EB-5 Legislation? (S.2778, S.2540)

Since 2015, when the last three-year regional center program authorization expired, there’s been much effort to get EB-5 legislation passed. At minimum, we need Congress to put the regional center program on a stable footing by giving it a long-term authorization. (Since 2015, the program has been extended 17 times, each time for just a few weeks or months.)  Other features that one faction or another hope to get into legislation: update the EB-5 minimum investment amounts, revise the Targeted Employment Area incentive, implement additional integrity measures, improve procedures, and provide visa relief.

However, the status quo has been profitable, and those who profited most have resisted change. Several times since 2015, negotiators were reportedly close to getting EB-5 legislation attached to a funding bill, but ultimately did not succeed. Reviewing the history gives perspective on where we are today.

  • December 2015: Senators Grassley, Leahy, Goodlatte, Conyers, Issa, and Lofgren drafted legislation that would have given the RC program a 4-year authorization, changed the EB-5 investment amount to $1.2 million ($800,000 in a TEA), restricted TEA definitions, and added integrity measures. According to Senator Grassley, “On that first day of December negotiations, there was a lot of discussion about how New York wouldn’t be able to compete with rural America if our reforms were enacted.  They thought the bill was unfair to urban areas.” Grassley claimed that he tried to compromise, but could not go far enough. ABC News reported that “the legislation was defeated by a group of lawmakers led by New York Democrat Chuck Schumer, who argued that security improvements were a good idea, but the way the reform was written would unfairly hurt investments in his home state.” ABC quoted a Schumer spokesman: “Sen. Schumer supports reforms that will bring transparency and accountability to the EB-5 program, but strongly believes that the EB-5 program should continue to act as a catalyst for thousands upon thousands of jobs throughout New York.”
  • December 2016: A version of the The American Job Creation and Investment Promotion Reform Act of 2016 originally introduced by Representatives Goodlatte and Conyers was seriously discussed for inclusion in the December 2016 funding bill. This legislation would have given the RC program a 6-year authorization, gradually increased the the TEA EB-5 investment amount to $800,000 while leaving the $1M standard unchanged, revised TEA definitions, and revised integrity measures. But this also proved unacceptable. Senator Grassley wrote a post listing the specific reasons for “why this package was not acceptable to some – notably the U.S. Chamber of Commerce that was the most rigid in not compromising” and complained again that “the industry love the status quo and the billions of dollars that pour in to affluent areas.” The Wall Street Journal reported that “Related Cos., a developer of massive mixed-use projects, has waged an aggressive campaign to head off proposed changes to the so-called EB-5 program in an apparent effort to keep low-cost money flowing to luxury urban projects such as its $20 billion Hudson Yards development in Manhattan.” A few million in lobbying dollars proved money well spent for Related, which eventually raised $1.2 billion in EB-5 investment for Hudson Yards. According to the WSJ article from January 2017, Related Companies “found support from a handful of key senators including Sen. John Cornyn (R., Texas) and Sen. Charles Schumer (D., N.Y.), who have been resistant to the changes opposed by the developers.” A spokesman told WSJ that Schumer believes good projects in EB-5 “should rise to the top based on how many jobs they’ll create,” and that the government shouldn’t be trying to direct development to specific parts of cities.
  • March 2018: The EB-5 Immigrant Investor Visa and RC Program Comprehensive Reform Act negotiated by Grassley, Goodlatte, Cornyn, Flake reportedly came close to inclusion in the March 2018 funding bill. This bill would have given the RC program a 5-year authorization, increased the EB-5 investment amount to $1.025 million ($925,000 in a TEA), revised TEA definitions, and revised integrity measures. I saw this bill as a generous compromise to urban interests. But the bill also failed, and Senator Grassley had an opinion as usual about what happened. “For the last year, my staff, along with Chairman Goodlatte, Senator Cornyn, and Senator Flake’s teams, has worked around the clock to produce an EB-5 reform package. Everyone made numerous concessions in order to reach a deal, and after more than twenty meetings and countless hours of drafting, we produced a reform package that was fair. These reforms weren’t acceptable to the big moneyed New York industry stakeholders who currently dominate the program. And because big money interests aren’t happy with these reforms, we’ve been told they won’t become law.”

This story gets repetitive. But now, circumstances have changed, due to the EB-5 Modernization Regulation to take effect on November 21, 2019. The regulations will create a new status quo of exclusive TEA definitions and investment amount increases that would tend to reduce the flow of EB-5 investment overall, and channel EB-5 investment away from many urban areas. That’s not the status quo that EB-5 protectionists want to protect, and now legislation offers the only path to change.

