EB-5 Updates

Priority date retention and redeployment, with flow chart

Among other changes, the new final rule for EB-5 Immigrant Investor Program Modernization “provides priority date retention to certain EB-5 investors.” This post (1) discusses context for this change, (2) summarizes the content of the change, and (3) provides a flow chart to illustrate the various options for changing course with an EB-5 investment.

Context Summary

Priority date retention is one small fix toward a major problem in EB-5: the mismatch between policy and reality when it comes to EB-5 timing.

The EB-5 at-risk policy and material change policy depend on a relatively short EB-5 process.  An enterprise can be expected to sustain itself and keep EB-5 capital deployed for five years or so, and to closely mirror the original business plan predictions for a year or two.

But reality, for many investors, is a protracted EB-5 process with years upon years in which changes will inevitably occur. Projects will finish, loans will get repaid, plans may evolve, and problems may occur. The at-risk and material change policies are not flexible to accommodate such business developments over time. The longer the immigration process, the more vulnerable investors become to prohibited project-level changes or to difficulty in sustaining the investment at risk – and that despite having created jobs as required. A decade-long wait for a visa becomes particularly problematic when the visa depends on no material changes occurring with the investment over that period.  Thus the need for options for good-faith investors who may find themselves, at some point over the years, needing their funds to be moved from one project to another.

The “redeployment” policies are one attempt to accommodate change over time. The first redeployment policy, now described in Chapter 2(A) and Chapter 4(C) of the EB-5 section in the USCIS Policy Manual, creates some flexibility within the at-risk and material change requirements that apply to investors prior to conditional permanent residence. Moving EB-5 investment from one project to another would often be considered a fatal change at this stage, but Type 1 Redeployment defines a limited option for acceptable redeployment in a new project/use following completed job creation, within the scope of the enterprise’s business.  The second redeployment policy, described in Chapter 5(C), recognizes even more flexibility in the at-risk and change policies that apply to investors once they have received conditional permanent residence. Type 2 Redeployment recognizes options for acceptable redeployment even before completed job creation, and even outside the scope of the enterprise’s ongoing business. While succeeding and getting repaid too early could be a fatal failure to sustain investment, Type 2 Redeployment policy offers a path to keep investment sustained.

The redeployment policies have not been well-loved (1) because everyone is confused by them (with many people not even noticing that there exist two distinct redeployment policies, and with not even USCIS able to explain the parameters), and (2) because the policies are a limited work-around, not a solution to the fundamental problems: excessively long wait times, and flawed underlying material change and at-risk requirements. “Redeployment” was at least intended to help by creating paths to accommodate some change. The flow chart at the base of this post illustrates the project change options introduced by redeployment policies, and the conditions under which they apply as described in the policy manual. Without redeployment policy, more arrows in the flow chart would lead to the “you lose” result box.

Priority date retention now introduces another limited work-around for investors who face losing the chance for a visa due to changes over the course of long waits. It’s especially helpful for one category of people excluded from the redeployment recourse: those whose regional center sponsor is terminated or changed while they are still waiting for a visa.  These people still face I-526 revocation thanks to DHS’s faulty interpretation/application of material change policy. But at least, the new final rule provides them opportunity to salvage the priority date, saving the place in the visa queue in case they’d like to try again with a new I-526.

Content Summary: Priority Date Retention in the Final Rule

(All the answers in this section, except for my aside on data, come from the text of the Final Rule for EB-5 Immigrant Investor Program Modernization.)

What is priority date retention?

This provision of the Final Rule allows a petitioner to retain the priority date of an approved I-526 petition to use in connection with any subsequent I-526 petition filed by that petitioner.

Who are the “certain EB-5 investors” eligible to take advantage of priority date retention?

Eligibility for priority date retention applies to the population of people at any given time who meet all these conditions:

• The person is the petitioner on an I-526 petition that USCIS approved
• The person has not yet received an EB-5 green card (conditional permanent residence)
• If USCIS subsequently revoked the I-526 approval, it was for reasons other than (1) fraud or a willful misrepresentation of a material fact by the petitioner; or (2) a determination by USCIS that the petition approval was based on a material error

[Aside: DOS and USCIS statistics do not directly count this population. But to give a ballpark, I estimate that at least over 24,000 investors are currently in this window between I-526 approval and visa, and eligible to take advantage of the provision. Consider that no Chinese who filed I-526 after FY2014 has a visa yet per the visa bulletin, that there were about 35,500 China I-526 filed from FY2015-FY2018, that about 8,000 of those China I-526 were still pending at USCIS as of the end of FY2018, and that the approval rate for China I-526 has been about 90%. (Stats from my collection.) That’s already almost 24,000, and not counting the number of Vietnamese and Indian investors who are or will soon be stuck in that window thanks to retrogression. It’s another question what percent of this eligible population may be incentivized to take advantage of priority date retention. The most likely user: someone whose I-526 approval with an old priority date has been or is likely to be revoked, who comes from an oversubscribed country, and who has sufficient funds and immigrant intent to invest again in a new project at the new investment level.]

Clarifications in the final rule:

