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

— UPDATES —
7/11: Rand Paul, one of the Senators responsible for blocking S.386 in the Senate, is introducing 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.
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.

— 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:

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EB-5 reg nears publication

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.

FY2019 Q2 EB-5 Petition Processing Report

USCIS has updated the Immigration & Citizenship Data page with data for petitions processed in FY2019 Q2 (January to March 2019).

The results are shocking. Instead of recovering from the already-dramatic 37% decrease in processing volume last quarter, IPO processing volume fell another 60% in Q2. To look at raw numbers, IPO was processing over 4,000 I-526 per quarter this time last year, but processed less than a 1,000 I-526 in FY2019 Q2. Four times fewer! USCIS apparently does not deign to hold EB-5 stakeholder meetings anymore, so we do not know what is happening behind the scenes. But a huge reduction in output has a limited number of possible explanations: drastic reduction in staff at IPO, drastic increase in time spent per petition, and/or decision to limit output. Has IPO lost resources in recent months? Is there just a pause on adjudications, for some reason? Perhaps IPO is focused, as it should be, on the oldest case in the backlog, and taking an unconscionable time over those cases?

We care about output, because processing volume determines processing times. If IPO is processing four times fewer petitions per quarter than last year, then obviously the backlog will reduce more slowly than we’d thought in 2018, and processing times will increase accordingly. The following scary chart allows visualizing how many quarters would be required to process the backlog, if FY2019 Q2 volumes were to continue going forward.

Nevermind the 25-40-month range for I-829 in the current USCIS processing times report; the average I-829 filed on top of the backlog in January 2019 would take 93 months to process if FY19 Q2 volumes continue. But surely this exponential output reduction must be an unnatural aberration and cannot continue indefinitely! In all its history, IPO has never shown such meager performance across the board as in the last two quarters. Meanwhile, note that receipts remain low.


See my EB-5 Timing page for links to past reports, and the EB-5 Timing Estimates page for customized timing analysis. Considering recent fluctuations, I’ve updated my estimate templates to facilitate modeling alternate scenarios.

Understanding the Visa Bulletin

The forthcoming Visa Bulletin for July 2019 includes an EB-5 final action data for India for the first time, and no change from June to the EB-5 final action dates for China and Vietnam.

Chart A. Final Action Dates for Employment-Based Preference Cases [excerpt from July 2019 visa bulletin]

Employment-
based
All Chargeability
Areas Except
Those Listed
CHINA-
mainland
born
INDIA VIETNAM
5th Non-Regional Center
(C5 and T5)
C 01OCT14 01MAY17 01OCT16
5th Regional Center
(I5 and R5)
C 01OCT14 01MAY17 01OCT16

Chart B. Dates for Filing of Employment-Based Visa Applications [excerpt from July 2019 visa bulletin]

Employment-
based
All Chargeability
Areas Except
Those Listed
CHINA-
mainland
born
INDIA
5th Non-Regional Center
(C5 and T5)
C 01NOV14 C
5th Regional Center
(I5 and R5)
C 01NOV14 C

For people who want to understand these charts, I suggest: ignore us bloggers and read the visa bulletin itself from top to bottom. Department of State takes care to explain clearly what the dates and charts mean, and what to expect going forward. The internet, on the other hand, is currently awash in confusing and faulty information.

So read the bulletin, and try this quiz. Are the following statements true or false?

  1. The EB-5 category is current, and expected to remain current, for everyone except applicants born in China, Vietnam, and India. Current means that EB-5 visa numbers can be issued to all applicants as soon as they are qualified, with no wait for visa availability.
  2. During July 2019, India-born EB-5 applicants abroad can still continue to submit documents to NVC regardless of priority date, but only those with priority dates before May 1, 2017 can receive visas.
  3. During July 2019, I-485 can be neither filed nor approved for India-born EB-5 applicants with priority dates more recent than May 1, 2017.  Those with priority dates before May 1, 2017 are free to file I-485 and may receive visas.
  4. In general, I-485 filings must follow the Final Action Dates in Chart A, not the Dates for Filing in Chart B, unless USCIS specifies otherwise on its www.uscis.gov/visabulletininfo page.
  5. During August and September 2019, Department of State does not expect to issue any EB-5 visas to India or Vietnam. It expects to use up 2019 visas available to those countries in July. It’s possible that a few more EB-5 visas may be issued to China-born applicants in August and September.
  6. A final action date in the July 2019 visa bulletin means that DOS counted up known qualified applicants of June 6, 2019, and determined that qualified applicants exceeded the number of visas available for the year. Known qualified applicants include people documentarily qualified at the National Visa Center and adjustment of status applicants, as reported by consular officers and USCIS.
  7. The final action date for India means that May 1, 2017 marks the head of the line of Indian applicants who can’t yet move forward with the visa process. It means that  DOS thinks it has only enough 2019 EB-5 visas left to accommodate currently-qualified Indian applicants with priority dates of April 30, 2017 and earlier.
  8. When 2020 visas become available in October 2019, then the final action dates for Vietnam and India will move forward again. In October, Department of State expects to start issuing EB-5 visas to Indians with priority dates in summer or fall 2017, and to Vietnamese with priority dates in fall or early winter 2016.
  9. The July 2019 visa bulletin applies to July 2019. While it’s still June, we operate under the June 2019 visa bulletin, which has no final action date for India.

The above statements are all true, according to the visa bulletin.

  1. Answered in the Visa Bulletin Chart A (in the Employment Based section) and Section G (near the bottom of the page)
  2. Answered in the Visa Bulletin Chart A and B (in the Employment Based section)
  3. Answered in the Visa Bulletin Chart A and B (in the Employment Based section)
  4. Answered in the Visa Bulletin opening paragraph #2
  5. Answered in the Visa Bulletin Section F and G (near the bottom of the page)
  6. Answered in the Visa Bulletin opening paragraphs
  7. Answered in the Visa Bulletin opening paragraphs
  8. Answered in the Visa Bulletin Section F and G (near the bottom of the page)

And to again combat a persistent and pernicious misconception, a reminder: today’s visa bulletin does not provide a visa time estimate for today’s investors.

Here’s a story problem. Let’s say you enter an office and pick a number that determines when you’ll be served. The office had opened at 6 am, and started issuing numbers at that time starting with number 1. The office can serve about 700 people per hour, and has been operating at capacity since 6 am. When you arrive, you get number 5,852.  While you were arriving, the intercom was announcing, “now serving #1,750, Fred Smith.” How do you calculate when you will be served? Which information provided is relevant to solving the problem?

The simplest answer is 5,852/700=8.4.   6 am + 8.4 hours = 2:24 pm for expected service. The intercom announcement when you walked in the door is irrelevant to your time. Fred’s wait time does not bear on your wait time.

A guy at the door may point to the intercom and reassure you “Don’t worry, the wait won’t be long. Listen, Fred Smith is already getting service and it’s only 8:30 am – so the wait must be 2.5 hours at most.” Ignore that guy. Your time of service results from the time it takes to process the 5,851 people who got into the office before you did. Your wait time is unlikely to match the wait of someone with 1,749 people earlier than he was.

