TEA set-aside proposal
May 21, 2019 16 Comments
This post examines the visa set-aside proposal in the industry’s most recent Letter to Judiciary Committees in Joint Support of Reform and Reauthorization of EB-5 Program.
Here’s the recommendation in the letter:
Notably, we recommend a 30% set aside of the annual visa allotment each year for investors in TEA projects, which would be split equally between Rural and Urban Distressed communities.
TEA Set-Asides
- 15% of visas for Rural
- 15% of visas for Urban Distressed
- Unused visas roll-over annually at the end of each year to general visa pool for access by all projects in the immediately following year
- The set asides apply immediately to new I-526 petitions filed after enactment, but they cannot be applied retroactively towards petitions that were pending as of the date of enactment.
Possible arguments in favor of the recommendation:
- A visa set-aside could be a genuine incentive for TEA investment because it offers something that’s of value to investors (visa fast track) and that doesn’t have the economically counter-productive effect of reducing capital available to the TEA project (as does the current monetary-discount TEA incentive)
- A visa set-aside can only be a potent incentive if new investors have a chance to benefit from it. Therefore, such set-asides must be limited to new petitioners, not available to the tens of thousands of past investors. Consider that current law (INA 203(b)(5)) has already set aside a minimum of 3,000 visas annually for TEA investment. We forget that this set-aside even exists, because it means nothing when TEA investments far exceed 3,000 annually in any case. The new TEA set-aside proposal will be no more effective than the existing one unless demand for it is limited.
- Limiting the visa set-aside to new investors would help, at least short-term, to address a major industry problem identified in the letter. “In the current marketplace, protracted EB-5 wait times have slowed inbound foreign capital to a trickle.” People who want to raise more EB-5 capital from China, Vietnam, and India need to be able to offer shorter wait times. Future prospective investors from those countries want shorter wait times too. So long as we can’t get more visas for those countries, the only option is to create a shortcut around people already waiting in line from those countries.
- The industry must appease reformers who want to incentivize investment in distressed and rural areas, but industry (as represented in this letter) does not wish to upset the status quo or disadvantage prosperous urban areas. Set-asides can be presented as a TEA incentive to help bargain down the monetary TEA incentive, while likely to have limited effect in practice.
Possible arguments against the recommendation:
- Considering the backlogs, EB-5 visa availability is a zero-sum game. Restricting 30% of visas to future investors means removing 30% from past investors still waiting on a future visa. Getting in front of the line means pushing someone else back in line. Improving visa wait times for some means worsening them for others. Supporting the set-aside recommendation for the sake of future capital raises requires betraying investors in past capital raises. This is a serious problem for regional centers and project companies. The zero-sum issue is a painful fact unless Congress/the White House agree to offer additional visa numbers to EB-5, which no one says is likely to occur. The only question is how many past investors would be harmed by set-asides, and how badly. The following is my attempt so far to reason out the impact, and I welcome thoughts from others.
- Damage from the set-aside would vary by country.
- The worst impact of set-asides would likely be for past investors from Vietnam and India (and South Korea, Taiwan, and Brazil if they also exceed the per-country cap). These countries can each access only 7% of total EB-5 visas annually until the China backlog dissipates – i.e. for the foreseeable future. That means about 700 visas each. If, for example, 350 new investors from India are recruited in a year under the new set-aside categories, that could be sufficient to claim the total visas available to India. 700 available visas minus 700 visas allocated to new investors gaining priority under reserved set-asides would equal 0 visas left for past investors. 0 visas available year by year would stretch visa waits for past investors to infinity. The disaster for past investors would be less if (1) the new TEA categories are not popular and fail to attract many new investors from India or Vietnam, or (2) the new categories are so popular that excess demand creates backlogs even for new investors that would eventually depress new demand, or (3) the statute is interpreted such that past investors at least get 7% of the 7,000 generally-available visas, or such that set-aside status would only trump priority-date status after the 7,000 non-TEA limit is reached. In other words, the set-asides would not be disastrous for these past investors provided that they are ineffective for new investors.
- Past investors from China calculate their wait times based on 10,000 total available visas minus visas claimed by the rest of the world. Their current wait time calculations already assume over 3,000 new investors a year getting priority due to nationality. If those same investors get the additional priority of TEA set-aside status, that might not change the China calculation very much. The set-aside proposal would harm past China investors if the set-asides are not popular, and new investors from other countries instead compete with China for the reduced pool of generally-available visas.