• The final rule becomes effective on November 21, 2019. Beginning on that date, eligible people may file a new I-526 while retaining the priority date from a previously-approved I-526. The rule specifies no restriction on when the previously-approved I-526 need have been filed. “The changes in this rule will apply to any Form I-526 filed on or after the effective date of the rule, including any Form I-526 filed on or after the effective date where the petitioner is seeking to retain the priority date from a Form I-526 petition filed and approved prior to the effective date of this rule.”
• A priority date can only be transferred between one approved EB-5 petition and a subsequent EB-5 petition filed by that same petitioner. The priority date cannot be transferred between people (including, not to the investor’s spouse/dependents), and cannot be transferred to petitions for other visa categories.
• Priority date retention does not provide grandfathering under old rules. If someone chooses to file a new I-526 petition after November 21, 2019, he or she may keep the priority date of a previous I-526, but not the rules that applied that that previous I-526. The new I-526 filing will be subject to the increased investment amount and revised TEA provisions. “The regulatory requirements, including the minimum investment amounts and TEA designation process, in place at the time of filing the petition will govern the eligibility requirements for that petition, regardless of the priority date.”
• The priority date retention option depends on having an I-526 approval, and on not having an EB-5 visa. The commentary on the final rule explains why DHS thinks that filing I-526 is insufficient in itself to establish a priority date, and that people with an EB-5 visa do not need the priority date protection.
• The priority date retention option is available to victims of fraud by projects or regional centers. In fact, it was designed to help them. A petitioner is only excluded if an I-526 was revoked due to fraud by the petitioner.
• The final rule does not require NCEs to facilitate investors who wish to make a change. Nor does it change the EB-5 “at risk” requirement. That is to say, the rule does not change the difficulty of salvaging capital from one investment and moving it to another. The rule simply reduces the pain of starting over by allowing petitioners to at least salvage the old priority date if they choose to make a new investment and new I-526 filing
• DHS does not care how many I-526 you file. No matter how many priority dates you have for EB-5 petitions, you can use the oldest one associated with an approved petition when claiming a visa.
• The final rule specifies that it does not make any change to application of the Child Status Protection Act. The rule does not explain, if a petitioner had multiple I-526 petitions, which petition’s pendency gets subtracted from the child’s age at the time of visa availability.
• The final rule does not consider the question of how USCIS would treat a situation where the investor files a new I-526 after 11/21 in the same NCE/same project for which he had an approved I-526 from before 11/21. This situation could arise for someone whose I-526 approval was revoked only for loss of regional center sponsor, though the project was/is viable. So long as the original $500,000 was sustained in the NCE, presumably it would counted toward the investment amount required for the new I-526. But what if some of the initial capital had been lost/misappropriated — does it all still count in the new I-526 filing? Or what if the project had no particular use for the additional investment the investor would be required to make under the new minimum investment amounts — at least no use related to job creation? Maybe people drafting the rule just assumed that new I-526 would be based on fresh investments in new projects. At any rate there’s no guidance for situations in which the investor may be trying to salvage his or her original investment, original project, and original job creation as well as the original priority date.

Flow Chart

Considering that redeployment  (as described in the USCIS Policy Manual) and priority date retention (as described in the final rule) are a maze of if-then statements, I’ve attempted a picture worth a thousand words. The flow chart image highlights several points that are often forgotten in discussions about redeployment: the existence of different redeployment options/requirements at different stages, and the pivotal questions of material change and whether or not the initial deployment already met the job creation requirement. (This chart matches my careful reading of the Policy Manual. But lawyers please email me with references if you see anything that does not match your reading, and I may update the image.)

References:
USCIS Policy Manual https://www.uscis.gov/policy-manual/volume-6-part-g
New Regulation: https://www.govinfo.gov/content/pkg/FR-2019-07-24/pdf/2019-15000.pdf
Material change references and examples: https://blog.lucidtext.com/2015/11/05/what-is-material-change/

Country cap discussion (H.R.1044, S.386, S.2091)

— UPDATES —
7/22: Nothing seems to be happening with the country caps proposals anymore. There’s been no reported action in the Senate on S.386, and Rand Paul has not bothered to announce S.2091 or collect any cosponsors.
7/11: Rand Paul, one of the Senators responsible for blocking S.386 in the Senate, will reportedly introduce a country caps proposal of his own in S.2091 Backlog Elimination, Legal Immigration, and Employment Visa Enhancement Act (BELIEVE Act). As time permits I’ll make a spreadsheet for S.2091, which would be much better for EB-5 since it proposes to significantly increase visa availability in addition to changing the per-country limitation. Probably it is too good to be popular, however. (Update: I made this document to highlight/interpret EB-5-relevant language in S.2091.)
7/10: H.R. 1044 passed the House today. S.386 has also made progress thanks to the addition on 7/10 of an amendment with H-1B provisions designed to broaden its appeal. The Senate’s version of the The Fairness for High-Skilled Immigrants Act differs from the House version in omitting EB-5 from the transition period. I added a tab for S.386 to my Backlog Calc Excel file to attempt to model this effect. The calculations suggest that H.R. 1044 and S.386 would have about the same effect on people with 2018 and 2019 priority dates (in either bill, it looks as if 2018 priority dates would start receiving EB-5 visas around 2025, and 2019 priority dates around 2027). S. 386 would be 2-3 years better than HR 1044 for China-born applicants with priority dates up to 2017, and 2-3 years worse than H.R. 1044 for applicants from other countries. In both the House and Senate versions, The Fairness for High-Skilled Immigrants Act is good for everyone in EB-5 with an old priority date (China) and bad for everyone who doesn’t want to move back in line behind the China backlog. I regret to say that the most informative article I’ve read so far on the politics around The Fairness for High-Skilled Immigrants Act is Brietbart’s Kevin McCarthy, 140 GOP Reps Vote for Democrat Plan to Outsource Jobs (July 10, 2019). The article includes this interesting quote:

The Department of Homeland Security finally announced its opposition to the Senate’s version — S.386 — of the legislation…:

The Department of Homeland Security does not support S. 386. The bill would do nothing to move the current employer-sponsored system toward a more merit-based system. The adverse effect on immigrant visa wait times for nationals of countries currently with lesser demand would be an obstacle to any potential plan to promote or increase immigration from countries who immigrants present reduced risk, such as Visa Waiver Program countries, or any other class of countries which the Administration may desire to provide preferential treatment (e.g., countries with which the U.S. has negotiated favorable trade deals).

The statement was signed by Joseph Joh, Assistant Director and Senior Adviser for the Office of Legislative Affairs at DHS.

And additional analysis from the same source: Jeff Bezos, Mark Zuckerberg Try to Sneak ‘Country Cap’ Prize from President Donald Trump (July 18, 2019)

— Original Post from 7/3–

How many EB-5 visas are available today to offer prospective investors?

If visas were simply allocated in order by priority date, then the answer would be 0, until about the year 2027. That’s assuming 74,000+ EB-5 investors plus family already in line divided by 10,000 EB-5 visas available annually equals 7.4 years to clear the backlog and have visas available for new investors. If visas were simply allocated in FIFO order, then all past investors in the queue would be looking at a wait of less than 8 years, with timing graded by priority dates.