Now to align this analogy to EB-5. A couple months ago, Charles Oppenheim estimated that there were 5,851 Indians in line for EB-5 visas as of May 6, 2019, and therefore an India-born investor entering the end of that line on May 6, 2019 would wait 8.4 years for a visa. The wait time for someone with a May 6, 2019 priority date is determined by the time it takes to move the applicants with earlier priority dates through the system at a rate of approximately 700 per year. Today’s visa bulletin announcement is irrelevant to the 2019 investor’s wait time. Someone will say “Don’t worry, the wait won’t be long. Look, the July 2019 Visa Bulletin says the Indian applicant with April 2017 priority date can get a visa in July 2019 – so apparently we’re looking at a modest visa wait of 2.5 years.” Ignore that. The wait time for the person with a 2017 priority date does not translate to someone entering with a 2019 priority date at the end of a larger backlog.

Consider the May 2015 visa bulletin, which gave China its first final action date of May 2013. “Just two years to wait, not bad,” thought some new investors, and the market continued to flourish in ignorance. But Chinese who invested in May 2015 are still not even close to getting a visa now, four years later. The May 2015 visa bulletin gave a wait time for May 2013 petitions, not for May 2015 petitions. China-born investors in May 2015 needed to know, instead, the size of the China backlog in May 2015, and the number of visas available going forward.

Back to India, what can we do with this equation: 5,852/700=8.4

8.4 years is not a good number for marketing to India. Many would say that’s too long to wait for conditional permanent residence, and creates too much risk from material change and redeployment during the wait time. And the time has only been getting longer as more people have invested and added to the backlog.

We need a result less than eight years, which means that the numerator (5,851+applicant backlog) needs to be smaller, or the denominator (about 700 visas per year)  needs to be larger.  Some promoters with knowledge of the market make the numerator smaller by asserting that Department of State/USCIS have unreliable data that overestimated the number of people in the backlog. These promoters estimate that the true backlog is at least 50% smaller, and wait times thus at least 50% shorter, than estimated by Charles Oppenheim. The numerator will become smaller if many past investors give up or lose eligibility over the course of the wait time. Meanwhile, our people in Washington are, we hope, trying their best to make the denominator larger by advocating for more visa numbers. So long as the country wants a lot of investment, it must have enough visas to accommodate that investment. Otherwise, wait times are discouraging for potential investors from China, India, and Vietnam who believe the backlog data and do the math, and tragic for previous investors who were not informed about the backlogs.

Finally, a reprise of my handy image of the EB-5 process. And a few reminders. My data repository is on the EB-5 timing page. I set up an EB-5 Timing Estimate Service for anyone who wants a mathematical time estimate and explanation specific to his or her own priority date, or to the priority dates of their investors. And for those more worried about China than India, IIUSA promises to have a new post up soon that gives further analysis of Oppenheim’s China wait calculation from May 2019.

Petition Processing Times Report Change, RC List Updates

The USCIS page to Check Case Processing Times, which updates at irregular intervals, has just published dramatic new time estimates for EB-5 forms.

  • I-526 Processing: Estimated time range of 29 to 45.5 months (the previous update gave a range of 22 to 28.5 months)
  • I-829 Processing: Estimated time range of 25.5 to 40.5 months (the previous update gave a range of 30 to 38.5 months)
  • I-924 Processing: Estimated time range of 22.5 to 44 months (the previous update gave a range of 16.5 to 21.5 months)

These charts picture the latest update in context of past reports (which I’ve logged in this file since 2014).

 

What’s the story behind the changes to estimated processing times? I have a few thoughts.

  • All we know for sure is that the report changed. Actual processing times may or may not be changing.
  • The major report change is in the spread between the high and low end of the “estimated time range.” Previous processing time report updates since early 2018 had around a 6-month spread; today’s report shows a 15+ month spread. I guess that USCIS is motivated here to redefine what counts as normal processing times by including outliers in the average. The high end of the estimated time range always roughly corresponds to the “Receipt date for a case inquiry” in the processing report. The report page states this purpose for the case inquiry date: “to show when you can inquire about your case.” By suddenly adding 1-2 years to their estimate of what can be considered “outside normal processing time,” USCIS effectively cuts the number of petitioners who can hassle them with inquiries about overdue petitions. An understandable possible reason, even if the processing speed and backlog have not in fact changed.
  • The new report gives these receipt dates for case inquiry: I-526: 9/15/2015; I-829: 2/2/2016, I-924: 10/25/2015. How many petitions filed before those very old dates could possibly still be in the system? We roughly know the answer for I-526, thanks to a report of forms pending as of 10/2018: up to 412 Form I-526 filed before September 2015 could still be pending. That was only 3% of total pending I-526 (though the number ought to be 0).
  • After several quarters of improvement, IPO reduced processing volume in the last reported quarter (Oct-Dec 2018), with 37% reduction from the previous quarter in number of EB-5 forms adjudicated. Lower adjudication volume drives longer processing times. On the other hand, lower receipt numbers (another recent trend) should eventually result in faster processing times.
  • IPO has not engaged with stakeholders since October 2018, when IPO Chief Sarah Kendall praised IPO’s progress thanks to additional resources, reported that IPO was fully staffed with over 200 personnel, and indicated that IPO would be working toward additional backlog reductions in FY19. (I keep a log of communications related to processing times here.)  There’s been no explanation for the overall processing slowdown evident since that positive report.
  • A May 2019 letter from L. Francis Cissna to Senator Tom Tillis discusses recent processing delays across USCIS, and gives EB-5 one mention. “Another cause for delays in processing can be increased litigation. For example … the USCIS Field Operations Directorate is complying with court orders related to the EB-5 program…” (on PDF p. 7) I assume that refers to the Zhang Class Action. Perhaps IPO is slowing new I-526 adjudications as it backtracks to deal with all the petitions that it denied in error over loan proceeds. And USCIS has been targeted by numerous other lawsuits over questionable denials involving the EB-5 “at-risk” requirement. (In other news, this letter is one of Cissna’s last actions as USCIS Director.)
  • We can see what IPO is not doing since October 2018 – not adjudicating many I-526, and not approving or terminating many regional centers. The question: what is IPO doing? IPO is processing more I-829, if the lower low end of the estimated time range in the new processing report gives any indication. That’s a good thing. I hear that IPO has been issuing lavish RFEs, which potentially doubles the work involved in each form processed. That’s less excusable, especially since many RFEs don’t even target problems, but basically just request that originally-filed documents be resubmitted to reflect developments during the adjudication delay.
  • Back in 2011/2012, a processing slowdown presaged a policy shift. At that time USCIS turned against tenant occupancy methodology, and delayed decisions on affected cases while it figured out how to define its objections. The current slowdown makes me wonder if USCIS is again shelving certain cases while it brews more new policy guidance. (Only the policy won’t be called “new,” when announced, since then it couldn’t apply retroactively to pending cases.)

NOTE: Having written so much about timing issues, I’ve now added a EB-5 Timing page to collect links to data and posts related to processing times, visa wait times, and visa availability and allocation. I’ve also created a new service for people who would rather not wade through all the detail themselves, but want to request my timing estimate for their specific situation. See the EB-5 Timing Estimates Page.

RC List Changes

Speaking of reduced activity at IPO, here’s another sparse regional center list update. Just four regional centers have been terminated so far this year, as compared with 79 terminations in the first five months of 2018, and 38 terminations in the first five months of 2017. Just three new regional centers have been designated since January 2019. Is this a new period of welcome stability after the frantic growth and culling of 2016-2018? Or an unnatural calm?