- The visas set-aside provision would likely be neutral for investors from relatively low-volume countries (i.e. countries other than China, Vietnam, India, Brazil, and South Korea). New investors from these countries would not receive special benefit, since they already don’t face a visa wait by virtue of nationality, and past investors from these countries would not be specially harmed, since they already demand far fewer than 7,000 visas annually.
- How many past investors would be affected? All those who are still waiting for a future visa when the set-aside proposal is passed. The industry’s letter to Congress numbers “all pending applicants in the queue” at “approximately 30,000.” This is phrased to imply that there are 30,000 total people waiting in line, though in context “all pending applicants” appears to refer specifically investors, not counting family also in line. Charles Oppenheim of Department of State estimates EB-5 applicants with petitions on file at NVC and Estimated USCIS Applicant Data (as of April 1, 2019) at 73,157 people. Looking at data from USCIS on I-526 filings by country, we can count over 40,000 people who filed I-526 but couldn’t possibly have visas yet, either due to cut-off dates or because the I-526 is still pending. That would translate into a queue with 70,000 to over 100,000 people in it depending on one’s assumptions about denials, withdrawals, and family size. The queue is 68% to 85% Chinese, by various estimates. (Here’s Oppenheim’s estimate — see especially slide 10 — and my analysis.)
- Damage from the set-aside would vary by country.
- 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.
- 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:
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 Updates 
Suzanne…is it just me, or are others having issues with the links you’ve been providing in the posts. I haven’t gotten one to work in the last four days. I can’t even get them to open while incognito on Google.
Regarding the post and the insincere letter from the industry group, isn’t it about time to shut this program down until the wait lists are drawn down and Congress can put together something that is ethical and will work? Nothing will get better until the proposed regs are adopted or Congress discontinues the program.
Many in the industry are repeating the same con games they did with the Chinese and will move to any other country that will let them in. Some groups are prancing disgraced former Congressman out as the “in the know” expert on EB-5. This is a sick joke and the developers bringing this guy into the mix should be ashamed of themselves. The guy has unbelievable issues including being charged with 24 felony counts, beyond the pale office decorating costs while in Congress, voting inconsistencies, and questionable public activities at Coachella.
The links to IIUSA pages are slow because they’re updating their website, but should open after several minutes. Just need to wait. At least on my side…
Honestly i think regional centers and IIUSA are just looking out for themselves here. Investors from China, India dont want to wait for decades to get GC’s. Investors from China, India are drying up in the EB5 program. Still dont know why chines are investing knowing their wait time is 20-25 years. Even their unborn children will age out before they get GC.
This set aside program is pure rubbishness on IIUSA part and RC’s part. Honestly they are now the same as italian mafia – Con people as much as they can. Welcome to crony capitalism
Hello Suzzane
Does this need a new law ?
MJ
Yes, changing visa allocation would require a new law. USCIS could change the TEA investment amount and definitions through regulation, but only Congress can change visa availability.
The harsh and cruel truth is the issue with visas for applicants’ family members. It doesn’t make anyone feel good to discuss for obvious humanitarian reasons but it is arguably an effective alternative. Oversubscribing is certainly the primary issue causing the backlog, but the visa number allocated to the applicant’s family members is no doubt significant — reasonable but irrational.
A regulation that retrospectively makes a separation (strictly in the sense of application process) to primary applicants and their spouses and children that will be over-aged (which is fairly easy to estimate at current state) for all currently oversubscribing chargeability areas will effectively mitigate the current backlog. At the same time, applicants who have already filed I-526 should be given an option to file new, separate applications for their spouses and over-aged children if so they choose, investing new funds for these new applications while the new application can bear the same priority date as the primary applicant’s.
The pro-side of this proposal is the revitalization of the program — new funds could be invested in more programs. At the same time, it implicitly limits the number of family members that an applicant can bring in the past and future without making explicit regulations. The only condition for this to work is to retain the current investment amount (thus an applicant who wants to bring one family member invests 1M which is still within the current EB5 investment scale).
The con-side is obviously that the backlog is still going to take 4-5 years to dissolve, which might not completely in line with the interests of the industry. Also, applicants will have to make a hard decision to either bring their spouse or child (but considering the motivation and social structure of China, the current oversubscribing area, this is not really that hard [don’t forget the children will be over-21 anyway]).
Despite these negativities, I think this is still a better option than increasing the investment amount significantly (proposed by the regulation), which kills the incentive or create visa set-aside, which hurt the past investors (unethical and completely destroys the reputation and credibility of both industry and gov).