As it is, visas are allocated in order by priority date subject to per-country limits. Under current rules, 3,000 to 6,000 visas are practically available to new investors annually in the coming years. (=10,000 annual quota – 1,400 annually promised to past investors from India and Vietnam under the per-country limits – 3,000 to 5,000 to be claimed annually by past investors from miscellaneous countries that are under the limit and gradually emerging from the I-526 process.) Thanks to the Chinese Student Protection Act, past Chinese investors get no by-right allocation, but priority dates give Chinese first priority for whatever is leftover. The current rules of FIFO plus per-country caps mean that visa waits for past investors vary widely from no time at all to over 16 years.

The Fairness for High-Skilled Immigrants Act proposes to change the rules, and do away with country limits for employment-based visas and the China visa reduction. Normally I just disregard rumblings from Congress, assuming they’ll come to nothing, but there’s been significant movement on H.R.1044 – Fairness for High-Skilled Immigrants Act of 2019. This bill now has 311 co-sponsors — 75% of the House. Zoe Lofgren moved on June 18 to have HR 1044 placed on the Consensus Calendar, which means it could be brought to a vote (Update: now scheduled for consideration the week of July 8) although it hasn’t been reported out of committee. It’s likely that momentum will die in the Senate, whose a mirror bill S.386 has less traction so far. (Update: The Senate bill now has action as well, with an amendment to address H-1B concerns.) Since the proposal seems so popular, I discuss the EB-5 implications.

I suspect that the bill is mainly popular for its nice title – fairness for high-skilled immigrants – and that few people have undertaken the extraordinarily difficult task of reading it and thinking through the practical effects.

Here’s my attempt to interpret the H.R. 1044 text (which differs from the Yoder Amendment text we discussed last year, mainly by adding a three-year transition period). The new HR1044 tab in my Backlog Calc Excel shows my best attempt at a quantitative analysis of the EB-5 implications. Based on this work, I draw these conclusions about what H.R. 1044 would mean to a variety of EB-5 stakeholders:

• Past EB-5 investors from China: Under HR 1044, would receive visas at least 3-5 years earlier than under current rules
• Past EB-5 investors from India: Under HR 1044, priority dates in 2017 and earlier would not be much affected, but investors with 2018/2019 priority dates would receive visas 3-4 years later than under current rules.
• Past EB-5 investors from Vietnam: Under HR 1044, priority dates in 2016 would not be much affected, but investors with 2018/2019 priority dates would receive visas 2-3 years later than under current rules.
• Past EB-5 investors other countries: Under HR 1044, priority dates after 2017 would receive visas 3-5 years later than under current rules.
• Future EB-5 investors from any country: Under HR 1044, EB-5 investors from any country who file shortly after the date of enactment would wait 7-8 years for visa.
• EB-5 industry: Would likely go into hibernation, except for services to past investors, for 7-8 years (or not, if prospective investors are willing to face the wait times)

The bill attempts a “no harm” provision, providing that those with a petition approved before the new rules take effect would be given a visa no later than they would’ve received it under the old rules. That’s cold comfort for EB-5, however, because about half of the backlog of past investors is still stuck at USCIS, waiting for petitions to be adjudicated. (Also, I don’t know how Department of State would implement the provision – “would have beens” being impossible to calculate with precision in the EB-5 visa context.) As a reminder, here’s the last EB-5 visa backlog snapshot provided by Department of State, estimating where people were in line as of April 1, 2019. At least the 73,157 people represented on this chart would be affected one way or other by HR 1044, if it became law.

Here are EB-5 groups attempting to influence Congress one way or another on The Fairness for High-Skilled Immigrants Act:

• An EB-5 investor group in favor of the proposal: https://www.aa-ed.org/
• An EB-5 investor group urging modifications to the proposal to protect people with pending I-526: http://bit.ly/2FtZshz
• IIUSA’s cautious public position: https://iiusa.org/blog/iiusa-statement-hr-1044-per-country-caps/

SUPPORT
Please consider supporting the effort behind this blog. As the EB-5 industry changes, your contribution will help preserve this space for unbiased and freely-available EB-5 reporting. Thank you!

EB-5 reg nears publication

7/23 Update: The final rule is available at https://www.federalregister.gov/documents/2019/07/24/2019-15000/eb-5-immigrant-investor-program-modernization.

— Original Post —

On June 27, 2019, the regulation for EB-5 Immigrant Investor Program Modernization (RIN: 1615-AC07) completed OMB review (Step 8 in the rulemaking process). This advances the rule toward the final rule-making step: publication in the Federal Register.

USCIS will make an announcement when the Final Rule is published in the Federal Register. You can sign up on the USCIS Federal Register Announcements page to get notified by email. The announcement could come any time now. The announcement will link to final rule text in the Federal Register. (Filter for “Final” rules on the Announcements page to see examples of past rules.) Until publication, the content of the final rule is unknown. The provisions will bear on EB-5 investment amounts and targeted employment area matters, but we do not know the specifics. (We know the content of the proposed rule from January 2017, but not what changes USCIS and OMB have made to the rule since then.)

The final rule will stipulate an effective date. The effective date will likely be 30 days after publication, since the rule has not been classed as “major” or “significant.” It might be later. (According to “When do final rules go into effect?” on page 8 in The Rulemaking Process.)

Rules created by administrative agencies should only possess a prospective effect, according to the Federal Administrative Procedure Act. (See Prospective and Retroactive Effect of Rules.) The Proposed Rule version of the EB-5 regulation explicitly applied investment amount changes to future I-526 filings only: “Unless otherwise specified, for EB-5 immigrant petitions filed on or after [INSERT EFFECTIVE DATE OF FINAL RULE], the amount of capital necessary to make a qualifying investment in the United States is….”

During the period between Federal Register publication and effective date, the rule is sent to Congress and the Government Accountability Office for review. Congress has almost never disapproved a rule at this point, however. (See “How is the Congress in involved in reviewing final rules?” on p. 10 in The Rulemaking Process). The regulation can also be subject to court review, if someone sues in federal court to block the regulations, based on a claim of adverse effects from the regs. (See “When do the courts get involved in rulemaking?” in The Rulemaking Process and an example of this happening.)

