EB-5 Reform Act: the Good/the Bad/the Ugly.

This post summarizes points in favor of the proposed EB-5 Reform Act. Its details and compromises won’t please everyone, as discussed in my previous post, but it is a piece of EB-5 legislation currently without a better alternative.  Here are some reasons for stakeholders be happy if it gets included in the spending bill still under negotiation.
  • People who already invested and waiting for a green card: Although they would bear downside of this bill’s most painful compromise – visa set-asides – they will suffer more if the regional center program loses authorization. At least under current policy, the process will simply be over for RC investors awaiting conditional permanent residence if the RC program is deauthorized long-term. The RC program will sunset on March 23 unless something is done, and this EB-5 Reform Act appears to be the only thing that can be done. I’d love to see another short-term extension to give time for Congress to draft more fully-baked and inclusive legislation, but after three years of short-term extensions that’s a lot to hope for.
  • All EB-5 investors: The bill gives desperately-needed protections and options for investors in case of change with projects and regional centers, and improves and compresses the process for removing conditions.
  • Future investors: The new investment amounts are high, but much lower than they could’ve been, or will be if the regulations are finalized instead. Visa set-asides offer hope (if no more) to potential investors from backlogged countries. Future investors will benefit from new process improvements, investor protections, and integrity measures.
  • Regional Centers: A more difficult and expensive life under the EB-5 Reform Act is better than death from loss of RC program authorization. The five-year program extension will provide much-needed stability. The moratorium and transition period will be rocky at first, but should result in a more-clearly-defined program eventually. The visa set-asides will help with marketing, at least for awhile, and the new incentive categories broaden the kinds of projects that may be viable to market. The new investment amounts are not so high as to kill demand entirely, unlike in the regulations. And the bill opens up a new category of potential demand: investors who already filed with someone else but now want to switch projects and/or regional centers — something not previously allowed.
  • People who want program integrity: This bill proposes integrity measures that mostly appear possible to implement (unlike previous drafts that would have made good-faith compliance near-impossible in practice, and thus not been effective in weeding out bad players either). And it offers funding, personnel, and official authorization for effective compliance initiatives already started by USCIS.
  • People who want to tighten TEA incentives: This bill puts responsibility for incentive-area designation with USCIS, which will be more narrow, rigorous, and consistent than states. It’s naturally difficult to incentivize investment in significantly distressed and remote areas, and such areas would be at least as competitive under the EB-5 Reform Act as they are now.
  • Investor Program Office: Although this bill gives them more work, it also exempts most some of their decisions from judicial review. (I oversimplified — see MF’s comment.)
It’s too late for major changes and amendments if the EB-5 Reform Act is to get into the omnibus at all, but if I could propose one amendment it would be this: a period of at least weeks before the provisions take effect and the filing moratorium begins. Most stakeholders haven’t even seen the bill text yet, and it will be very hard to comply instantly if it goes into effect instantly.
Other commentary on this bill:
FILED UNDER EB-5 LAW & POLICY

EB-5 No-Reform Act, RC List Changes

MARCH 11, 2018 84 COMMENTS
— UPDATE —
In case you don’t want my editorial, just the basics, here they are:

  • The Immigrant Investor Visa and Regional Center Program Comprehensive Reform Act (EB-5 Reform Act) is draft EB-5 legislation reportedly agreed-to by Republican negotiators (including Senator Cornyn and Senator Grassley) and positioned for inclusion in the omnibus spending bill that must be passed by the end of next week. It’s not in a bill yet, but the draft is circulating and IIUSA posted the text for members to review. Klasko Law has a helpful webinar on it. Odds appear to be in favor of it being included in the omnibus and passing next week.
  • If the bill passes, many aspects of EB-5 will change but here are a few key points to keep in mind:
    • The regional center program will be reauthorized to 2023
    • No one will be able to file I-526 petitions for the 120 days following enactment (the bill assumes this will be enough time for  USCIS to come up with new regulations, forms, and procedures to match the new law)
    • USCIS will continue to adjudicate petitions filed prior to enactment, according to the rules prior to enactment
    • Once USCIS starts accepting new I-526 petitions again, they will be subject to new rules including new minimum investment amounts: $1,025,000, or $925,000 in an incentivized project or area
    • 3,100 visas annually will be removed from the pool of generally-available visas and set aside for incentive categories defined in the new bill: rural (1,450 visas), priority urban investment (1,450 visas) and infrastructure projects (200 visas). People who judge that the projects in their previously-approved I-526 could qualify for the new incentive categories may be able to redesignate their TEAs to take advantage of set-asides. Otherwise, the set-asides will primarily benefit new petitioners and old petitioners will be in line for fewer visas.
— ORIGINAL POST —
On Friday, IIUSA reported that “Yesterday IIUSA met with Republican negotiators and received draft legislative text that is being proposed for inclusion on the March 23rd Congressional omnibus package… We expect the House to vote the omnibus out of the chamber as early as March 16, allowing the Senate the entire week of March 19 to pass the measure before government funding expires on Friday, March 23…. the current debate over what policy provisions to include in the FY18 omnibus spending package provides one of the few, if not the only, opportunity to secure a long-term EB-5 reauthorization.”

