A sometimes controversial visa program for foreign investors is back in the news again, with a lawsuit filed by the Securities and Exchange Commission against a Seattle-based developer (a former Tibetan monk) accused of diverting millions of dollars to personal use.
The EB-5 Immigrant Investor Visa Program provides visas for foreign investors who invest $1 million in a U.S. business that creates or preserves at least 10 U.S. jobs. If the investment is made in a Targeted Employment Area (TEA), defined as a rural area, or one with one-and-a-half times the national unemployment rate, the investment threshold is reduced to $500,000. These investments permit immigrant investors and their families to live and work in the United States with conditional residency status, which becomes permanent after program requirements, are met.
The main purpose of the program is to attract capital investment and create jobs. While there have been many successful projects over the years, the program has also been riddled with high-profile cases of fraud and corruption.
Currently, the EB-5 immigrant visa program primarily operates under provisions of the Regional Center Program, enacted as a pilot program in 1992, and reauthorized seven times since. Regional centers pool investments across multiple investors. Although “pilot” has been removed from the program’s name, it is still temporary and up for reauthorization, and certainly renewed scrutiny, by the end of the month.
One reauthorization bill, introduced by Sens. Grassley and Leahy focuses on new measures designed to prevent fraud. It also raises the minimum investment amount to $800,000 within a TEA and $1.2 million otherwise. Most important for reaching the program’s economic development goals, however, are the bill’s new rules on defining TEAs. State governments currently define TEAs, and there are no guidelines for their size or geographic boundaries. Census tracts with high unemployment are often joined together with those that do not fit the criteria to create TEAs that qualify projects for the lower investment threshold. Hence, high-profile EB-5 projects have cropped up in places that appear to not fit the unemployment criteria, such as the Hudson Yards project on the West Side of Manhattan.
The bill would revise the TEA definition to include rural areas, closed military bases, or single census tracts within metro areas with an unemployment rate at 150 percent of the national average. To further increase the effect of EB-5 financing, at least 50 percent of the job creation would have to be within the metro area, or within the county in which a rural TEA is located.
Other proposed changes to the program address problems identified in an August GAO report that pointed out scam risks and uncertainties in verifying that investment funds were obtained lawfully. The report also critiqued U.S. Citizenship and Immigration Services (USCIS), the agency that runs the program, for not collecting adequate data nor using valid methodology to estimate economic benefits and job creation, two primary goals of EB-5.
Nevertheless, it seems likely that the EB-5 regional center program will be reauthorized, at least temporarily, and possibly without any revisions. However, the proposed changes to tighten the rules around defining TEAs are a good starting point for reform, though they do not address how the program might better meet the goal of increasing jobs for residents of TEAs and measuring those outcomes. I have previously raised questions of whether targeted communities benefit from EB-5 by the creation of more or better jobs, whether the jobs are long-term or short-term jobs, and whether employees for those jobs are residents of the TEAs or come from outside.
Researchers are asking similar questions of place-based programs such as the New Market Tax Credit (NMTC) and finding that the majority of jobs created in areas of subsidized investment do not go to residents of the targeted neighborhood. It is very plausible that the same is true of the TEA program.
With the reauthorization of the EB-5 Regional Center Program looming, changes to how targeted employment areas are defined should be considered. It is also a great time to refocus on the communities that are the intended beneficiaries. Adding a stipulation that would require some jobs go to local residents of TEAs (and not simply the larger metro area) should be part of the deliberation. Requiring the collection of data to better show the effects of EB-5 capital would demonstrate commitment to the goal of benefits to local communities.
Plenty of money is exchanging hands in the EB-5 program. Let’s ensure some of it is going to the people and places it is intended to aid.