For now, I am not placing bets on the content or timing of the EB-5 regulation. I will wait and see, and update my Washington Updates page with any news.

In the meantime, issuers will want to hustle to complete raises under the existing rules. Prospective investors will want to balance their interests, weighing the advantage of current investment opportunities and the risks in being part of a filing surge. ILW foresees a potential 2,000 EB-5 investments from Indians in the next month or so. If realized, that surge would add about six years to an India backlog already well over eight years long. Some investors have high tolerance for long waits, but must be informed about timing issues and the associated immigration risks and investment risks.  The future direction of the EB-5 program will depend on the changes included in the final rule – but we’ll have to wait and see what those may be.

Regulations Update (Spring 2019)

The Spring 2019 OMB Unified Agenda has been published with updated timetables for three EB-5 regulations in progress.

• RIN1615-AC07 EB-5 Immigrant Investor Program Modernization, with proposed changes to TEAs and the minimum investment amount:
  • Timetable for Final Rule is May 2019 (The Fall 2018 agenda had anticipated November 2018)
• RIN 1615-AC11  Regional Center Program Regulation, with proposed changes to regional center designation requirements and process:
  • Timetable for Notice of Proposed Rulemaking is March 2020 (The Fall 2018 agenda had anticipated March 2019)
• RIN 1615-AC26 EB-5 Immigrant Investor Program Realignment, which “will solicit public input on proposals that would increase monitoring and oversight, encourage investment in rural areas, redefine components of the job creation requirement, and define conditions for regional center designations and operations”
  • Timetable for Advance Notice of Proposed Rulemaking is March 2020. (The Fall 2018 agenda had anticipated September 2019)

RIN1615-AC07 is still listed as Pending Review by the OMB before it can become a final rule. Meanwhile, a number of parties have requested to meet with OMB regarding the regs (View EO 12866 Meetings).

• 5/30/2019 meeting requested by Carmen Group Inc representing United States Immigration Fund LLC
• 5/7/2019 meeting requested by EB-5 Investment Coalition representing Related Companies and other regional centers
• 3/25/2019 meeting requested by Real Estate Roundtable; Commonwealth Strategic Partners representing IIUSA; HLP+R representing EB5 Capital; US Chamber of Commerce; Klein/Johnson Group representing Civitas Capital Group
• 3/20/2019 meeting requested by Navigators Global representing Related Companies
• 3/6/2019 meeting requested by American Life

The regional centers named have historically undertaken large EB-5 raises for projects in major cities, most remarkably Related with $1.2 billion in EB-5 raised for the Manhattan Hudson Yards project. They naturally oppose a regulation that would dramatically cut EB-5 demand with higher investment amounts and that would make urban TEAs more scarce. (To know the messages likely conveyed at the OMB meetings, see comments on the regulations submitted by Related, EB-5 Investment Coalition, U.S. Chamber of Commerce, Civitas, EB5 Capital, American Life, and IIUSA).  Apparently anyone can request a EO 12866 meeting, so any interests that have another perspective can take the chance to provide additional input. But the EB-5 Modernization Regulation, at least as written in 2017, managed to threaten such a variety of interests that I’m not sure anyone exists to advocate for it to be finalized. Except people like Senator Grassley who want reform but apparently unclear about what’s actually in the regulation.

TEA set-aside proposal

This post examines the visa set-aside proposal in the industry’s most recent Letter to Judiciary Committees in Joint Support of Reform and Reauthorization of EB-5 Program.

Here’s the recommendation in the letter:

Notably, we recommend a 30% set aside of the annual visa allotment each year for investors in TEA projects, which would be split equally between Rural and Urban Distressed communities.

TEA Set-Asides

• 15% of visas for Rural
• 15% of visas for Urban Distressed
• Unused visas roll-over annually at the end of each year to general visa pool for access by all projects in the immediately following year
• The set asides apply immediately to new I-526 petitions filed after enactment, but they cannot be applied retroactively towards petitions that were pending as of the date of enactment.

Possible arguments in favor of the recommendation:

• A visa set-aside could be a genuine incentive for TEA investment because it offers something that’s of value to investors (visa fast track) and that doesn’t have the economically counter-productive effect of reducing capital available to the TEA project (as does the current monetary-discount TEA incentive)
• A visa set-aside can only be a potent incentive if new investors have a chance to benefit from it. Therefore, such set-asides must be limited to new petitioners, not available to the tens of thousands of past investors. Consider that current law (INA 203(b)(5)) has already set aside a minimum of 3,000 visas annually for TEA investment. We forget that this set-aside even exists, because it means nothing when TEA investments far exceed 3,000 annually in any case. The new TEA set-aside proposal will be no more effective than the existing one unless demand for it is limited.
• Limiting the visa set-aside to new investors would help, at least short-term, to address a major industry problem identified in the letter. “In the current marketplace, protracted EB-5 wait times have slowed inbound foreign capital to a trickle.” People who want to raise more EB-5 capital from China, Vietnam, and India need to be able to offer shorter wait times. Future prospective investors from those countries want shorter wait times too. So long as we can’t get more visas for those countries, the only option is to create a shortcut around people already waiting in line from those countries.
• The industry must appease reformers who want to incentivize investment in distressed and rural areas, but industry (as represented in this letter) does not wish to upset the status quo or disadvantage prosperous urban areas. Set-asides can be presented as a TEA incentive to help bargain down the monetary TEA incentive, while likely to have limited effect in practice.

