United States: Checking The Current Temperature Of The EB-5 Program

Today is Valentine's Day, and we would be remiss to not mention our ongoing love for the EB-5 Program, a vital job creator for U.S. workers that costs the American taxpayer absolutely nothing in return. But not everyone shares the love and uncertainty remains, perhaps at an all-time high. It is hard to believe that it's been nearly six months since the Regional Center program was extended in its current form. So much has happened in Washington independent of investment immigration, that it is easy to for our clients to lose track of where EB-5 stands and where it is likely going. As the Lunar New Year celebrations have now come to a close, it's time to check the temperature of the program as the coming weeks and months are pivotal for its future.

The Regional Center program is slated to expire on April 28 – will it be renewed?

For most of its history, the EB-5 Regional Center Program has been renewed in multi-year increments. Yet since September 2015, the Program has experienced something akin to a classic movie paying tribute to another February holiday, Groundhog Day. As it goes, clients are panicked to file their cases as quickly as possible before looming legislation overhauling the visa is passed into law, only to have the status quo extended for a few days or months. This has happened five times in less than 17 months: September 30, 2015; December 11, 2015; December 16, 2015; September 30, 2016; and December 9, 2016. Much of this can be explained because the Regional Center Program reauthorization has been tied to the Continuing Resolutions which keep the U.S. government funded (even though EB-5 does not itself require appropriations spending). Opponents of the status quo have ceded their objections because the government needs to keep its doors open and political gridlock has stymied both meaningful budgets to be passed and meaningful EB-5 reforms. Will this happen again in April?

The political winds have shifted with a GOP-controlled House, Senate, and Presidency. Congress ostensibly now can pass a budget much easier than before because there is no threat of a Democratic veto. However, alignment between the political branches remains to be seen in the early days of this Congress and Presidency. Further, it is not clear whether Republican control will have any substantial effect on EB-5's prospects given its champions and its critics in both parties, which we have mentioned before. It's therefore difficult to predict whether substantial EB-5 reforms are more likely to happen this go-round.

With such considerations in mind, it's fair to say that it's still Groundhog Day in the industry. We urge our clients who are considering EB-5 to have their I-526 and I-924 filings in before April 28th to maximize chances of securing benefits under current law. This remains true even for those who are seeking "direct" filings as legislative changes could impact TEA definitions, investor pooling mechanisms, and minimum investment amounts. It's very possible that the Regional Center Program be extended in its current form for short period yet again. Nonetheless, we are of the philosophy that on balance it makes more sense to file during this time period when the law is known and any grandfathering provisions would apply.

A bill was introduced to repeal the EB-5 program – should you be worried?

We try to avoid making political statements but we will not be afraid to do so when there are proposals that would result in terrible policy, especially when the targets for our criticism are in both of the major parties. It is no secret that Senators Feinstein (D-CA) and Grassley (R-IA) are not fans of the EB-5 Regional Center program. We share some of their concerns and agree that some parts of this 25-year old regime are due for an update. However, they have jointly introduced S.232, which would repeal the Regional Center and Direct EB-5 programs and reallocate visas to EB-1 through EB-4 preference categories. We need not mention at length how this would be terrible policy for a nation with a strong reputation to attract foreign investment, a vital tool to keep our economic machine moving. This reputation would suffer a mortal blow should the visa be affirmatively repealed.

Are the Senators sincere in their efforts? Some have questioned whether the bill is merely a bargaining tool as April 28th approaches. Indeed, many in our industry have come to the conclusion that S.232 is unlikely to become law. The prediction web site Predictgov.com currently gives the bill a slim 4% chance of passing. We'd concur that EB-5 is unlikely to be repealed wholesale, and echo our allies on Capitol Hill that Congress should "mend it, not end it." Our Canadian-based team has seen firsthand the effects of repealing a federal immigrant investor program, which should not be repeated in the U.S.

Is the minimum investment amount really going up to $1.3 or $1.8 million?

We discussed previously the proposed EB-5 regulations that would, among other things, raise the minimum investment amounts. The Department of Homeland Security (DHS) is in the process of collecting public comments on the Notice of Proposed Rulemaking, with submission of comments open until April 11, 2017. After the comment period closes, the agency must take time to review comments, respond, revise the regulation, publish the revisions, and implement new law. Given that this process will take several months at minimum, we think it is unlikely that the new regulation will be in effect before the fall, and perhaps not in this calendar year. There are a few points of consideration which cast doubt on whether the investment amounts would change so drastically so quickly.

First and foremost, DHS is leaving the window open for a more gradual change. In the Notice, DHS "recognizes that under this proposal, the required minimum investment amount would increase significantly, in relative and absolute terms, to account for a quarter century of inflation. DHS is seeking comment on whether it should increase the standard minimum investment amount as proposed under this rule, or whether a different methodology or different investment amount would be more appropriate." We expect that most comments will be opposed to raising the investment amount and USCIS would back away from such a drastic change if there is overwhelming and reasoned opposition. At the time of this writing, there are only 19 comments publicly posted and their approach on the point is mixed. The number of comments will increase substantially in the coming weeks, and look forward to submitting our own.

Secondly, there is also the potential for Congressional preemption. In previous bills, legislators have sought to define the investment amount themselves, generally pegging the base investment amount around $1.2 million and the TEA investment amount at $800,000. If enacted – perhaps as part of comprehensive reforms as April 28th draws near – Congress would preempt the proposed regulation. If this were to happen, regulatory reform would be effectively dead before the agency even had time to review comments.

Finally, there is the "Trump Factor." As suggested by Sen. Jeff Flake (R-AZ) at the EB-5 Investors Magazine Conference last month, there may be traction to lobby the administration directly to withdraw the proposed rule, which was promulgated in the final days of the Obama Administration. Trump and his family members have benefitted from the program, as have his fellow New York real estate developers that would have an interest in keeping the status quo. However, Trump's approach to employment-based immigration remains a bit of a wildcard, and it's not sufficiently clear whether EB-5 would be targeted for administrative reforms as other visa types have been rumored to be. Trump himself is no fan of regulations affecting American businesses. Time will tell how this plays out, but we think there is a real likelihood that the President would personally nix this regulation enacted under his predecessor's watch.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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