Suzanne, I don’t quite understand, since the 3000 visa quota already exists in the form of legislation, why should it be reserved every time the regional center and TEA negotiation?
People negotiating may forget the 3,000 TEA set-aside already in current statute. But in any case, the proposed set-aside would have different effect because limited to future I-526 filings only, according to the letter. Perhaps actual legislative language would specify that the new set-asides replace the existing TEA set-aside provision.
tpk129, I agree thoroughly…the system has been tragically broken and the “industry group” EXCLUSIVELY represents the interests of those who rely entirely on 1) the payment of illegal finders fees to foreign agents and 2) fraudulent manipulation of census data to sell Manhattan condos as TEA projects. Their proposed reform accommodations, from the set-asides to the roll overs to the proposed new investment amounts are a mockery. The reason Congress came up with $500K TEA and $1M non-TEA was to stimulate investment where it is TRULY needed. Led by disgraced politicians and relying on unlicensed foreign agents, their input makes their fundamental line of reasoning crystal clear: “We know we can’t break 100% of the rules anymore, so we’ll now fix this and only break 95% of the rules…” It’s disgraceful.
All that being said, as someone who has spent the last 9 years seeing how EB-5 money can literally transform a truly poor community and deliver investors the promised results, EB-5 works and is one of the most potent forms of FDI available to poor US communities. It CAN be fixed, but it cannot be reconciled with the ambitions of those controlling the industry lobby.
Always thanks for your professionalism, Suzanne.
I agree with the idea that it may be the time to shut this program down until the wait lists are drawn down and Congress can put together something that is ethical and will work.
I am tired to see Chinese agencies to take advantage of the so-called reform possibilities. After the letter was released, there are agencies now promoting the idea that the backlog will be solved soon in order to attract new investors in. We sincerely hope the industry can stop repeating the same con games.
Suzanne,
I find the following from the industry’s most recent letter to be completely disingenuous:
“We agree that EB-5 investment amounts should substantially increase. With over 95% of the market currently at a $500,000 level, our consensus recommendations increase the minimum investment amounts for a project located in a TEA to $800,000, and to $900,000 for a project not located in a TEA. Our organizations believe this $100,000 differential would properly balance the interests between TEA and non-TEA stakeholders and ensure that all areas of the U.S. can adequately compete for capital through the EB-5 program.”
First, this is a veiled attempt to mislead. Yes, the TEA minimum investment amount would be increased from $500,000 to $800,000 but the non-TEA investment amount would not be increased to $900,000, it would in fact be lowered from $1 million. What’s behind the push to narrow the investment gap instead of maintaining the same relative differential (e.g. increase both by 60% so the respective minimum investment amounts would be $800,000 and $1.6 million). Well, it’s certainly not to “properly balance the interests between TEA and non-TEA stakeholders”.
Few if any investors will be incentivized to make an investment of $800,000 rather than $900,000. Therefore, this proposal to dramatically shrink the investment gap will not only open up all potential investments to the so-called gerrymandered TEAs (I say so-called because contrary to public perception, most of these projects are still located in relatively close proximity to high unemployment areas), but investment dollars would now also flow to the many high income, low unemployment areas that cannot currently obtain TEA status (e.g. wealthy suburbs). The net result would be less EB-5 investment dollars going to projects located in urban distressed and rural areas and more dollars flowing to lucrative areas. Pay a mere additional $100,000 and invest wherever you want.
Thank you for your comment. I agree.
Dear Suzanne,
We all wish to keep EB-5 Investor Visa Program alive and wish to help find better way-out for sustaining flow of hard earned money with all due respect to investors contributions for both existing & new one for greater good of national economic growth.
IIUSA consensus recommendation letter seems to be representation of lobbyist expected agenda or on the personal note IIUSA is a lobbyist institutions to get things rollout in their favour, than investors contributions who bet their hard earned money to create jobs with no cost to US taxpayers and all existing & new Investors interest should be taken into consideration before real reforms shall be enacted.
Also, every prospective EB-5 Investor must be aware that, any RC or Project company showcase IIUSA consensus recommendation letter as a hope for Investment with them, then it’s TRAP to lock Investors down unless further clarity has been received, so caution is advisable.