Possible arguments against the recommendation:

• Considering the backlogs, EB-5 visa availability is a zero-sum game. Restricting 30% of visas to future investors means removing 30% from past investors still waiting on a future visa. Getting in front of the line means pushing someone else back in line. Improving visa wait times for some means worsening them for others. Supporting the set-aside recommendation for the sake of future capital raises requires betraying investors in past capital raises. This is a serious problem for regional centers and project companies. The zero-sum issue is a painful fact unless Congress/the White House agree to offer additional visa numbers to EB-5, which no one says is likely to occur. The only question is how many past investors would be harmed by set-asides, and how badly. The following is my attempt so far to reason out the impact, and I welcome thoughts from others.
  • Damage from the set-aside would vary by country.
    • The worst impact of set-asides would likely be for past investors from Vietnam and India (and South Korea, Taiwan, and Brazil if they also exceed the per-country cap). These countries can each access only 7% of total EB-5 visas annually until the China backlog dissipates – i.e. for the foreseeable future.  That means about 700 visas each. If, for example, 350 new investors from India are recruited in a year under the new set-aside categories, that could be sufficient to claim the total visas available to India. 700 available visas minus 700 visas allocated to new investors gaining priority under reserved set-asides would equal 0 visas left for past investors. 0 visas available year by year would stretch visa waits for past investors to infinity. The disaster for past investors would be less if (1) the new TEA categories are not popular and fail to attract many new investors from India or Vietnam, or (2) the new categories are so popular that excess demand creates backlogs even for new investors that would eventually depress new demand, or (3) the statute is interpreted such that past investors at least get 7% of the 7,000 generally-available visas, or such that set-aside status would only trump priority-date status after the 7,000 non-TEA limit is reached. In other words, the set-asides would not be disastrous for these past investors provided that they are ineffective for new investors.
    • Past investors from China calculate their wait times based on 10,000 total available visas minus visas claimed by the rest of the world. Their current wait time calculations already assume over 3,000 new investors a year getting priority due to nationality. If those same investors get the additional priority of TEA set-aside status, that might not change the China calculation very much. The set-aside proposal would harm past China investors if the set-asides are not popular, and new investors from other countries instead compete with China for the reduced pool of generally-available visas.
    • The visas set-aside provision would likely be neutral for investors from relatively low-volume countries (i.e. countries other than China, Vietnam, India, Brazil, and South Korea). New investors from these countries would not receive special benefit, since they already don’t face a visa wait by virtue of nationality, and past investors from these countries would not be specially harmed, since they already demand far fewer than 7,000 visas annually.
  • How many past investors would be affected? All those who are still waiting for a future visa when the set-aside proposal is passed. The industry’s letter to Congress numbers “all pending applicants in the queue” at “approximately 30,000.” This is phrased to imply that there are 30,000 total people waiting in line, though in context “all pending applicants” appears to refer specifically investors, not counting family also in line. Charles Oppenheim of Department of State estimates EB-5 applicants with petitions on file at NVC and Estimated USCIS Applicant Data (as of April 1, 2019) at 73,157 people. Looking at data from USCIS on I-526 filings by country, we can count over 40,000 people who filed I-526 but couldn’t possibly have visas yet, either due to cut-off dates or because the I-526 is still pending. That would translate into a queue with 70,000 to over 100,000 people in it depending on one’s assumptions about denials, withdrawals, and family size. The queue is 68% to 85% Chinese, by various estimates. (Here’s Oppenheim’s estimate — see especially slide 10 — and my analysis.)
• Set-asides would not even be an effective TEA incentive
  • Set-asides offer a time incentive.  They incentivize TEA investment from new investors by offering a visa wait significantly shorter than the norm. Such incentive depends on a norm of long visa waits. Therefore:
    • If the industry’s recommendations for visa backlog relief/increased visa numbers were accepted and visa waits were reduced, the potency of the set-aside incentive would be diminished accordingly.
    • If there’s no visa relief, set-asides would still only incentivize new investment from China, Vietnam, and India. Other countries that already do not expect a visa wait would not value a ticket to avoid the wait.
  • Set-asides would only incentivize new investment so long as demand for the set-asides is low. If they’re popular and attract over 1,000 investors annually, their 3,000 visas will quickly be claimed, backlogs will form, and the time advantage on which the incentive depends will disappear.

Please send me links to alternative analysis and I will post them, or add your comments. The TEA set-aside proposal has been brought forward regularly since 2016, but I still haven’t quite grasped why, in light of the above issues. EB-5 Investment Coalition and U.S. Chamber of Commerce, how about publishing justification for the TEA proposal? Current IIUSA members, did you hear about this letter before it was released to the public last week? Did you take part in crafting it or have opportunity to vote on it? I’d love to hear your perspective.

EB-5 Reform, Immigration Reform

Today, IIUSA and others published a letter to the Senate and House Judiciary Committees laying out “consensus reform concepts” recommended for new EB-5 legislation. I’m heartened to see effort toward reform and reauthorization, and saddened by the letter’s content. Ideally, a consensus will appear to balance the interests of a variety of groups. I don’t see that here. Two recommendations particularly deserve input from a broader base of stakeholders:

• Recommended investment amounts. The letter proposes $800,000 minimum for investment in a TEA, and $900,000 for investment outside a TEA – replacing the current 50% discount with a 12% discount. Competitive advantage requires that a feature be both rare and valuable. The letter offers a concession that TEAs can be more strictly defined so as to make them more rare than now, but then redefines the incentive to make TEA designation less valuable. The net result is clear for projects located in genuinely distressed areas that struggle to complete against prosperous urban areas. (I don’t see expedited processing being an effective additional incentive, considering USCIS’s likely inability to deliver such benefit, or visa set asides for reasons discussed below.) The recommended investment amounts don’t look like an attempt to compromise with interests outside big cities, and also don’t look like a compromise with reform advocates. How likely is Congress to accept a proposal that not only hardly increases but would actually lower the standard EB-5 investment amount set back in 1990? The recommended investment amounts have the advantage that they’re feasible and wouldn’t destroy the market, but are too-obviously the status quo.  Where’s the attempt to sell the recommendations to people who want to be seen voting for modernization and reform?
• Recommended visa set-asides. This is framed as an additional TEA incentive, but I am doubtful. The letter recommends setting aside 30% of visas annually for TEA investments, with the set-asides applying immediately to new I-526 filed after enactment, and not allowed to apply to petitions pending on the date of enactment. I foresee that this will act as a TEA incentive only for a short time, until the set-aside categories build up backlogs of their own. However, set-asides would allow raising new capital by taking visas from backlogged investors and offering them to new investors. The tens of thousands of people already in line for a visa would see the pool of visas available to them reduced by 30%, for the sake of having 30% of visas set aside in a special category only open to future investors. Thanks to the additional action of per-country caps, the set-asides could theoretically reduce visas available to past investors from India and Vietnam to zero (if promoters exploit the opportunity to offer all 700 annual visas available to India/Vietnam to new investors under the set-asides).  I want the EB-5 program to remain viable as much as anyone, but I don’t see how this visa set-aside proposal can possibly be an honorable option, considering the size and nature of the EB-5 backlog. To be fair, the letter also recommends visa relief. It suggests eliminating derivatives from the visa allocation, and suggests giving pending applicants the opportunity to pay $50,000 each to “re-set the program,” whatever that may mean. But since Congress has entertained the visa set-aside idea in recent years, and hasn’t expressed remote willingness to increase visa numbers in any way, one struggles to see good faith to past investors in the recommendations. Impossible benefits do little to counterbalance possible harm. And there ought to be obvious good faith to past investors, considering that the associations signing the letter represent members that benefited from over $10 billion in past EB-5 investment. (My post TEA set-aside proposal gives additional analysis.)