That brings us to S.2778 – Immigrant Investor Program Reform Act, introduced by Senators Mike Rounds (R-SD), Lindsey Graham (R-SC) and John Cornyn (R-TX). Charles Schumer (D-NY) has already signed on as an additional co-sponsor, pivoting from his traditional role as quasher of EB-5 bills. Robert Maples of Greenberg Traurig, who previously expressed Related’s objections to the EB-5 regulations, praises S.2778 for “proposing long overdue improvements to modernize the EB-5 program in alignment with industry and market principles.” IIUSA lauds “the EB-5 industry’s ability to work together and come to an agreement on many issues that until now left industry stakeholders divided.” Perhaps we finally have an EB-5 bill that can avoid being blocked.

S.2778 proposes Targeted Employment Area changes that would allow EB-5 capital to continue to flow to high-quality urban projects that naturally attract investment, instead of countering market principles by encouraging capital toward projects in less prosperous areas. The bill would shift TEA definitions to privilege the areas that major regional centers already favor (Opportunity Zones, closed military bases), and – more to the point – would minimize the incentive to choose a TEA investment over a standard investment.  In the regulations comment linked above, Related Companies argued that a $100,000 differential would be fair and reasonable (avoiding the problem — from Related’s perspective — of “financial incentive for foreign investors to invest in TEAs, regardless of the project”), and that’s what S.2778 proposes.  While past statute and the new EB-5 regulations offer a 50% TEA discount, S.2778 would offer a 9% TEA discount, with $1,100,000 standard investment and $1,000,000 TEA investment. This would essentially eliminate the monetary TEA incentive. As a concession, S.2778 offers two additional TEA incentives related to timing: expedited I-526 processing, and set-aside visas. These are safe concessions for New York City, because expedited processing is limited by USCIS’s ability to deliver such a benefit, and the visa set-aside incentive is limited to the number of visas offered (must stay under 3,000, or the incentive disappears) and to the few countries that need a visa incentive (China, Vietnam, India).  Current law already sets aside 3,000 visas annually for TEA investments (INA Sec. 203(b)(5)(B)), but people forget that because the existing TEA set-side has had zero incentive effect in practice. Set-asides only have any incentive value if limited to a few. The industry consensus proposal offered to give some potency to the new TEA set-asides by restricting them to TEA investors filing after the date of enactment. S.2778 does not specifically state such a restriction, however. I hope the restriction is not still implied, because reserving up 3,000 visas annually for incoming investors and their families would be at the direct cost of reducing visas available to the tens of thousands of past EB-5 applicants (mostly TEA investors) who are currently waiting for visas. To the extent that visa set-asides and expedited processing can work at all as incentives, they work by offering queue-cutting. That would not be fair to 70,000+ people in the queue before the rule was made. To the extent that the timing-related incentives would not work at all, they are unfair to parties in negotiation who accepted these concessions in faith that they would be effective TEA incentives to replace the monetary incentive.

Visa-limiting TEA incentives aside, S.2778 offers some  backlog relief. The bill would make no additional EB-5 visas available, but would soften the pain of waiting for visa availability. S.2778 offers the possibility of parole (entry to the United States) and work authorization for EB-5 applicants with I-526 approval who have been waiting over three years for a visa. This would extend to EB-5 investors abroad the benefit already available to applicants in the U.S. who file I-485 to adjust status. Otherwise, parole has been restricted to urgent humanitarian or significant public benefit reasons. (Links FYI that describe how parole currently works in the I-485 context and for applicants abroad.) I wonder about the politics of offering parole to EB-5 investors, since the administration cancelled parole for immigrant entrepreneurs and threatened to take it away from U.S. military families.  But if this benefit can be enacted (and DHS consents to implement it), parole could really help EB-5 investors stuck abroad waiting for visas – particularly direct EB-5 investors who struggle to manage their US businesses from afar. This is not a visa giveaway, does not change the EB-5 visa limit, and only offers the weak promise that DHS may “temporarily parole… on a case-by-case basis,” but at least it’s something. Besides parole, the bill offers to soften the pain of long wait times by permanently protecting children from age-out. I understand that IIUSA pushed very hard for the additional relief of applying the EB-5 visa limit to investors, as intended by EB-5 program architects, not investors plus family, but that provision did not make the final bill. Visa relief has never had much chance, considering that immigration politics does not favor increasing visa numbers, and that there’s little self-interest for the dominant regional centers in reducing the time they have to deploy and redeploy low-cost EB-5 capital.

Other positive features of S.2778 include 6-year authorization for the regional center program and recourse for investors and projects following termination of a regional center.

