The House Presents a Sprightly Hearing on EB-5

By David North on February 12, 2016

The full House Judiciary Committee produced a lively and often stimulating hearing on the immigrant investor (EB-5) program yesterday.

Once the fairly predictable opening statements were dispensed with, it fairly crackled with good questions and some new (to me, at least) ideas.

Generally, the EB-5 program was kicked around by all concerned — no one supported the status quo — and the program director, Nicholas Colucci, was under considerably more fire than he was last week in the gentler confines of a Senate hearing on the same subject. Colucci, who looks younger than he is, could be imagined as the polite Ph.D. candidate whose thesis was being torn apart by his dissertation committee.

In addition to Colucci, who is with USCIS, there were three other witnesses. There was an official from the Government Accountability Office with the usual, color-it-grey GAO presentation that elicited only one question. Then there was the knowledgeable Jeanne Calderon, a real estate finance expert and clinical associate professor at the Stern School of Business at New York University.

The reader may be wondering at this point, OK, who was the fourth witness? This was a Republican hearing, after all, so who was there from the mainstream EB-5 business? Who represented the moneyed interests?

No one.

The fourth witness, and one of the stars of the show was Matt Gordon, a youngish CEO of the E-3 Investment Group. His is a maverick organization that believes that EB-5 money should be invested in genuinely depressed areas, not, as it is now, largely in glitzy urban areas, particularly those on the East and West Coasts.

As often is the case, the selection of the witnesses reflected the committee's mood; the members were unanimous that the program needs a drastic overhaul.

Much of the questioning dealt with the use of targeted employment areas (TEA), each of which is to have an unemployment rate 50 percent higher than the national average. An EB-5 project, at the half-million investment level, has to be within a TEA. The TEAs were originally designed, all agreed, to push EB-5 investments into depressed areas; and everyone also agreed that these combinations of census tracts have been routinely gerrymandered to link the often ritzy locations of projects to distant poverty areas.

What I (and I suspect many of the committee members) learned was that the government has had the power for more than 25 years to change the way these entities are defined. Rep. Darrell Issa (R-Calif.), the second ranking majority member who took over the chair when Chairman Bob Goodlatte (R-Va.) left the room, pressed Colucci on this point, listing all the presidents, naming them one by one, with their years in office, and saying "after all these years, are you telling me that no one has done anything about this?"

Colucci's response was that the administration was thinking about it.

During Goodlatte's opening statement he showed a map of south Texas, with a huge, 200-mile-long TEA starting in a prosperous part of Laredo, where unemployment is less than 2 percent, then running south and east to Brownsville, where the unemployment is high enough to reach the national standard.

Issa was equally demanding on another matter: the size of the investment needed to obtain a visa. It is now, for all practical purposes, $500,000, although there is a seldom-used category at the million-dollar level. These larger investments can be anywhere in the nation, and need not be handled through a regional center that routinely plays the role of investment bundler. The million-dollar EB-5 investments, however, are virtually a dead letter.

Apparently the government has had, for 25 years, the power to raise the minimum investment, but never used it, even as inflation climbed.

Colucci said that the administration was thinking about it.

Several people said that the half-million/one-million differential was supposed to channel funds into depressed rural and urban areas, but that EB-5 promoters had through gerrymandering managed to distort the program into its current shape. Then in one of those moments we sometimes see in these hearings, witness Calderon pointed out something that had been forgotten for decades.

She said that "in footnote six of my paper there is a reference to a third level of investment in the 1990 act, and it calls for a minimum stake of $3 million" for an investment in a really prosperous area. She was arguing for a sliding scale of investment to help depressed areas.

At about this point, witness Gordon said, in response to a question about how to break the strangle-hold of affluent urban areas, that a new and vigorous use of differential rewards (with higher ones for investments in poor areas) could change the current patterns, but only if the government made that a priority.

Calderon had another interesting observation. There are something like 63,000 visas backlogged in the program because there are more applications on hand than can be filled within the annual ceiling of 10,000. The backlog has been worsened due to the fact that there usually are about 2.5 visas per investment, and also by the heavy use (87 percent) of the program by Chinese nationals. The Chinese usage has bumped into another provision of the law setting overall migration ceilings on aliens from individual nations.

Calderon's suggestion was: Why not give priority to those in line who were planning to invest more than the usual half-million dollars. She called it a visa reserve.

Goodlatte worried that the backlogs would slow the impact of any changes in the program as they might not be pertinent for seven or eight years; Gordon pointed out that the backlogged cases were from a single nation, China, and that new rules could be applied immediately to the non-Chinese investors.

At the very end of the hearing, with a House floor vote bringing the session to a halt, a subject emerged that had, happily from my point of view, been previously ignored. One of the junior Democrats on the Committee, Judy Chu of California, suggested that the backlog could be addressed in part by counting each family of investors as a single unit, rather than one visa per person. Up until that moment, two and a half hours after the hearing started, there had been no voice suggesting more migration. This suggestion is not a modest one; it would take a 10,000-a -year program and turn it into a 25,000-a-year program.

As is often the case, the conversation was not always knowledgeable. One committee member, who identified himself as a former prosecutor, wondered if bribes were given to state officials to approve "all these expanded TEAs". Under the current highly relaxed USCIS handling of the TEAs, there is absolutely no reason for an official to do anything but sign off the TEA paper that the local businessman presents. The lines, whatever their contours, will bring EB-5 moneys to the state, and no state official could object to that.

Sometimes you can have a bad program without bribery; sometimes there is no need for a conspiracy.