On Oct 06 2015 by H. Ronald Klasko

Where Are We Now?

The EB-5 Reform and Integrity Act of 2022 brought many changes to the EB-5 program. For the latest information, please click here.

September 30 has come and gone, and there is no new EB-5 law. Rather, there is an extension of the regional center EB-5 program as part of the continuing resolution to fund the U.S. Government through December 11. The result is that it is business as usual under the existing EB-5 law unless and until a new law passes Congress and is signed by the President. The hope and expectation is that there will be a new law containing a long-term extension of the EB-5 program passed before December 11.

Two EB-5 bills were introduced in the Senate in the last week. One was introduced by Senator Flake of Arizona, focusing on the TEA issue. In addition to rural areas, the bill would include as targeted employment areas groups of census tracts that are “economically integrated” based on commuter flows with unemployment rates exceeding 150% of the national average. The bill would also include state or federal designated incentive program areas, such as enterprise and empowerment zones. Once designated as a TEA, the area would retain the TEA designation for 5 years.

The other bill was introduced by Senator Rand Paul of Kentucky. His bill would make the regional center program permanent, increase the number of visas available for EB-5, keep the investment amount for TEAs at $500,000 and implement measures to improve the transparency and integrity of the EB-5 program.

Almost certainly, neither of these bills will become law. However, especially the Flake bill is significant in laying a “marker” on the TEA issue. Senator Flake and other key senators, who could be in a position to block any legislation, want to make certain that a new EB-5 bill does not disincentivize investments in urban areas. The Flake bill alerts the drafters of any new legislation as to the TEA language that would merit their approval.

So if neither of these bills is likely to proceed, what is the likely scenario for EB-5 legislation? For months, staffers for Senators Grassley and Leahy and Congressmen Goodlatte, Issa and Lofgren have been attempting to agree on a bill that would be introduced, most likely initially in the House. By most accounts, 90% of the bill is and has been drafted, including an increase in investment amount to $800,000 for a TEA and $1,200,000 for other areas, provisions to increase the transparency and integrity of the regional center EB-5 program and possibly some changes to acceptable job creation methodologies.

The reason that there was no bill introduced before September 30 relates to the other 10% of the bill; specifically, the TEA provisions and the effective date provisions. As discussed in my last blog, the TEA issue is an ideological division; the effective date issue is a legal/practical/philosophical problem.

Reportedly, the drafters of the bill are fairly aligned on a TEA definition that would significantly cut back on urban TEA projects. The problem is that senators from states that have attracted significant EB-5 money into urban projects have made it clear that they would oppose such legislation. Given the limited timeframe, such opposition would prevent the bill from being fast tracked through Congress. The result is that ongoing attempts are being made to draft compromise language that would satisfy the senators and congressmen who want to incentivize rural area investments while appeasing key senators who want to keep investment dollars flowing into urban projects. Most likely, we will see the results of such a compromise in an EB-5 bill to be introduced in the House in the very near future. It is this bill that would likely be the lead vehicle to be expedited for a floor vote in the House of Representatives and then go to the Senate, where it hopefully will achieve unanimous consent. Many roadblocks still stand in the way of this scenario, not the least of which is the transition in all of the House leadership positions.

There has been less of an ideological split and more of the drafters trying to understand the differing issues and impacts involved in effective dates and grandfathering for projects and for investors. As of the date of this blog, the effective date language in a new bill remains a moving target.

Most likely, any bill would have separate provisions relating to effective dates and grandfathering for projects as opposed to investors. Even though the Grassley-Leahy Bill had provisions to grandfather projects but not investors, a new bill would more likely grandfather investors rather than projects. However, it is possible that not all investors will be grandfathered; and it is possible that some projects would be grandfathered. It is possible that grandfathering could be based strictly on date of filing or possibly some other standard. There are several possibilities for the effective date — the actual date of passage of the new law; September 30; December 11; a prospective date 6 months or 1 year in advance; a retroactive date as suggested by USCIS. A date which does not grandfather all investors would be grossly unfair to investors and could result in multi-year litigation. Reportedly, the drafters of the bill are looking for a mechanism whereby some but not all projects would be grandfathered based on as yet unknown criteria. One of the criteria may be the filing of an exemplar petition prior to October 1.

So where does that leave us now? For investors, there may well be an advantage to having filed before October 1, although that is unknown at present. It remains good advice for investors to file sooner rather than later, and possibly it may be advantageous for investors to file in projects that filed exemplar petitions prior to October 1.

For projects that filed exemplar petitions prior to October 1, there may or may not be a legal advantage; but there would likely be a marketing advantage. For projects that did not file, there may or may not be an advantage to filing an exemplar petition prior to whatever effective date is included in the new bill. If Congress is looking for a way to distinguish between projects that should and should not be grandfathered, it is possible that there could be an advantage given to a project that actually has investors who have invested or filed EB-5 petitions prior to any effective date.

In summary, the failure to pass EB-5 legislation prior to October 1 keeps investors, project developers and regional centers in limbo, which is not helpful to anyone involved in the EB-5 program. Hopefully, I will soon be able to publish a blog summarizing a new EB-5 bill which will provide a long term, or preferably permanent, extension of the regional center program and which will provide a foundation for the growth of the EB-5 program many years into the future.

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