GAO Finds Most Funding in EB-5 Projects Is NOT from Alien Investors

By David North on October 24, 2016

The majority of the money invested in projects that attract EB-5 (investor visa) funding does not come through that program; it comes from mainstream capital sources. But despite this fact, the alien investors continue to be given sets of green cards for their half-million-dollar inputs.

The marginal significance of the EB-5 funds was described in a recently released report by the Government Accountability Office.

It has long been known that the job-creating aspects of the EB-5 program have been overblown. Typically, EB-5 promoters claim credit for all the jobs — directly and indirectly created by these projects — even though only a faction of the capital has come from alien investors.

This report punctures that argument:

GAO estimates that the median percentage of total potential EB-5 investment is 29 percent of the total estimated project cost, and the estimated mean percentage is 40 percent.

What the GAO does not quite say is that most EB-5 projects would go forward without any alien money, but with it, the costs to the American developers are less and the profits more because the aliens are providing very, very low cost capital. In short, this is an income transfer program from rich Chinese to rich American big-city developers.

The original intent of the program was to reward foreigners who were putting money into depressed areas of the United States. Through the combined efforts of manipulative American middlemen and sleepy government officials, this thrust has been reversed by the administration’s acceptance of cleverly drawn targeted employment areas (TEAs, which can use EB-5 moneys). These TEAs are too often snake-like in appearance, as the developers have strung together the census tract where the project is to be built (usually a prosperous one) with a string of census tracts with high unemployment rates, some many miles from the EB-5 funded hotel or shopping center.

The GAO, again, supports these criticisms in its survey of a sample of 2015 EB-5 projects.

Of the EB-5 investors using the TEA program in the last quarter of FY 2015, 26 percent combined 11 to 100 census tracts, and 12 percent used more than 100 tracts. One project among the 12 percent is understandable, however, in that it was for upgrading an existing railroad, which has, by definition, a long skinny shape.

Reformers are calling for a much tighter definition of the TEAs to take these investments out of glitzy, prosperous big-city areas and put more of them into genuinely depressed rural and urban areas. The current practice is illustrated, at the extreme, by the proposed use of EB-5 funds to build a Waldorf Astoria in Beverly Hill, Calif., as we reported earlier.