Additions to the USCIS Regional Center List, 04/20/19 to 5/28/2019

  • No new regional center designations
  • Interestingly, four regional centers that were terminated last year have now been restored to the approved list, demonstrating that it’s possible to overcome a termination: EB5 United West Regional Center, LLC, EB5 Affiliate Network Washington, D.C. Regional Center, LLC, Art District Los Angeles Regional Center, LLC, and Greystone EB5 Southeast Regional Center LLC. (No decision documents have yet been posted for these RCs. For Greystone, USCIS has posted the termination reason but not the sustained appeal.)

New Terminations

  • America Commonwealth Regional Center (terminated 5/10/2019)
  • American Opportunities Regional Center, Inc. (terminated 2/15/2019)

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 would 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?

 

 

 

Forecasting Visa Availability: 5/6 Oppenheim projections and big picture

[Post updated 6/19/2019] Today Charles Oppenheim, Chief of the Visa Controls Office at the U.S Department of State, gamely appeared again at IIUSA’s EB-5 Advocacy Conference to discuss EB-5 visa availability.

So far Twitter just reports a few headlines from his talk. India is expected to reach its limit and get a cut-off date by July 2019, and to start FY2020 with a final action date in Summer or Fall of 2017. Rough estimates for visa wait times for I-526 filed today: 16.5 years for China, 8.4 years for India, 7.6 years for Vietnam, and 2.4 years for South Korea. I trust that IIUSA will again support program integrity by publishing a blog post with the detail and slides from Mr. Oppenheim’s talk. When that happens, I’ll update this post with a link. [UPDATE: Here is IIUSA’s post on the Oppenheim presentation, with a link to his slides.] But for the moment, some background and comments on what the estimates do and do not mean.

Future visa wait times rest on several uncertain variables, and thus impossible to calculate with certainty. Mr. Oppenheim has gotten flack for attempting long-range predictions that aren’t and can’t be perfect. But rough headline-making projections serve a purpose: to highlight the existence of real visa availability issues, even if with a significant margin of error.  Hearing “16.5-year wait” at least alerts EB-5 users to a problem with China visa availability, though an accurate year estimate could be longer or shorter depending on which assumptions one chooses to use for the calculation. [I have a request pending with IIUSA to clarify Oppenheim’s assumptions.]

There are two ways to go wrong in interpreting future EB-5 visa wait time estimates. One is to interpret them as some kind of official guarantee, and blindly follow or furiously attack them as such. The other is to dismiss them as mere hot air, conclude that wait time projections are prohibitively complex, and thus disregard wait time as a factor in EB-5 decision-making. Some past EB-5 investors make the first error. Unscrupulous promoters hope that all prospective EB-5 users will make the second error.

In the past I’ve delved into the detail and complications behind EB-5 visa availability, with my 10-tab spreadsheet of data, log of visa allocation statutes, and scenario analysis. But examining the trees can mean losing sight of the forest. So for this post, I want to focus on the solid big picture behind all our varied and flawed attempts to quantify EB-5 wait times in detail.

First, an image to clarify how the EB-5 queue works. It’s the kind of queue where you enter a waiting room, take a number, and sit down to wait, watching a notice board for your number to be announced to show that your turn has come. Meanwhile, other people are also moving through the process and getting their turns and leaving, while others enter, and the notice board updates regularly.

[Image updated 6/19/2019]
In EB-5, the place-holding number is “priority date” – the date of I-526 filing. The notice board is the monthly Visa Bulletin, which signals which priority dates can get service at any given time.

Figure 1 illustrates the stages in the EB-5 process up to conditional permanent residency.

  • Step 1: File I-526. This step initiates the EB-5 process, and assigns a priority date that marks each investor’s place going forward. There is no constraint at this stage; as many people as want to file I-526 can file I-526.
  • Step 2: Waiting for I-526 approval. In principle, I-526 adjudication is first-come-first-served without regard to nationality, but it’s not strictly by priority date. In recent years, most people have waited 1-2 years at this stage. This stage is only constrained by USCIS efficiency in processing petitions. The USCIS Processing Times Report gives a rough indicator of progress in I-526 processing. Step 2 must be completed before the investor can apply for a visa. We have data for I-526 receipts, approvals, and pending petitions at various points in time. (Such data only counts number of principal investors, so need to multiply by an estimated number of family members when making total visa demand estimates.)
  • Step 3: Wait for a fee bill from the National Visa Center (consular processing), and wait for the visa bulletin to indicate that one is qualified to move forward in the process.
  • Step 4 to 5: Investors plus family members can proceed to get green cards through consular processing or I-485 status adjustment once visa numbers are available to them. At this stage, priority date and nationality determine order of service, and the Visa Bulletin announces each month who can proceed. We have data for the number of people waiting at Stage 3-4 from different countries at various points in time. (Such data already counts investors plus spouse and children – don’t multiply by derivatives again or you’ll overcount.)
  • Step 5 has the major process constraint – the annual EB-5 visa quota. The annual limit: about 10,000 total EB-5 visas worldwide, of which at most only about 700 can go to each country other than China, and none to China except what’s leftover from the rest of the world (which has been 4,000 – 9,000 visas in recent years). Steps 3-5 can be less than a year wait for applicants born in countries that are “current” in the Visa Bulletin (not at risk of exceeding the 700/year visa limit). Steps 3-5 involves multi-year waits for applicants born in countries that do exceed the annual quota. The more in excess of the quota, the longer the wait.

Some points that I tried to highlight in Figure 1, to combat misconceptions:

  • The person just entering at Step 1 can look up at the notice boards and see who’s currently getting service. He can see from the current processing times report that most I-526 from before 2017 have already been processed, and from the current visa bulletin that China-born applicants who filed I-526 in October 2014 are now getting green cards. But that’s just info about the end of other peoples’ process — indicating who’s being served now, and how long they waited. It does not look forward to indicate when May 2019 priority dates will be served, or how long the person at Step 1 will wait.  To forecast into the future, and guess about future notice dates, the person in Step 1 needs to look around and forward — at how many other people are entering Step 1 and waiting in Step 2 to Step 4 in front of him. Charles Oppenheim attempts to help with such guesses.
  • Wait times result from backlogs building up against the major constraint in the EB-5 process – the annual visa quota. Unfortunately for efficiency, this constraint is in the last step. To estimate his personal wait time, the person in Step 1 needs to estimate how big the backlog will be once he gets to Step 3. Again, this requires looking around and forward — at how many other people are entering Step 1 and waiting in Step 2 to Step 4 in front of him. The variables are clouded by spotty information and judgment calls, but the equations themselves are simple. If I’m an India-born person in Step 1, then my visa wait = (A) qualified India-born visa applicants with priority dates earlier than mine divided by (B) about 700 visas per year limit. Variable (A) is equal to India-born investors waiting in Step 2 in front of me, minus attrition from I-526 denials and withdrawals, plus family members who will join the approved India-born I-526 in Step 3-4, plus India-born applicants already waiting in Step 3 and 4, minus India-born applicants who will drop out or receive visas during my time in Step 2-4.
  • It’s good to step back sometimes from the confusing variables to the simple equations, as a reminder of the big picture and basic logic of wait times. The basic logic is that visa waits are mainly a function of I-526 volume. Unknowns about future denials and withdrawals and family size and processing times will vary forecast calculations this way and that, but this is sure: a lot of I-526 filings will result in a lot of people eventually ready for a visa. A lot of visa applicants will mean long backlogs and wait times in front of the visa quota constraint. People at the beginning of a surge in I-526 filings will wait less time for a visa than people after a surge.
  • With that in mind, one last figure, the most telling of the numbers in my backlog calculation file. If I were a lawyer counseling EB-5 users about big picture timing issues, I would have them consider the numbers in Table 1. How many investors plus family are likely to end up at Step 5, and when, considering how many investors have started at Step 1? What future wait times are implied in that past demand, considering visa number limits? It’s impossible to look at I-526 numbers and predict exact backlogs and wait times, considering all future variables, but it’s easy to see the general issue. For example, over 700 Vietnamese investors filed I-526 in 2018, and only 700 Vietnamese investors plus their spouses and children can get visas in a year, so Vietnam is clearly looking at a backlog and wait time situation at the visa stage — a situation exacerbated by excess demand in 2016 and 2017 as well. A Vietnamese investor had better not rely too heavily on specific future estimates from Charlie Oppenheim or anyone else, but she can and should have a chance to see the fact and consider the consequences of excess demand.

