We here at MasterPlans are not immigration lawyers, but we do specialize in writing business plans for L-1, E-2, and EB-5 immigration visa petitions. As such, we try to stay abreast of any new developments related to visa programs, as changes to legislation and policy sometimes affect how we approach plan development. This is especially true in the ever-evolving landscape of the EB-5 Visa Program for immigrant investors.
My news feed was abuzz at the beginning of June with updates about the American Job Creation and Investment Promotion Reform Act. Introduced by Senators Grassley (R-Iowa) and Leahy (D-Vermont) earlier this month, the bill is intended to strengthen and reform the EB-5 Regional Center Program.
Much controversy has surrounded the EB-5 program recently, as allegations of fraud, misconduct, and national security issues related to a few projects approved through the Program have been publicized through national media outlets. In response to calls for reform and in the face of the Regional Center Program’s pending expiration in September of this year, Senators Leahy (an avid supporter of EB-5) and Grassley (a critic of the program) co-authored the bill, which has bipartisan support in the Senate.
The changes proposed in the bill are extensive, and many represent significant departures from the EB-5 program as it functions today. The bill extends the Regional Center Program and introduces a host of regulatory requirements for Regional Centers while at the same time redefining and modifying some of the fundamental components of the EB-5 program as a whole.
The table below provides an at-a-glance summary of some (but certainly not all) of the key changes proposed:
Notable are the changes to indirect job creation, a more restrictive definition of TEAs (Target Employment Areas), and an increase in the minimum investment amount. Currently, the ability to count indirect jobs is a major advantage of the Regional Center Program and makes the program a perfect source of capital for large-scale construction projects. The requirement that 10% of the total be direct jobs could make some funding models obsolete and automatically exclude many potential projects from the Program. It is unclear whether the 10% of direct jobs must be backed by a W-2 or can be considered direct from an economic modeling standpoint. The former will have a much greater impact on the Program than the latter.
Similarly, the revised definition of a TEA is much more restrictive than current guidelines. This severely limits where a project can be located. Many urban centers that have heretofore had many projects supported by EB-5 investment will no longer be eligible for the lower investment amount. This not only limits the number of potential projects that can be supported by EB-5, but one could argue that it significantly impacts the potential for job creation. Projects in urban centers have been historically successful and easily marketed to foreign investors, resulting in the creation of thousands of jobs in census tracts that suffer from high unemployment. On the other hand, promoting rural development and development in economically distressed areas was the original intended purpose of the reduced investment amount and – in this sense – the proposed bill strengthens the program’s intent to meet that objective.
Not as controversial is the increase in the minimum investment amount, as it has been largely expected as an item of reform for the EB-5 Program.
Heralded as a major boon to the Program by EB-5 stakeholders is the mandated processing times. Extensively long processing times (12 months or longer) have hampered the program in recent years.
The new legislation proposes significant reforms and sweeping changes to much of the EB-5 Program as it currently stands. The bill is still to be debated and amended before (and if) it is passed in time for the looming September expiration of the Regional Center. If passed, the impact of these changes on the EB-5 program, the types and number of projects funded by EB-5 investment, and the implications from a marketing perspective to potential EB-5 investors will only be known as they play out.
Perhaps the most definitive point of the bill is that exemplar projects that are filed and pending NOW will be grandfathered in if the new legislation takes effect. All the more reason for projects that are ready to go to market (or investors who are ready to directly invest) to prepare the necessary paperwork – including a Matter of Ho-compliant business plan – and file sooner rather than later.