It may be pointless to get upset, considering the low likelihood that Congress will heed these recommendations or act on EB-5 any time soon. But why can’t we, as an industry, do better than this letter? If you’re represented by an organization that signed this letter, and you do not agree with the so-called consensus, make your voice heard in the on-going discussion.

Speaking of immigration proposals likely to be ignored, President Trump gave a speech yesterday to outline an immigration plan. In 2016, I wrote about candidate Trump’s vision “to choose immigrants based on merit, skill and proficiency,” and cribbed a chart from the New York Times that pictures visa allocation under our current system.

Yesterday’s speech enlarged on a “big, bold, beautiful” plan to reorient our immigration system so that it issues fewer visas based on “random” characteristics such as family relationship and humanitarian concerns, and more based on personal qualities, particularly economic position and potential. The plan sounds similar to the points-based system promoted by Senator Tom Cotton in the RAISE Act, though details have yet to be released.

One sentence from the President’s speech struck me particularly: “America’s immigration system should bring in people who will expand opportunity for striving, low-income Americans, not to compete with those low-income Americans.”

This sentiment could get some bi-partisan support, if anything received bi-partisan support anymore. And certainly, the EB-5 program deserves credit for already realizing this value. EB-5 can use the immigration incentive to expand opportunity in two ways: by creating jobs that are within reach of striving low-income Americans, and by providing capital for striving Americans who might otherwise not have been able to implement their business ideas.  How many small towns across the US now have their first flagged hotels thanks to local entrepreneurs matching with EB-5 investors to make the dream happen? How many local restaurant chains were able to expand their portfolios thanks to partnership with EB-5 investors? Such ventures don’t make the news, but I see them as a business plan writer working with small EB-5 projects.  They highlight an important feature of the EB-5 program: that it doesn’t only reward immigrants establishing their own businesses, but immigrants who support US citizen-owned businesses. I hope that any immigration reform debate will keep that EB-5 value in mind. Tom Cotton’s proposal, for example, though intending to reward economic contribution, would only have granted points for an immigrant’s investment in his or her own business.

Apparently the the administration’s plan has few friends and unlikely to go anywhere. But I’m interested as a citizen. What kind of immigration system would really accomplish a “Build America” goal? Here in Ogden Utah we just celebrated the sesquicentennial of a major nation-building milestone: the completion of the first transcontinental railroad. In his speech at the centennial celebration, then-transportation secretary John Volpe proudly asked “Who else but Americans could drill 10 tunnels in mountains 30 feet deep in snow? Who else but Americans could drill through miles of solid granite? Who else but Americans could have laid 10 miles of track in 12 hours?” As it happens, Americans did none of those things. There’s a railroad through the Sierra Nevadas thanks to Chinese workers.  What would have happened to America’s economic development without the incredible stamina and skill of those migrants from China, few of whom would’ve scored points in Tom Cotton’s system? Would Leland Stanford just have become less rich, having had to pay a naturalized workforce at least 30% more? Or is there a broader lesson about what builds America?

Updates (Redeployment, Material Change, India Retrogression, I-526 processing and RFEs)

Redeployment

Last year IPO asked industry stakeholders to offer suggestions regarding redeployment. IIUSA has now followed up with a Memo to USCIS on Redeployment Policy. The memo points out again why the redeployment policy should not even exist, since neither statute nor regulation nor precedent supports a requirement to redeploy EB-5 investment into additional business activity after the job creation requirement has already been met and funds have been returned to the NCE.  The memo goes on to make the case that if USCIS still persists in requiring redeployment, the options for redeployment investment should not be arbitrarily limited. I hope that IPO will, as promised, give serious consideration to this reasonable feedback.

Material Change

The redeployment problem is bound up with the material change problem, which is why I’m looking forward to a free Material Change Seminar to be hosted by Carolyn Lee on April 17^th, 2019 at 2:00 – 3:00PM Eastern. E-mail to reserve a spot and send advance questions.

India Retrogression

Based on a prediction by Charles Oppenheim in October 2018, we’ve been expecting India to reach its annual limit of available EB-5 visas this fiscal year, and get a cut-off date in the Visa Bulletin by July 2019 at latest. However, in a post on 4/2/2019, Matthew Galati shares quotes from AILA’s March 2019 “Check-in with DOS’s Charlie Oppenheim”: “Charlie previously expected EB-5 India to reach its per country limit by July 2019. However, he is no longer certain that will happen. He is watching the demand data and should have a better sense of the number usage within a few weeks. The decline in demand mentioned above, possibly resulting from reauthorization concerns, makes it difficult for Charlie to estimate how many additional numbers may be used by ‘high demand’ EB-5 countries.”

That “decline in demand” refers to “fewer applicants proceeding to final action on their cases at consular posts abroad and USCIS Offices.” The queue of applicants has not reduced in length (probably), but it has advanced to final action more slowly than expected – delayed by the government shutdown and lapse in regional center program authorization.  So what does this mean? For most Indians awaiting a visa number, possibly not much. The key question is not “in which month will retrogression occur” so much as “can I get my visa number before retrogression occurs?” That second question depends on the length of the queue in front of the petitioner (which probably hasn’t changed) more than the specific date for running out of visas (which may be later than expected due to slower-than-expected processing).  For Indians who will adjust status, a later Visa Bulletin could at least have the benefit of maximizing the window to at least file I-485 (thus opening the combo card option in advance of visa availability).

