Senate Committee Hears About Gerrymandering in the EB-5 Program

By David North on April 14, 2016

It's always aggravating when watching a congressional hearing to find that the very best of the witnesses is arguing for the point of view that is exactly opposite to your own.

That's what happened yesterday as the Senate Judiciary Committee heard testimony on a key element of the current EB-5 program, the definition of what is a depressed area in which an alien investor can buy a family-sized set of green cards for half a million dollars. The unfortunate fact is that, given the administration's ultra-casual oversight, that kind of alien investment can be made anywhere in the United States. A $1 million investment used to be the norm in this program.

My sense is that this part of the EB-5 program, if not allowed to die on September 30, 2016, should be reformed drastically. Ably calling for minimal changes in the program (which presumably provides him with a very good living) was Daniel Healy, head of the Civitas Capital Group of Dallas, one of the most successful regional centers (the middleman entities that run the EB-5 programs).

Fortunately, however, leaders of congressional committees, not flashy witnesses, write our laws. Sens. Chuck Grassley (R-Iowa), and Pat Leahy (D-Vt.), the chairman and the former chairman of the committee, arranged to have Robert Goodlatte (R-Va.) and John Conyers (D-Mich.), the current and former chairmen of the House Judiciary Committee, as the lead-off witnesses.

All four of these key players want to reform EB-5 substantially. This bipartisan, bicameral quartet all sing the same tune on EB-5: It must be fixed, and the key to fixing it is reforming the definition of depressed area.

Nothing was said about the power of these four in this dispute; their mere collective appearance in the room sent the message.

Leahy, I think alone of the senators, said that if real reform is not possible, then the program should be allowed to die. Sen. Dianne Feinstein (D-Calif.), a member of the committee who had called for the termination of EB-5, did not attend the hearing.

Currently the Department of Homeland Security allows states to approve or deny the delineation of Targeted Employment Areas (TEAs), the locations of the half-million-dollar investments.

Many of the TEAs are rambling strings of census tracts that manage to join the often prosperous neighborhood of the proposed project to distant areas of substantial unemployment, creating maps that produce areas with the legally-required 150 percent of the nation's unemployment rate. In an earlier blog, we showed how an EB-5 project could be built across the street from the White House by using these gerrymandering techniques.

There was some thoughtful conversation on the subject of the databases used to construct the TEAs. Timothy Whipple, a lawyer for the Iowa Economic Development Authority, argued that unemployment levels were not the best measures of poverty in some areas, and suggested that the Senate consider a combination of household income and poverty level statistics.

Underlying the whole hearing was the tension between the urban interests who are getting the lion's share of the current EB-5 funding, represented by Sen. Chuck Schumer (D-N.Y.), who made a cameo appearance at the hearing, and Sens. Grassley and Leahy, who want more of these funds to go to rural and depressed areas.

Another way to bring more foreign money to all kinds of areas was hinted at by several speakers, but mentioned, in so many words, by only one — Sen. Jeff Flake (R-Ariz.), an ally of Schumer. That would be lifting of the numerical ceiling for these visas, now set at 10,000 and backlogged for six years. The senator asked a witness who represented the EB-5 industry, Peter Joseph, if his organization would back such an increase and the witness said "yes". If you blinked, you would have missed the exchange.

Getting back to the star witness, Healy, he not only had the smoothest presence and the most articulate message, he handled two potentially tough questions ably.

Asked if any of Civitas' many investments were in small towns in Texas, he rattled off the names of three of them amid general agreement that no one had heard of any of them, hence underlining their rural nature.

The one name of the three that I recognized was better known half a century ago, because it was the place where Lyndon Johnson taught second grade for one year, Cotulla (current population 4,022). I have never been there, but it is memorable to me because one of my bosses during the LBJ days, the late EEOC Commissioner Vicente Ximenes, had been LBJ's favorite student at the Cotulla school.

Sen. Grassley, who earlier had criticized a huge TEA consisting of 190 census tracts and 200 miles wide that had been formed by Civitas to fund a hotel in Laredo, asked Healy to justify it. Healy, pointing out that Laredo is in Webb County, which has, at $28,000 per household, one of the lowest average family incomes in the nation, said that he would not apologize for using a legally acceptable mechanism to bring "an investment to a county with a $28,000 per household annual income."

This is the second of the Senate committee's hearing on this subject this year; there was another in February.