In what is considered a significant victory for real estate developers, Congress capped off months of handwringing and numerous proposals by extending the EB-5 Immigrant Investor Program without amendment until September 30, 2016. The measure was included in the $1.1 trillion omnibus spending and tax bill signed by President Obama on December 18, 2015.

The extension without changes is welcome news for EB-5 program participants, from investors and regional centers to developers and marketing agents.

In the half-year leading up to the decision to leave the EB-5 program as is for now, lawmakers considered numerous amendments and proposed several bills. For months, the offices of Senators Chuck Grassley, R-Iowa, and Patrick Leahy, D-Vermont, have been working on a bill that would result in significant changes to the EB-5 regional center program. Some proposed changes, such as increasing the minimum investment, are not contentious and proposals have remained consistent. However, other key factors of the program are undergoing drastic changes with every new draft of the bill. The more evocative topics include a narrower definition of targeted employment areas and closer supervision of regional centers. According to reports, a final bill was more than 90 percent complete but last-minute issues, coupled with lingering thorny ones, prevented a compromise. 

A Last-Minute Matter

One topic that caused a good deal of last-minute chaos could spring up later next year when the program faces sunset again. Congress debated a proposal to reserve 2,000 of the 10,000 annual EB-5-allocated visas for investments in rural areas, and another 2,000 for investments in "urban priority areas" with high poverty. Further, this last-minute proposal would have required another 2,000 EB-5 visas be reserved for investments in non-targeted employment areas at the $1 million level. All told, that would leave just 4,000 visas for the type of projects likely to draw investor and developer interest, which could ultimately lead to a waiting list for EB-5 investors of 10 to 15 years.

Persistent Contentious Issues

Targeted Employment Areas. One of the most contentious issues that reportedly prevented a compromise on amendments is the revised definition of targeted employment area (TEA)—a vital definition that demarcates a region of the United States where the minimum EB-5 investment is $500,000 compared to $1 million elsewhere, boosting project viability in TEAs.  Presently, a TEA is a geographic area that is rural with population less than 20,000 or has unemployment 150 percent of the national average. Many lawmakers sought to narrow the definition of TEAs while others, along with industry insiders, opposed this vehemently. Current regulations permit state officials to make TEA designations encompassing multiple census tracts and accounting for regional commuting patterns. In other words, current TEA policy reflects the economic reality that most Americans do not live in the same place they work, and that an area's unemployment can be reduced by residents' employment in a geographically distant but economically linked area. The statute's broad and non-restrictive language clearly permits this approach. TEA policy is crucial to the EB-5 industry, and how legislators resolve the issue has the potential to either maximize EB-5 job creation or severely constrict it.

Limits on Indirect Jobs Created. Another contentious matter that impeded resolution of a final bill involved new measures to require a minimum of 10 percent of an EB-5 project's new jobs to be direct jobs versus exclusively indirect or induced jobs only. However, opponents pointed out impracticalities of this proposal, such as no well-defined method to calculate direct versus indirect jobs and, for construction lasting more than two years, direct jobs would not be created in time to meet the proposed standard.

Two days after Senate and House leadership recommended the EB-5 extension without amendments, Senator Jeff Flake, an Arizona Republican, along with Senators John Cornyn, a Republican from Texas, and Chuck Schumer, a Democrat from New York, introduced S.2415, the "EB-5 Integrity Act of 2015." S.2415 is the first new piece of EB-5 reform legislation introduced since the EB-5 program's original sunset date of September 30, 2015. The integrity measures mirror the reforms proposed earlier in Grassley's and Leahy's S.1501, and discussions in draft bills in 2015, including the following reform proposals:

  • The bill lists job creation requirements for the regional center program, which include a prohibition on the use of investor funds to purchase publicly available bonds.
  • The bill provides that an application for project approval, with a supporting business plan and offering documents, must be filed with the USCIS before an investor files an I-526 Petition for a green card.
  • The bill includes many prerequisites for the business plan and contains a positive new standard of governance by USCIS, benefiting the investors, developers, and regional centers such that a USCIS approval of the business plan will be binding on future USCIS adjudications absent certain specific situations.
  • The bill would increase and intensify the annual reporting requirements for regional centers' annual statements.
  • The bill would require a background check and biometric information from persons involved with a regional center.
  • The bill would prohibit regional center ownership of and financial support by a foreign government or governmental entity.
  • The bill provides broad new authorities for DHS to terminate a regional center, debar, or suspend regional center program participants, or deny or revoke investor petitions based on a variety of enumerated grounds including threats to the national interest, fraud, or misrepresentation.
  • An annual regional center certification is required to comply with securities laws.
  • An EB-5 Integrity Fund is established, as is a fee of $20,000 or $10,000 per regional center, depending on the size of the regional center, and a $1,000 fee per investor.
  • The bill enhances oversight of direct and third-party promoters by requiring the promoters to register with USCIS and to meet certain conditions. Investors would be required to execute disclosure to demonstrate their understanding of the rules and the fees involved.
  • The bill contains new source of funds requirements, which, among other things, limits gifts and loan, and requires additional documentation, including seven years of tax returns.
  • The bill contains provisions to enhance transparency of USCIS operations and its communications with stakeholders, and ensure non-preferential treatment of petitions from regional centers and investors.

The proposed EB-5 Integrity Act of 2015 does not include reforms to current policies such as minimum investment amounts or the TEA definition. We expect that discussions will continue after Congress' winter holiday.

Congress' extension without changes is welcome news for all participants of the program— investors, regional centers, developers, and marketing agents alike—for the time being. The USCIS will continue to process I-924, I-526, and I-829 petitions, which will continue to be accepted, processed, and adjudicated as normal until a new reform bill is passed or until the program's sunset on September 30, 2016. The next 10 months will be important to safeguard a workable EB-5 program. Ballard Spahr's EB-5 Group will continue to work side by side with the EB-5 industry, and encourages collaboration by clients with EB-5 industry leaders and Congress to encourage balanced and meaningful reform.

The Ballard Spahr EB-5 Group brings together attorneys experienced in securities, private equity, business and finance, real estate, and corporate law to help investors take advantage of this emerging opportunity.  For more information about this alert, please contact Debbie Klis, Steve B. Park, or the Ballard Spahr attorney with whom you regularly work. 

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