NOTE: I’ve added a EB-5 Timing page to collect links to data and posts related to EB-5 visa availability, visa allocation, and wait times. If you would like to order a personalized timing estimate, see the EB-5 Timing Estimates Page.

FY2019 Q1 EB-5 Petition Processing Statistics

USCIS has updated the Immigration & Citizenship Data page with data for petitions processed in FY2019 Q1 (October to December 2018).

The data shows that the Investor Program Office had an unproductive first quarter, with the fewest EB-5 forms processed since 2016. No wonder processing times remain long. Sometimes the data reflects a workload trade-off (e.g. fewer I-526 but more I-829 processed), but FY19 Q1 just had very low output overall. What’s up, IPO? Are you losing staff? Burning time with extreme-vetting RFEs? I-526 and I-829 receipts were up from the previous quarter, but still relatively low.

The All Forms report is interesting as a reminder of just how small EB-5 is in the grand scheme of employment-based petitions, and because the report now has separate line items for I-924 and I-924A.

All regional centers that want to remain in good standing should file the I-924A annual report between October and December, yet the report shows only 322 I-924A receipts for Oct-Dec 2018. Did the rest of the 885 currently-approved regional centers decide that designation isn’t worthwhile anymore? Or does the report not capture actual I-924A submissions? Certainly I-924 filings remain very low. No surprise considering the high form fee, the difficulty of operating in the current environment, and the fact that exemplar approvals have no value if they come too late to be usable.

UPDATE: I’ve added a EB-5 Timing page to collect links to data and posts related to EB-5 visa availability, visa allocation, and wait times. If you would like to order a personalized timing estimate, see the EB-5 Timing Estimates Page.

RC List Updates

There has been little activity on the USCIS regional center list since the beginning of the year.

Additions to the USCIS Regional Center List, 12/31/18 to 04/19/19

  • BC East Coast Regional Center LLC (Pennsylvania)
  • EB5 Affiliate Network Washington, D.C. Regional Center, LLC (District of Columbia)
  • Pride Capital, LLC (New York)
  • Greystone EB5 Southeast Regional Center LLC (former name Greystone Florida Regional Center LLC) (Florida) (This RC had previously been terminated for inactivity — termination letter here.)

Removed from the approved list, but not added to the terminated list

  • Three Streams Mid-Atlantic Regional Center (Maryland)

New Terminations

  • San Francisco Regional Center (California) Terminated 2/13/2019
  • Midwest Investment Fund, LLC (Indiana, Kentucky, Ohio) Terminated 2/5/2019

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 17th, 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)

FY2018 Q4 Petition Processing Data

USCIS is finally starting to update its Immigration & Citizenship Data page with data for petitions processed in FY2018 Q4 (July to September 2018). As usual, I’ve made charts to highlight salient features.

I like to look at annual trends in receipts and adjudications, because this reflects demand and allows understanding and predicting processing times at the Investor Program Office.

The backlog of pending petitions grows and processing times increase when IPO receives more petitions in a year than it can process in a year. That happened for I-526 from 2010 to 2017, when IPO finally started to catch up. In 2018, IPO surged ahead, processing more than twice the number of I-526 received. At this rate, the entire backlog of I-526 pending as of year-end 2018 will be adjudicated in 2019, and new I-526 can expect processing times of less than one year. I-526 processing times were a major factor for people who filed during peak demand in 2015 and 2016, and thus faced years-long processing on average. I-526 processing times will fade as a consideration, as new petitioners can expect months-long waits on average. (My I-526 prediction spreadsheet forecasts future processing times from petition volume.) Meanwhile, I-829 faces continued long processing times because adjudication volume is so small compared to the backlog. So long as IPO can only process less than 3,000 I-829 in one year, it will take 2-3 years just to get through the backlog of 7,660 I-829 pending as of October 2018. But we hope to see I-829 volumes improve considerably in 2019.

IPO’s total output was about the same in FY2018 Q4 as in Q3, just with a few more I-829 processed at the expense of a few fewer I-526. Meanwhile, the number of forms received by IPO remained relatively low in Q4. There was a small I-526 surge in advance of the September 30, 2018 regional center program sunset date, but nothing like in previous years. There continue to be very few new regional center applications and amendments, and high denial rates for previously-filed I-924.

I’m putting out my PayPal link again, particularly as an appeal to industry colleagues who depend on me to research and report news. How much more work would you have to do, if blog.lucidtext.com weren’t here to watch for and process EB-5 updates? If this blog saves you considerable time and effort, consider helping to make it worthwhile for me. (I am also contemplating advertising options, but have not settled on a strategy for appropriate and effective presentation within the constraints of the blog format.)

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.

 

Retrogression Math

Retrogression — as people imprecisely call the visa wait times resulting from oversubscription — is my least favorite EB-5 topic. The problem threatens my market, and I’d love for it to go away. There are two ways to make the retrogression problem go away: solve it or ignore it. Solving retrogression requires convincing Congress to give EB-5 more visa numbers, or to change allocation. More visas = smaller backlogs = shorter wait times. Different allocation = spreading out the backlog impact = shorter wait times for some.  But solving retrogression is hard because of Congress, so that leaves ignorance. Ignoring retrogression is easiest if one shrouds it in mystery and doubt.  If EB-5 visa availability and wait times seem impossibly complicated and uncertain, then it’s natural to ignore the issue because what else can one do. But that’s not responsible. In fact, retrogression is in the realm of math, not of myth. China is exceptional (the future demand factor introduces need for a crystal ball, and results in variable/unreliable timing forecasts for China), but future EB-5 visa availability and wait times for other countries are calculable. Investors from countries nowhere near demanding 700 EB-5 visas annually need not fear retrogression. For countries that are over (Vietnam) or near (India) the approx. 700 limit, the risk from retrogression can be calculated from the accruing excess over that limit.

For India, we have ballpark figures for number of visas already spoken for as of the end of 2018, and know something of priority dates within this backlog. The fixed number of annual visas available to India simplifies the calculation for wait times implied in past and potential future demand. The math isn’t fun – especially when calculating the wait time for a particular priority date, because of course people at different places in line face different waiting times, and variables vary over time. But still, workable estimates can be made based on available data, with areas of variation and uncertainty accounted for with math plus judgment. “We just can’t know, no one can really predict” gave an alibi for China wait times and backlog buildup, but that excuse is not available for India.  We can’t know exactly but we can generally predict how long someone investing today from India will need to wait for conditional permanent residence. We can predict the result of looking to India for billions of dollars in EB-5 investment, so long as fewer than 700 EB-5 visas are available per year for India.