If I could choose three modest improvements on S.2778, I would suggest:

  • Authorize DHS to assess fees necessary to meet reasonable processing time goals for EB-5 investor petitions. This is one of the few good ideas in Grassley and Leahy’s S.2540 EB-5 Reform and Integrity Act, which defines targets (in days) for each form, and charges USCIS to set fees to allow meeting those targets. The latest proposed fee rule from DHS shows that DHS will not, on its own initiative, allocate resources to improve the current status quo of 2-4 year processing times for I-526 and I-829. Congress needs to step in to push DHS toward processing integrity, and to authorize the resources necessary. (S.2778 suggests premium processing with a fee, but only for regional center applications, amendments, and reports, not for investor petitions. S.2778 suggests collecting $51,000 in additional fees from investors, but specifies that these are to be used for enforcement activities, not processing improvements.)
  • Delete the $10,000 annual fee for regional centers that are not-for-profit or have fewer than 20 investors. If Congress wants to see at least a few face-saving EB-5 projects in distressed areas, it should keep the regional center option affordable to small entities, and open to areas that won’t have high-volume deal flow. A $20,000 annual fee – or $50,000 annual fee for that matter — is nothing to a regional center handling hundreds of millions of EB-5 capital. But a minimum a $10,000 fee (especially on top of all the other cumbersome red tape suggested by the bill) could eliminate small regional centers with modest and occasional EB-5 capital raises. The $10,000 minimum regional center fee is a handy as an anti-competitive measure, benefiting large, high-volume and established regional centers by helping to clear the deck of small players, but such a winnowing would not benefit EB-5’s potential or reputation.
  • Include at least one genuine integrity measure – i.e. at least one measure that involves something besides reporting to and making records available to DHS. At minimum, why not borrow another good idea in Grassley’s S.2540: require regional centers to make their annual statements available to their investors. Record-keeping, reporting, and certifications are fine activities in themselves, but not anti-fraud measures if just paper disappearing into the vaults at USCIS, along with all the other paper that doesn’t get read for years. But that’s as far as S.2778 goes. S.2778 excludes an integrity measure that’s been in other EB-5 reform bills, including S.2540: the requirement to have an independent fund administrator to monitor the deployment of funds into any affiliated job-creating entity, and keep alien investors informed about the deployment.  In the cover article to their 2018 database of SEC actions, Friedland & Calderon note that “virtually every SEC civil enforcement action involving EB-5 fraud the NCE did not have an independent fund administrator, escrow conditions were ignored, and periodic reports of the status of investor funds were not furnished to investors.” Effective integrity measures had better address such proven vulnerabilities. It’s hard to imagine that any of the specific SEC cases would’ve been forestalled just by enhanced reporting to and threat of sanctions from USCIS. If I were putting EB5 language into a funding bill, and serious about program integrity, I’d consider taking the fund administration language from S.2540.

I will not bother to say more about Grassley and Leahy’s S.2540 EB-5 Reform and Integrity Act — a bill that no one will support. S.2540 alienates prosperous urban interests by not replaceing the TEA rules in the EB-5 regulations, and excludes most everyone else with a blizzard of restrictions, requirements, and fees that would be too much for most stakeholders serving distressed urban and rural areas. S.2540 doesn’t propose to simply terminate the regional center program, but the effect would be pretty close. So S.2778 is what we have, a bill with enough benefits for enough people to win support. The industry is rallying round and making positive statements. There’s some hope that language from S.2778 will get included in a funding bill this year, trump unwanted regulations, and provide desperately needed long-term authorization for the regional center program. Perhaps I too should pretend that S.2778 is an excellent bill and represents fair compromise.

A few links to other perspectives on the legislation:

About Suzanne (www.lucidtext.com)
Suzanne Lazicki is a business plan writer, EB-5 expert, and founder of Lucid Professional Writing. Contact me at suzanne@lucidtext.com (626) 660-4030.

25 Responses to EB-5 Legislation? (S.2778, S.2540)

  1. Corrine says:

    Hi, Suzanne, I think 3000 visa is reserved for new investors. The simple logic is that if there’s only a 100,000 dollar spread, no one wants to invest in a riskier TEA project. And it is simply not acceptable for new investors to invest twice as much money, but to be behind more than 100,000 old investors. If it is not to attract more new investors, why should the industry push for this act? The purpose of this act is to eliminate the gap between the prices of TEA and metropolitan areas in the current USCIS rules, as well as the stricter and more regulated TEA area setting.

    • james says:

      Dear Corrine, you are always right while this viewpoint is debatable. assuming you have bought a car ( or other products), you paid USD30000.00 for waiting 1 month, while after 2 week, this car increases to USD35000.00 and those buyer who pay higher price would get the car earlier, if there are more and more buyer later, that means you would not get the car forever, would you think it is fair and reasonable? and more, you can not pay USD5000 more for getting the car earlier , do you still reasonalbe?

