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Analysis of the New Proposed EB-5 Rules
On January 13, 2017, the USCIS issued proposed new EB-5 visa requirements through a notice of proposed rulemaking. If enacted, the new rules would increase the EB-5 investment amounts; create extremely restrictive new Targeted Employment Area (TEA) requirements; allow retention of priority dates; and make a few miscellaneous rule changes. These are “proposed” rule changes and public comments may be submitted by April 11, 2017. After comments are reviewed, USCIS may implement the new rules, modify them, or not release them at all.
Investment Amount for an EB-5 Immigrant Visa
The proposed rules would, if enacted, raise the minimum EB-5 investment amount in a project located in a TEA to $1.35 million. For investments in a project in a non-TEA location, the proposed rule will increase the investment amount to $1.8 million. This would apply to both Regional Center (RC) and direct EB-5 investment cases.
The justification for increasing the investment amount to $1.35 million in a TEA is that this amount is 75% of $1.8 million, which is the amount adjusted for inflation since the EB-5 program was established in 1990.
These amounts are a substantial departure from the previous suggested increase of the minimum EB-5 investment in a TEA to $800,000 by some, including the USCIS in a letter to the Senate in 2015. Also, Senator Grassley’s proposed EB-5 RC extension bill would increase the minimum investment amount in stages to $1 million by October 2018.
But the USCIS’s notice contains a shocking admission that it has no idea what impact the increased investment levels will have on raising capital and job creation. The notice says:
“DHS has no way to assess the potential reduction in investments either in terms of past activity or forecasted activity, and cannot therefore estimate any impacts concerning job creation, losses or other downstream economics impacts driven by the proposed investment amount increases.”
This admission alone brings into question the rationality of the proposed rules. If USCIS cannot forecast the impact of the investment amount on job creation, why would it radically increase the minimum investment amount to $1.35 million instead of a lower amount, for example $650,000, and then over time assess the impact of that increase before making future increases?
The proposed EB-5 rulemaking notice also compared other EB-5 investment amounts to a few other countries’ immigration programs including the United Kingdom, Australia, Canada, and New Zealand. First, comparing these countries’ programs by only the amount of investment is not a legitimate comparison. These programs differ substantially. Some allow the investor to invest in government securities – not at-risk real estate projects as with the EB-5 program.
Our program is a job-creating program requiring more risk than most other countries’ programs. The Canada program was basically a loan of funds to the Canadian government – not high risk there. Fewer people will be willing to risk $1.8 million in a real estate project when they can invest a similar amount with another country’s government.
This radical increase in the investment amount, if enacted, would change EB-5 as we know the program today and would mean the loss of many jobs.
Killer Proposed TEA Rules
USCIS’s proposal also would limit TEAs to a Metropolitan Statistical Area, counties, cities or towns with a population of more than 20,000, a census tract, or a group of adjacent census tracts, if they have experienced an average unemployment rate at least 150% of the national average rate. It only allows census tracts to be averaged if they are adjacent (abutting) to the tract in which the project is located. This would end California’s use of up to 12 contiguous census tracts, Texas’ use of blocks, and other states’ use of state legislative districts. The USCIS’s justification is that this will make TEAs more uniform and eliminate gerrymandering.
The proposed rules would allow USCIS to determine TEAs instead of the states. USCIS deciding TEAs would be a disaster. I-526s are backlogged 17 months; I-829s 22 months. How long will it take USCIS to issue TEA letters? Will they pull people off I-526 and I-829 cases to adjudicate TEAs, increasing backlogs even more?
Often developers and direct investors seek multiple TEA letters from states as part of their due diligence for a project to determine if a business location will be a good one for an EB-5 project. They often never use the TEA letter. The 50 states can handle this volume and usually issue TEA letters in a few days or weeks. USCIS simply does not have the capacity to manage this TEA process in a timely manner.
The proposed rules would kill most TEAs. This rule, if adapted, means that the investment amount would be $1.8 million in most areas.
Priority Date Retention
The proposed rules would allow an EB-5 investor to keep their original filing date of an EB-5 petition if a second petition is needed, such as when the project files for bankruptcy and the petitioner makes another investment. This is good, but will only assist a few people.
Please comment on the proposed regulations before April 11, 2017 and be sure to reference “DHS Docket 2016 – 0006” in your correspondence:
Via the Federal eRulemaking Portal: http://www.regulations.gov
Via post: Samantha Deshommes, Acting Chief, Regulatory Coordination Division, Office of Policy and Strategy, U.S. Citizenship and Immigration Services, Department of Homeland Security, 20 Massachusetts Avenue NW., Washington, DC 20529.
The proposed notice contains some interesting statistics:
- 91% of EB-5s invest in RCs
- 80% of EB-5 investors are born in China
- 99% of RC investments are in TEAs
- 64% of direct investments are in TEAs
- 10% of investments are in rural TEAs
Watch for more information about the proposed rules on our News page, or call us at +1 (415) 391-2010 for more information from one of our expert lawyers.