About H.R. 5992 Reform Act proposals
September 15, 2016 5 Comments
As the 9/30/2016 deadline for regional center program reauthorization looms, we have so far (1) indication that short-term regional center program extension has been included in a continuing resolution to extend government funding through December 9, and (2) a new piece of EB-5 legislation to consider: H.R. 5992 American Job Creation and Investment Promotion Reform Act of 2016, sponsored by House Judiciary Committee Chairman Bob Goodlatte (R-VA) and co-sponsored by Ranking Member John Conyers (D-MI).
H.R. 5992 is basically Senator Grassley and Leahy’s S.1501 American Job Creation and Investment Promotion Reform Act of 2015 with additional content informed by the 2/11/2016 House Judiciary Committee Hearing “Is the Investor Visa Program an Underperforming Asset?” and the Jay Peak EB-5 disaster in Vermont. In the February House hearing, Goodlatte described his vision of what regional center EB-5 should be: a program that incentivizes a healthy percentage of EB-5 projects to locate in rural and depressed areas, and a program that attracts investors with entrepreneurial talent, not the merely wealthy. He expressed special concern about gerrymandering TEAs to benefit luxury projects, the fact that foreign investors can claim credit for all jobs created by their investment projects, and the deduction that, due to the backlog, “for [any reforms] to be effective, they would have to have some retroactivity if they are going to take effect in any way, shape, or form before 7 years from now.” Conyers, representing Detroit, likewise emphasized in the February hearing that “Steering investments to projects in our cities’ wealthiest neighborhoods at the expense of urban and rural communities that need it most is not what Congress intended when it established targeted employment areas and the lower investment level.” Conyers called for projects to locate within needy neighborhoods, not just in commuting distance of them, and for more clarity on the tangible job creation associated with regional center projects. We can sympathize with these genuine concerns, and yet they underlie the most counterproductive new proposals in H.R. 5992: retroactive application of new rules to petitions filed since 6/1/2015 (which would pull the rug from under at least $7 billion already deployed in US business), permanently accruing set-asides of already scarce visas for distressed urban and rural projects regardless of use, new requirements around direct job creation, and source of funds and age restrictions that would help change regional center EB-5 from a program that uses foreign investment to benefit U.S. entrepreneurs into one that asks the foreign petitioner to be both investor and entrepreneur. The Jay Peak fingerprints on H.R. 5992 are less controversial. We likely have Vermont to thank for pages of recourse options for innocent investors in case of project or regional center malfeasance, and for pages of new requirements for transparency and integrity in depositing and deploying investor funds.
It remains to be seen what will happen with H.R. 5992, which has no EB-5 industry support (in its current form) so far as I know. The bill has some good features, but eliminates most possible supporters by combining incentives that only really distressed players can use with administrative requirements and fees that only really wealthy players can afford, by promising USCIS a huge workload with impossible deadlines, and by proposing retroactivity that would harm a mind-boggling number of recent project and investors. H.R. 5992 was briefly scheduled for a committee markup session this week, but is off the Judiciary Committee calendar now and I haven’t noted either Goodlatte or Conyers talking about it. Don’t be too discouraged, Mr. Chairman and Ranking Member! We really could welcome reform legislation, just not quite this bill. I’ll update this post as I become aware of new developments related to H.R. 5992.
For additional reading:
- Carolyn Lee and Stephen Yale-Loehr have an initial analysis and summary of the Goodlatte EB-5 bill and an article on impacts for investors and promoters (published 9/12 and 9/13)
- A 9/12/2016 letter from IIUSA, EB-5 Investment Coalition, AILA, the U.S. Chamber of Commerce, and the Real Estate Roundtable lists industry concerns with the language in H.R. 5992
- My bill comparison chart compares H.R. 5592 with bills from last year
- NYU Scholar-in-Residence Gary Friedland, Esq. and Professor Jeanne Calderon, Esq. discuss the account transparency proposals in H.R. 5992 EB-5 2.0: Can Account Transparency Save the Program? (Draft, 10/6/16)
- (to be updated as I find additional relevant material)