With three years to work on drafting EB-5 legislation, why did Congressional negotiators keep this most recent EB-5 bill hidden until the very last minute, and provide even IIUSA only a few hours to read it and respond? Possibly because this “Immigrant Investor Visa and Regional Center Program Comprehensive Reform Act” is a tissue of minority hand-outs, declawed reforms, poison pills, and half-baked good ideas. We’re to conclude “This is our last chance to get significant regional center program authorization, and it’s too late to make changes now, so we have to support this, no matter the details.”  I understand, but oh those details. I am ashamed of this bill, and on behalf of the people behind it. How did years of negotiation produce this document? The media, pro-reform lawmakers, and the good proportion of EB-5 stakeholders left out of compromises will not be kind to those who drafted this bill, if it passes as-is.
The EB-5 Reform Act has a few generally-favorable provisions:
  • It would reauthorize the regional center program to 2023
  • It would add some flexibility for material change, and some protection for investors in projects that don’t work out
  • It would make some process improvements
The EB-5 Reform Act is lobbying money well-spent for a few:
    • The TEA reform in this bill is calculated to avoid unduly incentivizing investment in distressed areas. In three years of EB-5 legislative proposals, each version has had a softer TEA proposal than the last. This one reduces the monetary incentive to a hair, compensates with incentives that will either be impotent/unrealizable in practice (visa set-asides, premium processing) or positively counterproductive (lower jobs requirement for needy areas?), broadens the definitions of what qualifies as an urban distressed or rural area (e.g. switching from the NMTC “severe distress” criteria in previous proposals to just the NMTC low-income criteria, and no specified limit on gerrymandering), and adds new incentivized areas for a special few (closed military bases, U.S. territories, infrastructure, franchise investment funds). Congress was originally energized for EB-5 reform because they didn’t like seeing most EB-5 dollars flowing to already well-capitalized projects in already well-capitalized areas. That status quo has little to fear from this legislation. Luxury real estate will keep its top spot if this passes, and we’ll still have Chuck Grassley and the media shaking their fists.
    • The bill offers real estate projects an extra gift for good measure: construction jobs can be aggregated and counted as qualifying direct permanent jobs regardless of duration.
    • The integrity provisions in this bill are calculated to avoid making life difficult. Gone are the suggestions in past bills about involving third parties in oversight or reporting or requiring account transparency or fund administration. Here, integrity measures focus on internal certifications of compliance to the best of the certifier’s knowledge. That’s good for honest players who can do without burdensome and intrusive regulation, but also little limit on bad players happy to self-report compliance. Such teeth as the bill has — site visits, audits, background checks, termination threat — are largely things IPO is doing already, though I’m sure they’d appreciate the official authorization and extra funding. But generally, I’m not sure this bill will satisfy lawmakers who wanted EB-5 reform to combat fraud.
    • The bill retains integrity measures that conveniently double as anti-competitive measures. The bill keeps a previously proposed annual regional center fee – lowering the amount for the largest regional centers and keeping it high for the smallest. It is more severe than previous proposals on involvement by anyone with foreign government connection at any level, even in providing non-EB-5 capital to a job-creating entity.
    • UPDATE: Re-reading more carefully, I see that I’m wrong about this one. The bill says that for four months after enactment, no one can file I-526 except for new investors in in-progress raises with an approved examplar. The bill even attempts to set aside 7,000 visas for these privileged investors, forgetting that the numerical limit for 2018 visas was already exceeded back in 2014.
Here’s who will be most upset, if the EB-5 Reform Act passes:
  • The approximately 92,000 people in line for an EB-5 visa. These people are already in for a long wait with an annual quota of about 10,000 visas, and the EB-5 reform act has set-asides that would reduce generally-available visa numbers to about 6,900 per year. The situation will be especially bad for people from China, Vietnam, and possibly India. Those people already in line didn’t plan to wait 17 years or so for conditional green cards — and neither did the projects accepting their investment. The bill does not include on-purpose retroactivity (it doesn’t make TEA, investment amount, or job creation changes apply to people who already filed I-526), but past investors will be severely affected by the visa set-asides, and potentially by new restrictions that affect regional centers and investment projects.
  • Those hoping to raise EB-5 funds to benefit projects in rural or distressed urban areas. The new incentives are not better designed to benefit them than the current incentive structure. The new regional center fees and requirements are well-designed to put anyone out of business who isn’t raising funds from hundreds of investors for prosperous urban projects.
  • Entrepreneurs planning to file EB-5 petitions in the near future for their own enterprises, and any regional centers planning to raise funds for a project without a pre-approved exemplar. The bill has a 120-day moratorium on filing new I-526 and I-924, followed by a transition period from day 121 to day 365 that limits the petitions that can be processed.
  • The Investor Program Office. This legislation will be tough to interpret and implement. USCIS will have to figure out provisions that the bill hardly explains: the franchise investment fund idea, the provision that I-829 petitions based on investment in unrealized/failed projects are to remain valid, the new amendment and re-petition processes, the provisions that imply retroactive new requirements for past projects, and the effects on direct EB-5. The bill stipulates a 120-day transition period, during which USCIS can come up with new regulations and policy, new forms and supporting processes, a new TEA designation process, and a new premium processing option. Hahahahaha. 120 months would be more plausible, considering past experience.
  • Regional centers with fewer than 20 investors annually. They’ll face a $10,000 annual fee and a list of new compliance certifications that will be hard work if taken seriously.
  • EB-5 projects with any foreign-government-entity-related funds in the capital stack, or personnel at any level.
End of rant. If I wake up tomorrow to find that this has been attached to the House version of the new omnibus spending bill, then I shall transition to learning to live with it. And polish my resume, perhaps.
In the meantime, USCIS approved a bunch of new regional centers. Probably most of these applicants filed I-924 back in 2015, little thinking what they’d be up against today!

Comments

Post a Comment

Please tell me about your situation with the USCIS and any business related immigration problems or success stories.