I collect all relevant data that comes to my attention in my Backlog Calc file, available to anyone undertaking his or her own analysis.  And do undertake your own analysis, because who is motivated and able to do it well for you? (Even some industry veterans have misconceptions.)

I put several analysis worksheets into my Backlog Calc file as a starting point.  For example, here’s a screenshot of the India Calc tab.

This sheet breaks down the data, assumptions, and equations behind Charles Oppenheim’s estimate for the India backlog and wait time as of Q1 2019, and offers models for calculating scenarios and the impact of future EB-5 capital raises in India. Being in the realm of math, when you doubt a conclusion, you can examine the variables, trace assumptions to underlying data, rethink the equations, and test alternate assumptions. My spreadsheet is your spreadsheet. Download the Excel and play with it on the big screen. Let clients play with it and reach their own conclusions. Just don’t tell prospective EB-5 users “we can’t know, it’s a mystery,” because predictions are possible and necessary.

We must try to be realistic about timing, because EB-5 isn’t only about waiting for a visa. It’s about tying up investor capital, and putting issuers on the line to deploy and redeploy capital for as long as it takes investors to get visas. Projects care whether they have to deal with EB-5 investors for 5 years or 10 or 20. Investors care whether their life savings are deployed at risk with negligible interest for 5 years or 10 or 20.  And lawmakers need to know if our current EB-5 visa limits soil the past, and gut the present and future economic potential of EB-5.

We need “real visa capacity relief,” as IIUSA says in a recent blog post. I’ll be interested to hear more about what specifically IIUSA can and will do toward visa capacity relief, which has historically not been a plank of the advocacy platform. (Not that the industry hasn’t wanted it, but that Congress hasn’t been willing to hear about it.) Certainly, the issue has become central to the long-term health of the EB-5 program.

NOTE: I’ve added a EB-5 Timing page to collect links to data and posts related to EB-5 visa availability, visa allocation, and wait times.

USCIS email: Zhang Class Action

From: U.S. Citizenship and Immigration Services <uscis@public.govdelivery.com>
Sent: February 12, 2019 3:55 PM
Subject: Class Action Member Identification Notice

On Nov. 30, 2018, in Zhang v. USCIS, No. 15-cv-995, the U.S. District Court for the District of Columbia certified a class that includes any individual with a Form I-526, Immigrant Petition by Alien Entrepreneur, that was or will be denied on the sole basis of investing loan proceeds that were not secured by the individual’s own assets. The U.S. District Court for the District of Columbia vacated these denials and ordered USCIS to reconsider the petitions.

If you believe you have received an I-526 denial solely on this ground and would like to identify yourself as a potential class member, please email USCIS.ImmigrantInvestorProgram@uscis.dhs.gov, using the subject line “Zhang Class,” and provide the following:

  1. Name
  2. Alien Number (if any)
  3. Date of birth
  4. I-526 receipt number (if available)
  5. Date of I-526 denial
  6. Copy of I-526 denial (if available)

Note: Identification as a potential class member is subject to USCIS verification and does not grant any immediate rights, as immigrant petitions must meet all eligibility requirements and the court’s decision is presently under consideration for appeal.

USCIS has also posted a notice at https://www.uscis.gov/eb-5

Background:   Zhang et al. v. USCIS et al. addressed whether loan proceeds invested as cash constituted “cash,” as the plaintiffs claimed, or “indebtedness,” as USCIS claimed. The court ruled in favor of the two EB-5 investor plaintiffs, and also agreed to certify a class that comprises all I-526 petitioners who received or will receive I-526 denial solely on the ground that a loan used to obtain invested cash fails the collateralization test created by IPO in a 2015 IPO Remarks announcement. The court vacates USCIS denial of class members’ petitions, and remands the denials to USCIS for reconsideration. For more analysis, see 5 Things to Know About Ira Kurzban’s New “Use of Loan Proceeds for EB-5” Decision by the D.C. District Court (Wolfsdorf, Barnett)

Updates (reauthorization, visa cap, redeployment, AAO decisions)

Reauthorization

There seems to be optimism that Congress and President Trump will agree before February 15 on a deal to fund the government for 2019. I assume and trust that the deal, when unveiled, will include extension of regional center program authorization at least to September 30, 2019. [Update: H.J.Res 31, which became law on 2/15, has regional center program authorization to 9/30/2019 in Division H, Title 1, Sec. 104 (PDF page 463), and no other changes that affect EB-5.]

Luckily for EB-5, the case against it has been taken up by the pariah Rep. Steve King. Last month he introduced H.R.773 – To terminate the EB-5 program, proposing that EB-5 be erased from the INA, and that DHS cease to accept new petitions and dismiss all pending petitions and applications. The bill has gained 0 cosponsors, reflecting what other lawmakers think of this proposal and/or of supporting anything associated with Steve King.

Visa Availability

The per-country cap for EB visas continues to be an issue in the new Congress, with at least two new bills proposing to eliminate it: H.R. 1044 ‘Fairness for High-Skilled Immigrants Act of 2019 and S.386 – A bill to amend the Immigration and Nationality Act. These bills have quite a few cosponsors. This time around, IIUSA has taken a stand on the issue. “While the elimination of per-country caps may make sense for some categories, the elimination of the per-country caps for EB-5 will be to the detriment of the program,” stated IIUSA Executive Director Aaron Grau. [2/18 Update: IIUSA has expanded on its statement. 7/1/2019 Update: See my post on Country Cap discussion.]

EB-5 Activity at USCIS

Here’s what USCIS has done publicly so far for EB-5 in 2019:

  • Not finalized EB-5 regulations (or at least, not yet advanced them to OMB for review)
  • Not approved or terminated any regional centers
  • Not published petition processing data for July-Sept 2018 (I expected this to happen by December 2018)
  • Not held or announced any stakeholder engagements
  • Made a couple tweaks to petition processing time reports, each time adding or subtracting a few days. Currently, petitioners can be considered “outside normal” processing times if they are 796 days from I-526 filing, 1,077 days from I-829 filing, or 715 days from I-924 filing.  Dear me. However, I’m hearing anecdotally of I-526 adjudicated within a year.
  • Published a number of AAO decisions on EB-5 appeals (a few of which I discuss below)

Material Change and Redeployment

I have something to add to the redeployment discussion, as a business plan writer who has spent years grappling with the intersection of EB-5 theory and business practice. But until I have time to actually write the post I have in mind, here FYI are two planks to my thinking on the redeployment issue:

  • Carolyn Lee’s analysis of the EB-5 at-risk requirement and its misapplication in redeployment policy. USCIS, be sure to read this article, which helps explain why applying redeployment policy is so hard for us. When a policy makes sense theoretically, then we don’t have to badger you with questions about how to apply it. Then we can figure it out ourselves with reference to the statue/regs/precedents etc., with the help of our smart lawyers. As it is, we do hassle you with questions because there’s a broken link to the established rules, giving us and you no firm foundation to stand on in applying the policy, and leaving us all vulnerable to capricious case-by-case determinations.
  • A number of redeployment complications and constraints arise from the fact that redeployment policy is a subset of the material change policy. In preparation to discuss that aspect of redeployment, I’ve refreshed my post What is Material Change.  The post discusses the theory and links to most AAO decisions that have addressed material change in specific cases.