      • Corrine says:

        Oh, I’m not saying it’s fair. I just think the 3,000 visas are reserved for new investors and the old ones don’t benefit.

  2. Investor says:

    The bill only indicated that 3000 visas shall be reserved for TEA, and half of that is specifically for rural. A similar text already exists in current EB-5 law: 3000 visas shall be reserved for TEA. This is the law from 1993. So the bill is just a modification to what’s already on the book.

    Currently, 90%+ of investors are considered as TEA investors. According to USCIS guidelines, the designation of an investor’s TEA status is determined during 526 approval process. Once 526 is approved, the TEA investor status of that specific investor won’t be changed, even if the investor’s project no longer qualify for TEA for whatever reason (please correct me if I am wrong). Therefore, unless this bill specifically strikes down the TEA status of all current investors (which may cause legal and moral concerns), these investors will still qualify for new TEA visa reservation, with the exception that urban TEA investors can no longer claim 1500 rural TEA visas.

    • Corrine says:

      It is unfair for 100k old investors, but it is more in line with the interests of the industry. The S.2778 bill is driven by the industry. There is no need to have too many illusions about the 3k visas.

    • Corrine says:

      There was never any policy document guaranteeing that the new 3000 visa reserve would apply to investors in TEA’s old standard program. Whatever the previous draft, all the visas were reserved for new investors. The new and old standards of TEA are two different things. Why do investors still like to fool themselves until now?

      • Investor says:

        So the bill should clarify who the 3k reservation applies to, just to prevent misleading. If it is only for new investors, it means the bill offers queue-cutting as a incentive, it will also cause moral concerns.

        • I agree that the bill should be clarified. But in my view, the visa set-aside provision has moral concerns either way. If it offers a cue-cutting incentive, that’s shameful bad faith to past investors. If it doesn’t offer a cue-cutting incentive, then it offers no incentive at all, and represents shameful bad faith in negotiations to parties who wanted and believed they were getting a TEA incentive.

          • james says:

            we can not agree more!

          • old investor says:

            we can not agree you more!

          • Investor says:

            The bill should use clear language to indicate whether 3000 visas may be used by past investors or not. I am not sure why this bill (which was described as “well-designed and well-crafted” would have such unclear language. Perhaps the language was intentionally made unclear?

  3. Ronnie says:

    If this s2778 bill does become a law by any chance,
    when would that happen? I mean what timeline from say today

    • Probably its only chance of becoming law is to get attached to a FY2020 funding bill. FY2020 funding bills might get voted on around December 20, or possibly next year if Congress can’t agree and defers the deadline with another continuing resolution.

      • Investor says:

        Do you think they have a chance to resolve all issues by December 20 (in less than a month) and actually convince congressional leaders to insert the bill to appropriations?

  4. Scott says:

    I’m seeing conflicting information on whether S2778’s optional $50,000 fee for an expedited decision (within 120 days) applies just to Regional Center applications, or whether that avenue is available to investors. Some places like The National Law Review say it applies to both, but the bill text seems like it only applies to Regional Centers.

    What’s your take?

    • The language on p. 7 of S.2778 applies priority processing with $50,000 fee to “applications for designation as a regional center, amendments, specific investment offerings, and annual certifications” a.k.a applications filed with Form I-924 and I-924A. I read “applications for… specific investment offerings” to refer to I-924 requests for Exemplar project approval, not I-526. Expedited processing with no fee is offered to investor petitions in a TEA on the bottom of p. 8.

      • Scott says:

        That was my read as well. Was surprised to see others implying it applied to investors.

        Thanks Suzanne! You’re a treasure

  5. Kishor says:

    i expect all bills to go to trash bin

  6. w_harry says:

    I also don’t see any consensus for any immigration bill coming till 2020 presidential election is overr..!! We should be happy, if EB5 program is extended as is, with continues resolution or approved budget..!! No more expectation for any EB bill of any sort..!! Legal Immigration ( EB1-5) was/is never a priority for any of the parties and all take advantage of it, one way or other..!!

    • kishore says:

      they want to cut all immigration now. whether its legal, illegal, asylum unless you are a white nazi from germany. Illegals are being stopped, Legals are being delayed and asylum seekers are sent to Honduras as dinner for cartels. Modern day hitler is here

  7. lucky says:

    Hi Suzanne,

    Thank you for sharing your view on S2778, looking at this article at this time and seems that it didn’t make to be added on funding bills. Will it be reconsidered this year? or will it fo to trash bin again?

    Thank you!

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