EB-5 Visa Rules Stretched as Green Cards Go to Investors

A recent NYT article “Rules Stretched as Green Cards Go to Investors” Dec. 18, 2011 illustrates the problems encountered when regulators, developers and regional center owners must comply with the myriad regulations set forth by Congress surrounding the EB-5 immigrant investor pilot program.  Among other things, the article condemns the program based on three main issues:

1. some developers/regional center owners might have “gerrymandered” employment statistics, some with state approval, to have their projects meet the target rate of 150% of the national unemployment rate, thereby meeting the $500,000 investment threshold level, rather than the higher $1,000,000 level;
2. state and local politicians and USCIS have endorsed or approved  projects that may not meet the 150% target threshold by certain standards; and
3. the practice of allowing projects in low unemployment areas may “crowd out” investments in higher unemployment areas that better fit the letter of the law or be deemed more worthy of the investment.

 

The legislation’s intention (CFR 8 204.6, among others) was clearly to create jobs in the US in exchange for citizenship, as is similarly done in a number of developed countries, including Canada.  Put simply, the law allows foreign investors to get US citizenship by investing $500,000 or $1,000,000, which is totally “at-risk” dollars in the US, where the investment must create at least 10 jobs.  One of the provisions in the code dictates that if the investment is located in a targeted employment area (TEA), i.e., an area that has 150% of the national unemployment rate, the immigrant investor can invest the lower $500,000 amount. 

Given the competition for scarce funds, the current competitive default level of investment for regional centers is the $500,000 investment.  If regional centers locate outside of a TEA (or rural area), they have effectively raised their ticket price for US citizenship to the $1,000,000 level.  In so doing, they will lose clients as the majority, if not all, regional centers are located in TEAs (or rural areas).

Like any large government program the legislation is loosely written and leaves much to be filled in by practitioners.  Will there be pushing of the envelope or even abuse of the regulations?  As with most government programs, more than likely the answer is yes, but should the program be axed because of this or should it be changed for the better?  I would challenge anyone to find even one government program where abuse is absent.  Given these circumstances, what issues raised in the article are valid and how can they be resolved?

To be clear, there is much ambiguity in the law and little guidance given by USCIS in applying it.  Is this the result of another bureaucratic government agency run amok?  Perhaps, but my limited experience through a number of RFE’s is they seem to be applying the code as best they can, but are no doubt over run with work and sorely underfunded.  If USCIS is like most state and federal government agencies these days, their funding has likely been cut to the bone in recent years and they are forced to do much more with much less.

Then what about the 150% unemployment and gerrymandering the census tracts?  Simply put, one must demonstrate that the unemployment rate is at least 150% of the national average.  The relevant code indicates what must be presented:
“Evidence that the metropolitan statistical area … in which the new commercial enterprise is principally doing business has experienced an average unemployment rate of 150 percent of the national average rate.”In addition a state may designate the area as one of high unemployment:

“The state government of any state of the United States may designate a particular geographic or political subdivision located within a metropolitan statistical area or within a city or town having a population of 20,000 or more within such state as an area of high unemployment (at least 150 percent of the national average rate).”

So much of the detail is left to the individual developer, regional center owner or consultant and to the state.  For example, which national average: The previous calendar year? The preceding 12 months from the current date?  Seasonally or not-seasonally adjusted data?  In addition, considering local area unemployment has not been measured at the census tract level since the 2000 census, how does one measure census tract unemployment rates until the Census Bureau’s American Community Survey is reported, probably in 2015?  Census sharing methods are currently used in which 2000 census tract level employment ratios are applied to 2011 county level employment data.  The approach obviously has its drawbacks.  Finally, there is little guidance concerning how to collect census tracts surrounding the tract in which the project is located to use for unemployment calculations, hence the claim of gerrymandering.

If USCIS would level the playing field for all states, any perception of whether one state is “unfairly” getting more projects than is justified would be eliminated.  This could be accomplished either by allowing states to claim any type of geographic region (or shape) as long as the resulting unemployment rate reaches the 150% rate or it can be done by setting very strict guidelines that all states must follow.  Either of the methods will work because all regional centers and state agencies will be on equal footing.  However, even the casual observer will recognize that although leveling the playing field would eliminate the perception that some states/projects have an unfair advantage, these two methods can have quite different outcomes; the former approach would foster regional center and job growth, while the second could inhibit regional center and job growth if the guidelines are too restrictive, which is clearly not the intent of the legislation.  The second approach also could be very difficult to implement, e.g., concentric areas surrounding the project tract, etc., considering census tracts are designed to be homogenous regarding population and economic status, but geographically are very diverse.

Next, are state and local government agencies, politicians and/or the USCIS wrong in approving projects that are not TEAs?  Assuming graft is nonexistent or minimal, they are clearly responding to the demands of their respective constituents, all wanting to bring jobs and wealth to their states.  Barring any illegalities in TEA designation, how else would we want our elected and appointed officials to act?  Would we as taxpayers want them to be too strict in their interpretation of the code, restricting development and more jobs when other states have legally opened the flood gates for development of the sort?  Leveling the playing field such that uniform rules apply to all states will solve the problem.

Finally, what are the consequences of allowing projects to be located in areas that are supposedly gerrymandered to reach the 150% unemployment threshold, will lower wage workers, who seem to be the main beneficiary targeted by the legislation, benefit?  Clearly the “34 story glass tower” located in Manhattan will have a large impact in the local community and much of the labor used for the construction and maintenance of the buildings will be done by those intended to benefit from the law, employed from either nearby boroughs, the Bronx or Harlem.  The tenants, who may be from higher income levels, will also benefit.  Although construction is deemed short-term in nature, most of the projects mentioned in the article are large and may last longer than the 2-year cut off used by USCIS to delineate permanent jobs. 

Will jobs be lost in Nevada, California or other states because a 34 floor glass tower is built in New York?  Perhaps, but currently there is great demand for US citizenship and over 200 regional centers from which to choose.  Moreover, given the current state of the US economy, the economic benefits of projects rejected based on the 150% unemployment target may simply be lost forever as locations in other area or other states are not close substitutes.  For example, if the 34 floor tower typically used for retail, office space and/or residential purposes did not qualify in New York, one can be assured that states with the highest unemployment levels are not likely close substitutes for a Manhattan address for either the developer or prospective investors, so this project would likely be shelved. 

Similarly, a large condominium in Florida will not sell if located in a high unemployment area away from the coast instead of a lower unemployment area on the coast, yet the labor will be imported to the site.  Both projects though will provide large economic benefits to their regions.  So given the current robust demand for citizenship in the US, this is likely not an issue at the present, but this may change in the future.  Again, leveling the playing field would come a long way in resolving any perceived or real issue.

Scott Barnhart, PhD
Barnhart Economic Services, LLC
3875 Sunset Lane
Riviera Beach, FL 33404
561-310-3357 

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