USCIS decision-making

AAO decisions on EB-5 appeals shed light on an important question: “If anything goes wrong with an EB-5 investment, is there any way to recover?” What if a principal goes rogue and makes off with some funds, but then there’s new management and funds are recouped and put to work again? What if a regional center was terminated, but currently well-placed to promote economic growth? What if a project did not develop as originally anticipated, but can succeed and create jobs in a new direction? These questions fall in policy grey areas, giving the agency leeway for positive flexibility or reflexive naysaying.  Unfortunately, recent AAO decisions show the later trend, and I hope that there will be pushback.

DEC102018_06B7203 Matter of L-X- is one of two decisions on appeal by investors who put money into an NCE originally managed by Emilio Francisco, who was charged by the SEC in December 2016 with defrauding investors. The NCE and other defendant entities went into receivership, it was determined that a portion of EB-5 investor funds had been diverted, and USCIS denied I-526 petitions for NCE investors. In an attempt to salvage the situation, several EB-5 investors executed an LOI with an institutional investor and amended the NCE’s LP agreement to replace the NCE manager, remove the NCE from receivership, provide necessary funding to the NCE, and complete and operate the project. USCIS/AAO claimed to be “sympathetic to the Petitioner’s situation,” but claimed that the investors still could not satisfy EB-5 requirements. Here’s the USCIS/AAO reasoning:

  • The petitioner could not satisfy the “at-risk” requirement if she replaced diverted capital with additional investment, because that new capital would not be her original capital, and Izummi requires showing that the full amount of “original capital” was made available to the NCE to create jobs. “Petitioner must establish the necessary job creation with capital invested at the time of filing, not based on later infusion of additional funds.” (I don’t quite follow the justification from Izummi, or the “original capital” idea generally. Is the thought that the very dollar bills first passed between the investor and NCE must be the same dollar bills used to pay employee salaries? USCIS sometimes talks about a “path of funds” from investment to job creation – as if cash flowed through a business with each note radio-tagged and leaving a colored path as it goes. In practice, investment goes together into a pool and economic activity and jobs and ROI come out of the pool. A “path of funds” from X original dollar to Y job never exists, and USCIS/AAO should not make demands that presume such a path.)
  • If the investor replaced $182,133.33 of diverted capital with $182,133.33 in additional investment, then the petitioner would be committing impermissible material change because that would effectively increase the minimum investment amount from $500,000 to $682,133.33. (Really, USCIS? How does investing more than the required minimum undermine eligibility?)
  • USCIS couldn’t tell whether the Petitioner had actually invested the additional funds, or only intended to do so. (This is a fair point, but why did USCIS raise this issue if against additional investment in principle?)
  • The Petitioner did not demonstrate that all approvals needed for the proposed NCE restructuring had been obtained, making USCIS doubt whether the restructuring could go forward. (Fair point, if true.)
  • The Petitioner did not file an updated business plan to describe the current status of the project and its current job creation potential. (I wonder if this was fundamentally the most important problem with the Petitioner’s appeal. A business plan is a chance to tell a compelling story about use of investment and job creation, reconcile apparent inconsistencies, argue that changes aren’t material, make an eligibility case, and pre-emptively address questions, doubts, and misconceptions that the reader might have. Don’t miss the prime opportunity to tell your story! As a business plan writer, I’m sensitive to the critical and delicate role of the business plan in presenting changed circumstances to USCIS.)

DEC042018_01K1610 Matter of P-A-K  is AAO’s third decision regarding the designation of  Path America KingCo regional center. This decision was compelled by US District Court, where the regional center filed a complaint after the AAO denied its initial appeal and motions to reopen and reconsider. AAO gives 21 pages this time to reiterate the denial, with arguments that can be summed up in this sentence that the decision quotes from INS v. Abudu: “The INS should have the right to be restrictive.” Path America KingCo presents a compelling case for its current and future potential to promote economic growth, but the AAO finds that this isn’t relevant to its current designation status. AAO rests on this technical claim: that appellate decisions are final, and cannot be reconsidered in light of new evidence, but only reassessed in terms of evidence that existed at the time the decision was made. One might think that Path America KingCo deserves designation if it is continuing to promote economic growth, but AAO says no – the relevant issue is whether it was promoting economic growth at the time it was terminated. A different agency might’ve looked at the fact pattern – a company that has good management (now), good projects, and committed investors dependent on the designation – and found a way to say yes. The so-called “balancing test” discussed in prior terminations claims that “we take into account a variety of factors, both positive and negative, that encompass past, present, and likely future actions.” However, it appears that this test does not apply on appeal, as USCIS does not consider positive present or likely future actions once a termination letter has been issued.

Letter to Senator Collins in the USCIS electronic reading room shows USCIS responding frostily to a plea from Senator Susan Collins regarding a small town in her constituency that planned to use EB-5 investment to rebuild after the catastrophic closing of a paper mill. The scenario sounds like textbook example of what Congress hoped EB-5 could do, but it did not move USCIS, which terminated the regional center purchased for the town before the town had a chance to use it, and just offered Senator Collins the cold comfort of filing an AAO appeal. Is this administering the Immigrant Investor Program in a fair and efficient manner? Fair and efficient, I suppose – the RC was apparently inactive prior to being taken over for Millinocket, Maine. But is the decision in tune with EB-5 program logic and objectives? No.

To be fair, AAO appeals sometimes work. JAN252019_01B7203 is an example of a denial that AAO remanded back to USCIS for more precision in identifying specific problems in credibility and eligibility, and for more rigor in assessing relevant evidence.

And as a reminder that court cases also sometimes work, EB-5 investors have another win on use of loan proceeds for EB-5 investment.

Approaching Feb 15

The regional center program authorization granted in 2018 is now active again, with another continuing resolution that extends previous funding and authorities for a few more weeks — through February 15, 2019. USCIS has updated its Regional Center program page to remove the language about lapse in authorization. My Washington Updates page has the detail on the legislation.

The shutdown from December 22 to January 25 turned out to be much gentler on EB-5 than it could’ve been, thanks to the USCIS decision to continue to accept regional center I-526 and I-485 filings during the lapse in RC program authorization. Adjudications were delayed, but not that much in the scheme of long processing times. So we survived the lapse and are reauthorized again, and the drama is just beginning.

Regional center program authorization got extended by default in the continuing resolution, and has to be included on purpose in a new funding bill for 2019. And immigration issues are at the center of appropriations negotiations. The White House says “Once the government is open and the immediate crisis is addressed, President Trump will hold weekly bipartisan meetings to reform our immigration system.” A group of 17 Congressional representatives has been appointed to work out a compromise on border security funding – a compromise that could implicate wider immigration issues and visa allocation. The White House statement mentioned these priority issues: “interior enforcement, asylum reform, worksite verification, the 11 million people living in the country unlawfully, and moving toward a merit-based immigration system.” If only someone would speak up in this negotiation for the EB-5 regional center program, and the need to put immigrant investment on a stable footing (ideally with more visas for these merit-full immigrants). But I’m not sure who in that group of 17 negotiators is a friend of EB-5. I hope that the group includes someone who knows positive stories to balance member Patrick Leahy, whose wounds from Vermont Regional Center disappointments are still fresh. Leahy used strong language to complain in 2018 that “The recently-passed omnibus spending bill included a clean extension of EB-5, and did not include any reforms to crack down on well-documented fraud, abuse and national security concerns.” The EB-5 regulations that Leahy called for then have still not been finalized (I keep checking the OMB site for evidence that they’re under review, but nothing yet). Will Leahy or others in Congress be motivated by DHS delay to address EB-5 again now? But then the border security negotiation is so large and EB-5 is such a tiny visa category. EB-5’s problems are dwarfed by the size of the program’s positive economic impact, and negligible in the big picture of immigration problems. When Congress can’t manage progress on a single major pressing issue – border security – how likely is it that the minor regional center program will earn a moment’s thought now, beyond the minimum necessary to keep the program going? We shall see.