I-526 processing and RFEs

I created a model that divides inventory of pending I-526 petitions by completion rates, and concludes that processing times should be falling as inventory falls. However, the USCIS processing times report indicates that I-526 times are getting longer, even as IPO has fewer and fewer petitions to process. Why is this so? IPO’s secret, I gather, is to introduce an unofficial new step to the EB-5 process: the comprehensive I-526 RFE. Officially, Form I-526 foresees how funds will be spent and how jobs will be created, while Form I-829 demonstrates how funds were spent and how jobs were created. Officially, a Request for Evidence on the Form I-526 asks questions about the original submission and clarifies eligibility at the time of filing. In practice, IPO has been issuing I-526 RFEs that do not only or primarily question the original submission, but basically ask the petitioner to submit an updated collection of I-526 evidence plus prematurely provide I-829-stage evidence for actual past expenditures and job creation. IPO is adjudicating the I-526 one to two years after it was filed, and the adjudicator is naturally curious about the current status and progress of the project. I-526 business plans are dusty by the time adjudicators finally review them, while payroll records may be available by that time. But the adjudication delay is not the petitioner’s fault, and does not change I-526 eligibility or evidentiary requirements. It’s not right to make a habit of using RFEs as a surreptitious new “Form I-526-B” that calls on petitioners to redo and resubmit original I-526 documents with no fault but age, and prematurely satisfy I-829 requirements at the I-526 stage.

Washington Updates

Apparently there’s some discussion in Washington about visa numbers, and leadership upsets throughout DHS. We shall see what changes actually occur, and whether they affect EB-5.

FAQ for potential regulatory changes and visa bulletin updates

Nothing is changing at the moment. The EB-5 modernization regulation is still pending review at OMB, the Visa Bulletin is still current for India and moving forward for China and India, IPO remains silent, and there are no hints of EB-5 legislation.

But for the sake of being prepared, this post considers “what if” questions related to possible forthcoming changes.

To start with the Visa Bulletin, here are the most recent predictions I’ve heard (from the February 2019 Visa Bulletin and Charles Oppenheim’s presentation at IIUSA in October 2018):

• China: Final action date was expected to move about one week per month between January and May 2019. When the new fiscal year starts in October 2019, the final action date is expected to be October 22, 2014 (best case) or October 8, 2014 (worst case)
• Vietnam: Final action date was expected to move about three weeks per month between January and May 2019, and progress at least to September 2016 this fiscal year.
• India: Will get a final action date when visas available to India for the year have been used up, likely “no later than July 2019.” The final action date will initially be the same as for China, to effectively stop visa issuance to India-born for the fiscal year. When FY2020 starts in October 2019, the final action date for India will move forward enough to release enough Indian applicants to claim the new year’s visas. The final action date will likely be in 2017 at that time.

IIUSA recently announced that Charles Oppenheim of Department of State will speak at the Advocacy Conference on May 6. We look forward to hearing his updated projections.

Regarding regulations, the final rule for the EB-5 Modernization Regulation RIN: 1615-AC07 could be published as early as tomorrow or as late as never, and take effect 30 or so days after publication. We don’t yet know the content of the final rule, but there’s a fair chance that it will be similar to the proposed rule (NPRM) from January 2017 (full text here). If the regulation gets finalized with content that mirrors the NPRM, then here are some issues and considerations to keep in mind.

Investment Amount and TEA Changes:

• Proposed change: The minimum EB-5 investment will increase significantly for TEA and non-TEA investments (the NPRM proposed $1.8M and $1.35M). The incentive to invest in a TEA will likely be reduced (the NPRM proposed 25% discount instead of 50% discount from the standard investment amount). Many fewer urban areas will qualify as TEAs, due to limits on TEAs that combine census tracts. USCIS, rather than states, will become responsible for TEA designation.
• Effect: The NPRM says that “unless otherwise specified,” the investment amount and TEA changes will apply to “EB-5 immigrant petitions filed on or after [INSERT EFFECTIVE DATE OF FINAL RULE.]” i.e. changes will apply to all I-526 filed after the rule becomes effective. The NPRM mentions no exceptions, not even for capital raises in progress, or for projects that have filed or approved I-924 exemplars or other approved I-526. On the other hand, the NPRM specifically applies the investment amount and TEA changes to new I-526 filings – i.e., not to people at other stages in the process (not to I-526 pending, I-526 approved and waiting for a visa, conditional permanent residence, or I-829)
• Practical consequences: Considering the chance that we might need to deal soon with a Final Rule that looks like the NPRM,
  • Prospective investors: If I were planning an EB-5 investment, I’d make every effort to get I-526 filed soon under the current lower investment threshold. In vetting potential projects, I’d consider how much EB-5 money the project still needs to raise (the larger the EB-5 raise, the more exposure to risk from rules changing for future investors).
  • People past I-526 filing: I’d congratulate myself on being already in the system, so the investment amount and TEA changes do not affect my eligibility. If my project still hasn’t completed its EB-5 raise, I’d consider its ability to adapt to the changes for incoming investors. (If the project can still attract the investment, past investors will benefit from changes that mean fewer investors to claim the available job creation.)
  • Project companies and regional centers: If I were promoting an EB-5 investment, I’d try to complete the raise asap, before new rules constrict the market. Meanwhile, I’d strategize about what can work under the new rules. It seems likely that a dramatic investment amount increase, combined with reduced and restricted TEA incentive, will create an environment that privileges high-end projects with attractive ROI.  Some people can afford to write off $500,000, but an investor committing $1-$2 million of equity will likely care about it as an investment, not just an immigration opportunity.  The ideal project will offer security, a solid return, and be located in a distressed or rural area. Since economic reality makes such opportunities very rare, security and profitability will probably carry the day. Sadly, the NPRM proposed to make TEA status both more difficult to obtain and less valuable – not a recipe for competitive advantage for distressed and rural areas. But for what the revised TEA incentive is worth, it’s possible check whether a given project would qualify. The revised TEA designation rules in the NPRM are basically the same as the current rules, except when it comes to making a TEA from census tracts. Look at a mapping tool that shows unemployment rates by census tract (this one for example). A project can qualify under new rules if the census tract where it’s located (combined, if needed, in a weighted average with one or more of the immediately contiguous census tracts) has high unemployment. The difference from current practice is that a special TEA as defined in the NPRM can only include census tracts that touch the tract where the project is located, not larger and more extended groupings.

