It is useful to take both a bird's-eye view of the pending EB-5 legislation, as well as looking at it from the worm's vantage point.
The heart of the EB-5 program faces termination or renewal this coming Friday (December 11); this is the widely used portion of the law that grants a family-sized set of green cards to rich aliens who make pooled, private-sector investments of $500,000 through Homeland Security-licensed regional centers. A rarely used segment of the program, which gives the same set of green cards to aliens investing in, and managing, projects worth $1 million or more, will continue regardless of what Congress does to the other part of the program.
If Congress misses the deadline, which is likely, it can revive the program retroactively at some later date.
Bird's-Eye View. Looking from a height of 15,000 feet or so, one glimpses five different EB-5 legislative options that are, severely condensed, as follows:
- Terminate the program. Sen. Diane Feinstein (D-Calif.) has proposed this approach, feeling that the EB-5 program is too insignificant to the macro-economy, and too flawed to be renewed. Unfortunately, so far she few followers on this point, although the just-retired Conservative government in Canada did just that to what had been the world's largest immigrant-investor program.
- Change it drastically. The EB-5 program could be rewritten to massively increase the minimum dollar figure for investors; and/or to funnel those funds into the U.S. Treasury instead of into the pockets of big city developers (and probably some big city construction workers); and/or to force the funds into really depressed areas (which is not now the case). The law, for example, could require investments to be made in single census tracts with high unemployment rates rather than allowing the use of multiple census tracts, often gerrymandered targeted employment areas, for measuring unemployment. Adoption of either of these first two alternatives (which I would prefer) would reduce the number of visas granted to aliens based on their money, not their skills, and transfer those visas to the skilled workers and scientists who come to the country in the employment-based first, second, and third EB categories. That's a point I have not heard mentioned.
- Change it moderately. Proposed bipartisan and bicameral legislation under discussion on the Hill would take this approach. This is the most likely outcome, with the chairmen of both the Senate and the House judiciary committees, and the ranking Democratic members of these committees, all agreed on the same draft legislation. The contents of this bill, not yet numbered, are discussed below.
- Renew the program exactly as it now stands. This is what the big city developers in places like Manhattan, downtown L.A., and Las Vegas want; no changes at all. They seem to have the ear of Sen. Schumer (D-N.Y.), the likely next Democratic leader of the Senate and ranking member of the Senate immigration subcommittee.
- Make the program permanent and expand the number of visas. This extreme option is favored by a few on Capital Hill, including the not particularly prominent congressman from Colorado, Jared Polis (D), a venture capitalist who has introduced H.R. 616 with these objectives in mind. No hearing on it has been held by the House immigration subcommittee, and thus its prospects are minimal.
The Bipartisan Legislation. It may be useful to review what this bill (referred to in Option 3 above) will not do, if enacted, as well as what it would do.
There would be no reduction in the number of visas; the investments would still go to private sector (largely real estate) developers; the investments would still, largely, go to urban areas; the developers (and their hired economists) could still use estimations of the indirect creation of jobs to meet (at least partially) the requirement that each investment should produce 10 jobs.
The heart of the EB-5 program would not be made permanent, but would be extended through September 2019.
On the other hand, there would be a number of incremental changes, most of which make sense (if we are to have this program at all). For example, the legislation would:
- Lift the minimum alien investment (in the pooled program) from $500,000 to $800,000, increasing the level of investment by 60 percent without issuing any more visas;
- Allow the administration to raise the minimum investment further in the future, in keeping with inflation;
- Give the Department of Homeland Security increased authority to monitor some of the abuses of the program, and create developer-funded financing to support more DHS audits in the field;
- Require background checks on regional centers (the DHS-licensed middleman agencies) and their principals; and
- Improve the transparency of the existing program.
Continuing to make the program a temporary one is good public policy, as it will give Congress the obligation to think about the program every few years. I recall, from an earlier era, that the continuing temporary nature of the abusive Bracero Program (which brought male farm workers to the United States under grim conditions) eventually died when its dwindling band of supporters decided not to try to extend the program in the early 1960s.
The Worm's-Eye view. I am not sure that worms have eyes, but if they did, and if they were burrowing through this 100-page document, they would notice:
- To continue the slimy metaphor, a ban on what I would term "water snake targeted employment areas". Currently, the concept of TEAs allows them to be drawn in such a way that census tracts linked by water (such as between Wall Street and depressed parts of Brooklyn) can be used to justify EB-5 investments in glitzy locations. Even the Wall Street Journal noticed this unseemly practice.
- 20 percent of the visas would go to those investing in rural areas, but if the rural visa set-asides were not used, after the passage of time, they would give way to urban investment visas.
- No visas could be used to buy municipal bonds. I am not sure I agree with this provision, but it would prevent the current practice of the Pennsylvania Turnpike Authority of fattening the pockets of its chums in a well-connected regional center, when the Authority could raise money much less expensively through the domestic bond market. For more on this scandal, see my blog "Republicans Make Out Like Bandits with Obama's EB-5 Program". The only way that EB-5 investors can buy bond-like securities in the Turnpike is through one specific regional center.
It will be interesting to see if the chairmen and ranking members of the two judiciary committees can prevent their bill from being emasculated by the armies of lobbyists who are paid very well to do just that.