IIUSA says that it is “active on Capitol Hill and will continue to visit offices and advocate on your behalf. As we learn more leading up to the next sunset date of February 15, we will keep you informed of progress made on a long-term reauthorization of the Program.” We certainly need such advocacy now.

In other news, a thank you to industry colleagues for recognizing me again this year as one of the Top 5 Business Plan Writers in EB-5. Blogging is a sideline but business plans are my profession, and I’m delighted to be honored by peers for excellence in my core work.

FY2018 EB-5 Visas by Country

The US Department of State has published Report of the Visa Office 2018 Table V Part 3, which gives a tally of visas (conditional green cards) issued by country for the Employment Fifth preference (EB-5) in FY2018. The major story in the FY2018 report is the increase in EB-5 visas issued to applicants born outside of mainland China.

EB-5 in the early 2000s used relatively few visa numbers overall, and only really took off with the increase of EB-5 interest from/in China after 2008. Then China-born investors drove growth and claimed a majority of visas until the total number of EB-5 visas possible to issue hit its ceiling: the annual quota of about 10,000 visas. Since that ceiling was reached in FY2014, there’s been no room for EB-5 to grow — China and the rest of the world just have to jockey each other for the available annual visas. The decreasing number of EB-5 visas issued to China-born applicants since 2014 does not primarily reflect decreasing demand from China (China still dominates the backlog), but increasing demand from other countries that decrease the number of visas available to China.

FY2018 data shows a marked increase not only in total number of applicants from outside China, but also in the number of countries supplying those applicants, and in the number of countries with a relatively large number of applicants each. EB-5 marketers care about this, because it helps identify the range and depth of market potential outside of China. Past China-born investors care about this, because their future wait times depend on the nature of incoming non-China demand (with best case scenario being demand concentrated in a few countries that will become blocked by the per-country cap, and worst case being large total demand spread out over many countries).

We want to read EB-5 visa reports and draw conclusions about demand for EB-5 investment opportunities. So a few reminders to qualify such conclusions:

  • The Visa Office report indicates the number of green cards issued for conditional permanent residence. To track visa numbers back to investor detail, it’s necessary to factor in the time between investment and visa issuance (about 1 to 5 years in 2018 depending on investor origin and I-526 processing time), and the number of visas per investor (about 3 on average).
  • The Visa Office report only directly reflects demand for countries that take significantly less than 700 visas (ie less than the 7% per-country cap). For countries that exceed the cap, the number of visas issued is not the number they demanded, but the number they could get. In FY2018, Vietnam got 7% of total EB-5 visas pursuant to the per-country cap, regardless of how many Vietnamese were ready to apply, and China got 48% of visas because that’s what was left for the oldest applications after demand from undersubscribed countries was satisfied. On the other hand, India remained under the per-country cap in FY18, so its 585 visas directly reflect the number of FY18 applicants (more than threefold increase from the previous year). But keep in mind, lengthy I-526 processing times mean that the FY18 surge in India visa applications reflects a surge in investments from India that happened 1-2 years ago. For a better sense of recent demand trends, see the log of pending I-526 by country and priority date that USCIS published in October 2018.

I’ve expected to see an increasing number of visas associated with direct EB-5 investments, but that hasn’t been true so far. Regional center investments accounted for 94% of EB-5 visas issued in FY2018, as compared with 93% in FY2017 and 91% in FY2016. For reference, here is my post on FY2017 EB-5 Visas by Country

I haven’t had time yet to update and recalculate my backlog calculation spreadsheet. But I will add one table here as follow-up to ILW’s article EB-5 Industry Misunderstands Retrogression (12/31/2018). The article estimates that “India generated close to $500 million in EB5 investments in 2018, and it is on track to generate $1 Billion in 2019 and $2 Billion in 2020. Indian EB-5 is a $3 Billion opportunity in the coming two years.” The article goes on to rightly correct misconceptions about how EB-5 visa allocation works, but omits one important calculation: what happens if one puts $3 billion dollars (12,000+ visa applicants) from one country in line to a gate that can only issue about 700 visas annually.

If we want to make Row A in that table a reality, and how wonderful that would be, then we have to deal with the constraints that turn successful markets into backlog tragedies. Let’s put the pressure on Congress for visa relief. Otherwise, ethical promoters will have no option but to reduce the amount of investment they try to raise, or to support proposals dramatically increasing the minimum investment per investor.

UPDATE: I’ve added a EB-5 Timing page to collect links to data and posts related to EB-5 visa availability, visa allocation, and wait times. If you would like to order a personalized timing estimate, see the EB-5 Timing Estimates Page.

 

2018 in Review

A reader asked me this question a couple weeks ago: Is EB-5 still a choice?  Can it be a good option today for project companies or prospective immigrants? The answer: yes, though it’s complicated. In 2018, we felt the sting of legislative, regulatory, and policy uncertainty, and the pressure of limited visa numbers and associated wait times. Limited visas mean that EB-5 is no longer a good choice for the ones who used it most in recent years: China-born immigrants and mega-projects. EB-5 can still work well today on a small scale – for immigrants from not-backlogged countries (or not in a hurry), and for projects that don’t rely on massive EB-5 raises. Uncertainty remains an issue, as regional center program authorization depends on Washington’s ability to pass funding bills, and basic EB-5 program terms are subject to change from new regulations and policy. This post looks back at major developments reported by this blog over the past year.

Regional Center Program Authorization

EB-5 itself is permanent, but the regional center program was established in 1992 with an initial five-year term, and has required reauthorization since then.  Authorization has typically been attached to appropriations bills — a blessing when the appropriations process goes smoothly, and a curse when it doesn’t. Congress did not intend to harm the RC program in 2018, but drama over government funding meant that the RC program faced five sunsets this year, and temporarily lost authorization twice: with the 3-day government shutdown in January 2018, and with the current shutdown since December 22. The choppy history of RC program authorization is really just the dismal history of appropriations bills and Washington’s struggle to agree on government funding.