From IIUSA consensus recommendation it seems to me that, it become very hard to create new EB-5 market and compensate required EB-5 capital raising from non backlogged countries. Also most developed EB5 market like China, India, Vietnam, and others which are retrogressed or about to retrogressed leads to create huge waiting time line for visa availability with no further Investment interest unless set aside visa availability made, so the only option remains is to set aside visa recommendation in order to encashment of skyrocketed interest from these backlogged countries Investors.
There are many unclear recommendations which needs clarification are as below;
1) EB5 Integrity Fund funded by RC Program Participants, then does participants means RC plus Investors? Or Just RC? or Just Investors?
2) As on today, TEA reserved quota of 30% (3000) is available for all rural & urban distressed area collectively, out of which lobbyist want to get reserved 15% in their favour under new enactment.
3) I could be wrong, but those IIUSA consensus recommendation seems to be Blocking up or reserving for existing TEA quota of 30% for new EB-5 Investors under new enactment with no country cap, as well those TEA set aside visa are not applicable for existing Investors who had already been invested on the date of enactment, that means all old Investors shall be assign to left over visas under new enactment only.
Under new enactment, existing Investors who wish to enter into newly formed TEA pool after enactment, require to pay backlog reduction fee of $50,000 within a year to ensure backlog relief, but again how does visa allocations takes place remains unclear. As well those who are not willing to pay backlog reduction relief fee shall be thrown to general pool of left over Visa. As well if all deploy that backlog relief then how could visa be made available…
How does those leftover visa allocations takes place which is currently into Pandora Box only. So with this approach it seems clear that existing Investors are blocked indefinitely not just for visa availability, but also become miserable to see refund over time after the enactment.
Further to that, $800,000 for TEA & $900,000 for Non-TEA is not big amount, as per the inflationary pricing data, which leads to get filled those quotas very fast and help raise money faster and leads to lock down Investors.
4) Difference of $100,000 under TEA & Non-TEA gives lobbyist a marketing tactics to attract Investors from Non-TEA.
5) After enactment of these recommendation, expedited processing is only available for new EB-5 Investors, whereas Non-TEA or older invested Investors remains with old criteria for the approval of I-526.
But after expedited processing of I-526 how does Visa availabilities made available for new as well old investor needs clarification.
6) Recommendation of exempting derivative family members from EB-5 quota seems useless, unless & until Ira Kurzban lawsuit see light to consider for counting each visa as an investor.
In order to keep EB-5 industry alive for which need genuine reforms and few of the recommendation are as follows;
1) TEA shall only consider for Rural Area only than addition of any reserve for urban distressed area as per the current provisions.
2) Existing TEA visa quota of 3000 visa shall be continue as is for all those who had invested their hard earned money for the progress of the countries economic growth.
3) In order for encashment of skyrocketed EB-5 interest from backlogged & about to retrogressed countries like China, India, Vietnam and others countries Investors,then set aside visa of 30% can be made available from Leftover Visa which are currently at 36.6% (3660) as per Charlie Oppenheim slide of May 6, 2019.
4) As per recommended in NPRM investment amount must be $1,350,000 for TEA and $1,800,000 for non-TEA.
As these amounts are not easily possible for all aspirants to contribute as against their application, so it gives room to run the program as is with new investment contributions and helps get backlog clear for existing Investors.
5) this set aside visa Opportunity shall be made available for all existing Investors who wish to deploy differential amount to any RC or Project company as they may choose while maintaining there PD as per the provision of NPRM.
6) If Real Estate lobbyist are uncomfortable to develop Rural Area for Good then already President Trump bringing back Manufacturing Jobs to US and most Manufacturing Industries are in Rural Area, so sustainment of Manufacturing Jobs seems better than those of Real Estate Jobs.
Getting Green Card is Privilege & that should be available for each contributing Investors with dignity.
Request your inputs pls.
Thank you for taking time to make this comment. I am sorry that those backing the “consensus proposal” have not yet bothered to explain the details or tried to justify the thinking behind it, but hope that they will amend that error. And I hope that industry groups will wake up to the realization that they must, for public relations if nothing else, make some effort to account for the interests of past investors.
@suzanne: do you expect congress to act on it considering they havent moved out of their chairs in the last 2 decades on any immigration reform ?
I have no expectations. (Though the length of time since last action on immigration ought to increase rather than decrease probability of new action.) The sketchy consensus ideas floated by the industry don’t look to me as if they expect to be taken seriously. But since EB-5 legislation reportedly almost got passed a couple times by being folded into a thousand-page omnibus funding bill that most Congressional representatives don’t have time to read in full, I don’t discount the possibility of that happening.