Priority Date Retention Change:

• Proposed change: An EB–5 immigrant petitioner may to use the priority date of an approved EB–5 immigrant petition for any subsequently filed EB–5 immigrant petition. This provision would provide some protection from material change, allowing the investor to keep her priority date even if changed circumstances require filing a new I-526 petition.
• Effect: The NPRM proposed that priority date retention would specifically apply to anyone in the stage between I-526 approval and conditional green card. The NPRM does not offer the protection to people with pending I-526, people whose I-526 was denied or revoked, or people who already have conditional permanent residence.
• Practical consequences:
  • Prospective investors: This change is promising – an additional future protection that’s particularly important to anyone from oversubscribed countries (China, Vietnam, India) who faces a long wait between I-526 approval and green card.
  • People with pending I-526: The change is no help yet, but a nice promise for the future
  • People with approved I-526 and still waiting for a green card: The priority date retention could be a game-changer. It means that so far as USCIS is concerned, you’re free and welcome to withdraw from one project and invest or reinvest in another. At this stage you’d still have to file a new I-526 for changed circumstances (and deal with the rules that apply to new I-526 filings), but could keep the original I-526 priority date, and original place in the visa wait line. Priority date retention removes some of the sting from material change, and opens the door for investor-lead redeployment.  USCIS can’t force terminated regional centers or under-performing projects give investor money back. But at least the regulation removes barriers on the immigration side to change and voluntary reinvestment.
  • People with conditional permanent residence: The priority date retention does not apply to them, in the NPRM. However, note that EB-5 policy already allows significant leeway for change during the CPR period without need to refile I-526.
  • Project companies and regional centers: For underperforming projects, priority date retention could lead to a rush of investors pushing to withdraw so that they can reinvest somewhere else. For attractive projects, priority date retention could open a new market: people with approved I-526 who need a new investment after the original one didn’t satisfy. Priority date protection could effectively create a secondary market in EB-5 investment, and entirely change the redeployment issue by giving investors power to reinvest their own funds. But there’s an important limiting factor: priority date is all that investors could retain from the original I-526 filing. The NPRM does not offer to let people reinvest under the same rules for minimum investment and TEAs that applied to the original I-526 filing. People who could invest $500,000 in Project A last year may be practically unable to invest $1.35 million in Project B this year, even if USCIS allows and facilitates withdrawing from Project A and reinvesting in Project B. But still, priority date protection could have significant implications for the EB-5 landscape.

I-829 Changes:

• So far as I can tell, the proposed I-829 changes are an unmixed good. The NPRM would make people more free to grow up, marry, divorce, and die, knowing that family members will still be able to file I-829 to remove conditions. CPR status would be automatically extended between I-829 receipt and adjudication, blunting the pain of long processing times. Interviews would be conducted within reason as to time, place, and content.

And now the waiting game, to see whether EB-5 regulations ever get finalized, and if so which provisions get included in the final rule. Congress, if only you would act instead, and provide the modernization that EB-5 really needs to protect integrity and incentivize economic development!

UPDATE: Frieldland & Calderon have published an article that explains the process behind the regulations and why they don’t believe that the EB-5 regs will ever be finalized. They also reiterate why EB-5 needs Congress to act, though Congressional action is also unlikely.  “EB-5 Reform on the Horizon – If the Palm House Hotel Debacle Does Not Precipitate Congressional Action, What Will?” (March 22, 2019)

EB-5 Modernization Regulation Advances

The Office of Management and Budget List of Regulatory Actions Currently Under Review shows that the EB-5 Modernization Regulation advanced on Friday to the OMB Review stage.

OMB Review is the last step in the rulemaking process before publication of a final rule.

How long does OMB review take? It usually takes many months, as evidenced by other DHS regulations currently listed on the OMB site with receipt dates as early as June 2018, and still with “Pending Review status.” Or it occasionally happens in as little as a month, I’ve noted in my time tracking the OMB site.

After OMB review, the Final Rule will be published in the Federal Register. How long after publication will the final rule become effective? Here’s the answer according to The Federal Register’s Guide to the Rulemaking Process: “When an agency publishes a final rule, generally the rule is effective no less than thirty days after the date of publication in the Federal Register. If the agency wants to make the rule effective sooner, it must cite “good cause” (persuasive reasons) as to why this is in the public interest. Significant rules (defined by Executive Order 12866) and major rules (defined by the Small Business Regulatory Enforcement Fairness Act) are required to have a 60 day delayed effective date.”

And the most burning question of all — what will be in the Final Rule? We know what was in the Notice of Proposed Rulemaking for RIN: 1615-AC07, but that was published in January 2017, and DHS has spent almost two years since making some kind of changes.  It’s unfortunately plausible that DHS just spent two years writing out why they’re not accepting any suggestions in public comments, but I’d like to think that they made some significant adjustments in response to public concerns and insights. I hope to see a different minimum investment amount in the final rule, considering that nearly every single commenter informed DHS that the NPRM proposal would be fatal.  But for what it’s worth, here’s a summary of provisions in the NPRM from 2017:

• Increase the standard minimum EB-5 investment amount to $1,800,000, or $1,350,000 in a TEA.
• A TEA is based on high unemployment and incentivized with 25% reduction to the investment amount (not other factors or incentives as proposed by Congress).
• A TEA can only be designated for a high-unemployment MSA, county, city, single census tract, or limited group of census tracts. DHS, not the states, is responsible for TEA designation.
• Give priority date protection (an investor with an approved I-526 could choose to file a new I-526 while keeping the original priority date, subject to certain restrictions)
• Spouse and children may be able to file I-829 even if not included on the principal investor’s petition.
• Other technical changes.