On September 28, Congress once again approved a short-term renewal for the EB-5 Regional Center Program, two days before its “sunset” date. The last minute re-authorization was included as part of a larger spending bill, and comes with no changes to the program.
This is the third short-term extension of the Program in the past year. As we have previously reported, the EB-5 Regional Center Program was set to expire on September 30, 2015, when it was extended through a temporary government funding bill until December 11, 2015. On December 15th, 2015, Congress temporarily extended the program once more, this time until September 30th, 2016.
Now, Congress has granted the program its third temporary reprieve, with the current extension set to expire on December 9th of this year. Many EB-5 experts believe that the Program will receive yet another short-term extension in December, given the impending change in presidency; some expect that it will only be extended until May, 2017 at that time, by which point the reforms for which the industry has been waiting are expected. Nonetheless, the future of the program remains somewhat uncertain at this point. It is our strong recommendation that those wishing to pursue EB-5 funding should do so without delay to avoid possible disappointment.
The EB-5 Regional Center Program was not always in such a state of flux. Enacted by the legislature in 1993, the “EB-5 Regional Center Pilot Program” was designed to require Congressional re-authorization each time it expires. Until 2015, re-authorizations of the program lasted anywhere from three to five years. Congress showed its continued commitment to the Regional Center program in 2012, by removing the word “Pilot” from the program’s title and extending the program for an additional 3 years.[1]
In recent years, the EB-5 Regional Center Program has become the subject of contentious debate among politicians, developers, and other EB-5 stakeholders. The last minute, short-term extensions of 2015 and 2016 reflect Congress’ inability to agree on meaningful reforms to the program.
Proponents of the Program argue that it has spurred economic development, job creation, and even technological innovation. The Program has also brought much-needed capital to business owners and developers, at a time when traditional loans were virtually unattainable following the 2007 financial crisis. The US Conference of Mayors, an outspoken supporter of the Program, notes that it “has become a vital source of urban redevelopment funds.”
But critics of the program see many weaknesses that need to be addressed.
For one, the EB-5 Regional Center Program has become mired in fraud and corruption, particularly over the last few years. Though many Regional Centers have a solid track record, others “have directed investor money to risky projects and companies that pay little to no return, overseen by brokers who get a commission regardless of how the investment plays out.”[2] Some Centers and brokers have also misled investors with false information and diverted EB-5 funds to private accounts.
Critics also point to potential national security breaches that may have taken place within the Program. The New York Times recently reported that “Federal investigators…discovered that attempts to infiltrate the program were made by people with possible ties to Chinese and Iranian intelligence, and that international fugitives who laundered money in their home countries gained citizenship through the program.”
A third point of contention is that many EB-5 projects—such as: luxury hotels, fancy residences, and convention centers—are located in wealthy areas, despite the stated intent of the Program to spur economic development in high-unemployment and rural areas. The current definition of a “Targeted Employment Area” (TEA)[3] permits developers to combine high-income areas with surrounding low-income areas, a practice that some critics call “economic gerrymandering.” (Learn more about how gerrymandering works here.)
Most critics of the program believe that the EB-5 Regional Center Program has great promise to reduce unemployment and revitalize distressed areas. Rather than do away with it, they want to reform and strengthen it, so misuse is less likely. Indeed, both EB-5 supporters and critics want to leverage the re-authorization process to strengthen the program and fix existing issues.[4]
Numerous re-authorization bills have been proposed over the past year, with vastly different approaches to how the Regional Center Program should be changed, if at all. Some, such as the Leahy-Grassley Bill, include “integrity measures” that will enhance oversight, increase regulatory compliance, and make the program more efficient. Some also propose to increase the minimum investment thresholds and change how TEAs are defined. Others seek to make the Program a permanent institution. (You can review our comparison of six reform Bills here.)
As of now, all reform bills targeting the Regional Center Program have stalled in Congress. The most recent Bill, HR 5992, which was introduced to the House on September 12th, 2016 by Judiciary Committee Chairman Bob Goodlatte (R-Va.) and co-sponsored by ranking member John Conyers (D-Mich.), seeks to eliminate economic gerrymandering by changing the way in which TEAs are designated. Specifically, the Bill states that each census tract in a proposed Targeted Employment Area must meet certain benchmarks of economic depression. This is in contrast to the current system, where the average unemployment rate across census tracts is used, and developers routinely combine high- and low-income areas together into a single TEA. The 123-page Bill also proposes other changes, including an increase in the minimum investment threshold from $500,000 to $800,000 for TEAs, and from $1 million to $1.2 million in non-TEAs.
HR 5992 was due to be discussed and “marked up” (i.e. potentially changed) in Committee on September 14th. As of this writing, the mark-up has been postponed and a new date has yet to be set. Many EB-5 stakeholders are happy for the delay, because they feel that some of the new provisions—including the increased investment threshold—will hurt the program.
At this time, it is unclear how and if the program will be reformed. While the EB-5 industry anxiously waits to see which changes (if any) will be enacted, foreign investors looking to apply for an EB-5 visa should continue to submit their documentation in a timely fashion.
Now is the best time to act, as the barrier to entry into the program might increase for all parties involved.[5]
At e-Council, Inc., our mission is to provide exemplary EB-5 services to our clients and strategic partners, streamlining and demystifying the process wherever and whenever possible. We ensure everything is delivered on time, on budget and on target, with consistency among all documents to ensure a smooth path to approval. If you’re considering the EB-5 program, you need to contact us NOW – we’ve got this! 1.866.724.0085 or info@ecouncilinc,com.
e-Council Inc.’s website, newsletter and other forms of communication contain general information about legal matters. The information is not legal advice and should not be treated as such. You must not rely on the information on this website as an alternative to legal advice from an attorney or other professional legal services provider. For specific questions about any legal matter please consult with an attorney or other professional services provider
[1] https://www.uscis.gov/sites/default/files/USCIS/Laws/Memoranda/2013/May/EB-5%20Adjudications%20PM%20%28Approved%20as%20final%205-30-13%29.pdf
[2] http://www.nytimes.com/2012/04/16/opinion/reform-the-eb-5-program.html?_r=0
[3] Currently, A TEA is either a “high unemployment area” in an urban setting (i.e. part of a Metropolitan Statistical Area, or MSA) that has an unemployment rate of at least 150 percent of the national average or a “rural area”.
[4] http://www.nytimes.com/2016/09/12/us/politics/visa-program-up-for-renewal-amid-allegations-of-fraud.html
[5] http://www.eb5diligence.com/articles/a-senate-bill-has-been-introduced.-what-should-regional-centers-and-issuers-do-now