What Will Be Addressed in EB-5 Renewal Legislation?

Jim Butler, chair of the global hospitality and Chinese investment groups with Jeffer Mangels Butler & Mitchell

LOS ANGELES—“The US immigration laws contain a provision to grant certain qualified foreign investors a “fast-track” to obtain permanent residency in the US if they satisfy specified requirements, including investment of at least $500,000 in a US enterprise or project, creation of at least 10 new permanent jobs for US citizens, and otherwise complying with the immigration visa process.” This provision has been part of our immigration laws since 1990, explains Jim Butler , chair of the global hospitality and Chinese investment groups with Jeffer Mangels Butler & Mitchell . As further background, Butler says that in addition to the basic permanent legislation, a “Pilot Program” regarding Regional Centers (or RCs) was adopted in 1992. Although it has never lapsed, the Regional Center provisions have typically been renewed for relatively short periods (e.g. 1 to 5 years). The current authorizing legislation is set to expire or “sunset” September 30, 2016. He explains that “Before the Regional Center pilot program expired last year in September, a bi-partisan effort in both houses of Congress, worked with industry leaders to propose legislation with a broad consensus of stakeholders that would have addressed a full range of issues concerning the EB-5 program. But at the proverbial 11th hour, Congress dropped the comprehensive reform and decided to renew the existing law (without change) for 12 months expiring Sept. 30, 2016.” Now that the sunset date is approaching again, Butler says that many stakeholders in the EB-5 process are working with Congress for a better and longer-lasting resolution of the EB-5 issues. Although a review of last year’s drafts of legislation may be helpful in understanding the “big picture issues,” the political environment is different this year, particularly with election year dynamics. It is too early to predict what approaches and proposals will succeed, but here is a list of some of the key issues being discussed now, according to Butler. The views expressed in the commentary below are the author’s own. 1. How long should the re-authorization last? After almost 25 years, hasn’t the Pilot Program shown results justifying making it permanent or doing away with it? Why is it permitted to become a political football every year or two? Why does it need to come up for renewal? 2. What is the required investment for an EB-5 visa applicant? Currently the minimum investment is $500,000, and more than 90% of all EB-5 visa immigrants have qualified for this amount. Only 10% have used the $1 million investment level. Should one or both investment levels be raised (e.g. $800,000 and $1.2 million)? Should there just be one level of investment? Should the difference between the lowest and highest investment requirements be reduced? 3. What does it take to qualify for the lowest investment requirement? Currently, only projects in Targeted Employment Areas or “TEAs”  (rural locations or areas with high unemployment equal to 150% or more of national unemployment levels) qualify for the lower investment of $500,000. Should rural areas be more strictly defined? Should national standards be imposed to replace the current state-by-state approach to TEA designation based on unemployment? What should those standards be? 4. How do you calculate job creation? To take obtain an EB-5 visa, each investor must invest the required minimum and that investment must create at least 10 new permanent jobs. Certainly it is easy to calculate the number of direct employees — those with W-2s, but what else counts? Construction jobs? Indirect and induced jobs (not direct or W-2 employees but workers servicing the project such as an outside laundry service for a hotel, the window washers for the building, the restaurants and retailers who the project). Should the current approach be changed of permitting including in the job count the indirect and induced jobs calculated according to one of the four established USCIS-approved formulas? Should the job count requirement be changed? 5. How many visas should the program permit and how do you count them? Is the current 10,000 EB-5 visas per year the right amount or should it be increased? Should any of those visas be set aside or earmarked for certain projects such as projects in rural ares of public infrastructure? Should the permitted number of visas (10,000 or whatever it may be changed to) count only the EB-5 investors, or should it include the investor’s spouse and minor children? Should unused visa allocations cumulate from year to year or amongst all employment based immigration programs? 6. Should something be done about the “aging out” problem? Is it appropriate to exclude minor children from the benefits of EB-5 when they exceed the age of minority because of long delays — up to several years — by the US immigration service in processing the visas? 7. Annual fees for Regional Centers? Should there be an annual fee for a Regional Center to retain its designation? Should that be $25,000, $50,000 or some other number? Do we want to discourage inactive RCs and those who just “bought a charter” for speculation with no intention to use it for the intended purpose? What should these fees, if any, pay for? 8, More Federal oversight? Proposals in this area have included greater reporting, oversight and involvement by a host of federal government agencies such as the SEC, FBI, NSA, and Homeland Security. Such proposals also generally include civil and criminal penalties for noncompliance. Nobody in the EB-5 industry favors fraud or terrorism, but is there really enough of a problem to warrant this attention? Aren’t current laws adequate? Could this be over-regulation?