The regional center program needs permanent or at least long-term authorization to put it on a stable footing, no longer vulnerable to every unrelated funding dispute over health care or abortion or The Wall or whatever. IIUSA has been advocating this since 2005, but without significant success so far. There was one stab at EB-5 legislation in 2018 – the “EB-5 Reform Act” negotiated behind closed doors by Grassley, Goodlatte, Cornyn, and Flake, and revealed in draft form to the industry in March 2018. I saw the bill as flawed and pandering to New York City interests, but reportedly the NYC interests didn’t like it either and prevented its inclusion in the March appropriations act. The EB-5 Reform Act would’ve given the RC program a welcome five-year authorization, but also made the program broadly unusable. We missed that opportunity and dodged that bullet. Since then, I’ve heard no report that anyone in Congress is working on EB-5 legislation. When the Senate Judiciary Committee held a hearing on EB-5 in June, most senators ignored EB-5 and just talked about the southern border. Senator Grassley, previously a force behind EB-5 legislation, turned his energy to writing letters urging action on regulations. At least until border security and DACA are out of the way, we apparently can’t depend on Congress to go beyond the minimum for EB-5: to keep regional center program authorization in the funding bills. (1/3/2019 Update: IIUSA says in its Year in Review post that “We are working productively with the EB-5 Investment Coalition (EB5IC) to further a true ‘industry bill’ that, when introduced in the 116th Congress, will provide for a full five-year reauthorization of the EB-5 Regional Center Program.”)

Changes to EB-5 Requirements

We spent all of 2018 thinking that DHS was just about to finalize new regulations increasing the EB-5 minimum investment amount and changing TEA rules. The OMB Unified Agenda anticipated a Final Rule by 02/00/2018, and then by 11/00/2018, but neither of those targets were met. USCIS has had since April 2017 to consider public comments on the regulation and come up with a final rule, but the task is complicated. The public generally didn’t like the draft rule, and DHS has had staff turn-over in nearly every position responsible for the EB-5 regulation.

USCIS did make four updates in 2018 to the EB-5 section of the USCIS Policy Manual. The updates (1) reaffirmed that USCIS provides documentation of CPR status to those with pending I-829, (2) rescinded previous guidance on tenant occupancy methodology, (3) updated guidance on regional center geographic area requirements, and (4) clarified policy on debt arrangements.  USCIS did not issue or promise any new guidance on the most pressing policy grey area: redeployment.

EB-5 Visa Usage and Petition Volume

Some of us have been talking about EB-5 visa numbers and trying to crunch numbers for wait time estimates since 2015, but 2018 was the year when everyone joined the conversation. In 2018, Department of State lengthened its estimate for the EB-5 visa wait for China-born investors, gave a cut-off date to Vietnam for the first time, and predicted oversubscription for India. EB-5 visa availability and wait time estimates went from being a fringe topic for killjoys with confusing spreadsheets to being a primary and widely-discussed factor in marketing strategy, investment decisions, and litigation.

The best attempt in 2018 to alleviate the visa number problem came from a lawsuit pointing out Congress’s expressed original intent to grant 10,000 visas to EB-5 investors, and the error of applying that limit to investors plus family members. So far the judge denied a preliminary injunction in the case, but the plaintiffs are continuing to pursue the matter.  Meanwhile, proposed legislation suggested changes to visa number allocations, but not changes that benefited EB-5. Fortunately those proposals did not become law.

Demand for EB-5 continued fairly strong in 2018, with about 4,000 I-526 filed from January to October. Of these, about 1,000 were filed in a surge in September 2018, in advance of possible changes/sunset date, and over 850 were filed by people born in India. Overall, I-526 receipts were well below totals from previous years, and should continue to fall as people adjust to the hard limit imposed by the 10,000 annual EB-5 visa quota for investors plus family members.

Trends at IPO

In 2018, IPO got a new chief and (I think?) several new division chiefs, issued four policy manual updates, held no stakeholder engagements until three appearances in November, significantly improved I-526 processing volume and times, dropped the ball on I-829, further confused processing times reports, issued many RFEs on issues related to the “at risk” requirement, and terminated 138 regional centers (mostly for inactivity or not filing Form I-924A).

EB-5 on the Ground

In 2018 I wrote EB-5 business plans for new projects in hospitality, multi-family, retail, assisted living, manufacturing, distribution, and storage, as well as E-2 work. I enjoyed hearing good news from past clients with approved petitions, and tried to help clients struggling with timing issues, redeployment challenges, policy changes, and political uncertainty. This blog had 49 new posts in 2018, and received 407,967 views from 121,349 visitors. Of these visitors, 56 made a contribution to support the blog. I appreciate the people who work hard to make EB-5 work, and especially the clients who have let me be a part of the process. We shall see what 2019 brings.

Regional Center List Updates

Additions to the USCIS Regional Center List, 09/11/18 to 12/31/18

  • Ameri-Link Midwest Regional Center (Illinois, Indiana)
  • Ameri-Link Ohio Regional Center, LLC (Ohio)
  • American Equity Fund Texas, LLC (Texas)
  • BC Central Florida Regional Center LLC (Florida)
  • Brilliant EB-5 Regional Center, LLC (Nevada)
  • FCA South Carolina Regional Center, LLC (South Carolina): www.fcaeb5.com
  • Los Angeles International Regional Center, LLC (California)
  • Mayaguez Regional Center, LLC (Puerto Rico)
  • National EB-5 Wealth Center, LLC (Texas): www.eb5wealthcenter.com
  • Southern California EB-5 Fund, LLC (California)
  • York Resources RC Funding, LLC (Connecticut, New Jersey, New York)

Renamed:

  • Smith Western Regional Center (former name Western Pacific Regional Center) (California, Oregon, Washington)
  • Native American Regional Center, LLC FKA Native American EB-5 Corporation (Illinois, Indiana)

Removed from the approved list, but not listed as terminated:

  • US Access Florida Regional Center, LLC (Florida)

New Terminations:

  • Civitas Miami Regional Center, LLC (Florida) Terminated 9/6/2018
  • Live in America – Colorado Regional Center LLC (Colorado) Terminated 9/7/2018
  • Civitas Great Plains Regional Center (Kansas, Missouri, Oklahoma) Terminated 9/12/2018
  • Encore Colorado RC, LLC (Colorado) Terminated 9/24/2018
  • Northern Mississippi Regional Center, LLC (Arkansas, Mississippi, Tennessee) Terminated 9/7/2018
  • Civitas Alabama Regional Center (Alabama) Terminated 9/6/2018
  • Civitas Michigan Regional Center (Michigan) Terminated 9/6/2018
  • USHoldings Regional Center (Georgia, South Carolina) Terminated 9/24/2018
  • Civitas Laredo Regional Center, LLC (Texas) Terminated 9/6/2018
  • Civitas Atlanta Regional Center (Georgia) Terminated 9/6/2018
  • Civitas Rio Grande Regional Center (Texas) Terminated 9/10/2018
  • US Freedom Capital-Texas, LLC (Texas) Terminated 9/18/2018
  • E Development Corporation dba EDC (Island of Guam) Terminated 10/15/2018
  • Civitas Washington D.C. Regional Center (District of Columbia, Maryland, Virginia) Terminated 9/5/2018
  • Civitas Illinois Regional Center (Illinois) Terminated 9/5/2018
  • Central Arizona Regional Center (Arizona) Terminated 12/19/2018
  • American Dream Fund San Francisco Regional Center, LLC (California) Terminated 10/3/2018
  • Civitas Louisiana Regional Center (Louisiana) Terminated 9/11/2018
  • Golden State Economic Development Fund, LLC (California) Terminated 12/6/2018
  • Carolina EB-5 RTP Regional Center, LLC (North Carolina) Terminated 12/20/2018
  • San Diego Regional Investment Center, LLC (California) Terminated 11/16/2018
  • EB5 Affiliate Network Washington, D.C. Regional Center, LLC (District of Columbia, Maryland, Virginia, West Virginia) Terminated 9/13/2018
  • Mag Ventures 1, LLC (Ohio) Terminated 9/11/2018