past 10 years, EB-5 projects and investors have funded the expansion of the Pennsylvania Convention Center, the Southeastern Pennsylvania Transportation Authority’s new swipe-card, the Comcast Center, the Philadelphia Navy Yard, the Interstate 95-Pennsylvania Turnpike connection, and facilities for the Temple University Health System, along with a number of hotels and restaurants in Philadelphia.
The regional center program was enacted as a pilot program with a sunset date, most recently expiring Sept. 30, before being extended as part of the continuing resolution to fund the U.S. government through Dec. 11. On Dec. 10, the program was once again extended as part of a continuing resolution through Wednesday.
In spite of these multiple program extensions, however, the program has never been made permanent. During the most recent negotiations to renew the program, congressional leaders have insisted on changes to the program, including new fees, integrity measures, and setting aside visas for certain preferred investment locations. As of this writing, it is not clear whether those seeking to increase regulation of the program will be able to accomplish all that they seek to accomplish while extending the program for another five years; however, even a shorter extension will be coupled with at least some additional fees and restrictions.
For months, staffers from the offices of Sens. Chuck Grassley, R-Iowa, and Patrick Leahy, D-Vermont, have been working on a bill that would result in significant changes to the EB-5 regional center program. Some of the proposed changes (increasing the minimum investment amount, for example) are not contentious and have remained consistent. However, key factors of the program are undergoing drastic changes with every new draft of the bill.
More importantly, with each draft of the bill, the effective dates change drastically. Some drafts of the bill have proposed a reasonable effective date, such as the actual date of passage of the law, or a prospective date that is 30, 60 or 90 days in advance. Early drafts would have applied to investments made under current law, upsetting investors’ expectations and potentially causing a disruption of the projects in which they were invested.
Without an effective date that applies only to cases filed after the law goes into effect, tens of thousands of investments will be affected. USCIS reports it has nearly 18,000 pending investor petitions, meaning that a new law that changed the rules for those investors would disrupt $9 billion of investments.
Based on current provisions of the Immigration and Nationality Act, the EB-5 category requires an at-risk investment of $1 million in a project in the United States. The investment amount is decreased to $500,000 if the project is located in a targeted employment area (TEA), defined as a rural area, or as a non-rural area having over 150 percent of the national unemployment rate. Regardless of the investment amount, each investor’s investment must create, directly or indirectly, a minimum of 10 full-time jobs for U.S. workers.
The EB-5 process consists of three distinct steps. Initially, the investor files an I-526 petition, which documents both the nature of the project and the investor’s personal information. The project must submit a business plan and supporting documents to show that the project is feasible and that the investor’s investment would result in the creation of at least 10 full-time jobs for U.S. workers. The investor must also provide copious documentation to prove that the funds invested were lawfully earned. Currently, it is taking the USCIS well over 14 months to adjudicate investors’ I-526 petitions.
Once the I-526 petition is approved, the investor and family members are eligible to file to obtain their conditional resident status. Due to visa backlogs, it takes about one-and-a-half years after I-526 approval for Chinese investors and family members to obtain their conditional resident status. For non-Chinese investors, it takes an average of six to eight months from I-526 approval to obtain conditional resident status.
The conditional resident status is a green card that is only valid for a period of two years. Within three months of the expiration of the conditional residency period, the investor must file an I-829 petition to remove the conditions on residency. With the I-829, the project must show that it spent the investor’s money and created the jobs it claimed it would in the business plan submitted with the I-526 petition. Currently, USCIS is taking over 14 months to adjudicate the I-829 petition.
If a project is unable to document the required job creation, the investors and their family members will be unable to obtain their lawful permanent resident status and must either find another lawful way to stay in the United States or depart the country.
With processing times of over 14 months and a visa backlog of over a year for Chinese investors, consistency in EB-5 adjudication is vital. The drastic changes in the proposed EB-5 bill are causing uncertainty in the EB-5 field for both investors and developers. It is difficult to advise investors on how to protect their investments, and developers on how to protect their projects, at a time when the proposed law is constantly changing, no one know what the rules will be, and even when they will be effective is up in the air. The one certainty is that very shortly, investors, developers and regional center operators will have a very different environment in which to operate, and those that cannot evolve will go out of business.
Reprinted with permission from the December 16, 2015 edition of the The Legal Intelligencer © 2016 ALM Media Properties, LLC. All rights reserved.