Why Does DHS Perpetuate a Business where Most Will Lose Their Shirts?

By David North on November 19, 2015

Why would a federal agency keep expanding a specific type of immigration-related business even though most participants will surely lose their shirts?

Is it because the agency does not know what it is doing?

Or, as I have come to believe, is it a cynical plot by some Democrats to sacrifice a bunch of small-town entrepreneurs so that the underlying immigrant investor (EB-5) program will continue, even though most of the American players will go out of business?

I kick myself for not figuring this out earlier.

Here is the situation: Congress decided a generation ago that there will be no more than 10,000 visas for immigrant investors each year. Virtually all of the investments cost $500,000, plus something like $50,000 in fees. The aliens then get family-sized sets of green cards and with luck (and some imaginative accounting) 10 jobs will be "created" for U.S. workers through each investment. The Department of Homeland Security runs the program.

Also involved are U.S. middlemen who run the regional centers that act as the brokers between the aliens, on one hand, and the actual developers, on the other. Most of this money goes into urban real estate, much of it on Wall Street, Park Avenue, and similar addresses.

Regional centers, though they sound like government agencies, aren't. They are usually private, for-profit entities working within a specified geographic area. Each is licensed by DHS. Most are destined to be sacrificial lambs.

There are now 761 of them, and more are approved every week.

The problem for the centers is that there are too many of them. With each investment using up an average of 2.5 visas, there can be no more than 4,000 investments a year spread among 761 regional centers, or a measly 5.25 each. Since, as in all such circumstances, some of the older and more assertive regional centers will snare lots of investments, many others will get none at all.

Why build a system with this kind of outcome? While competition is a good thing, generally, would it be a good idea to have 43 daily newspapers in a town of 100,000? That might be useful to the paper mill owners and to some of the readers, but it would deadly for 41 or 42 of the papers.

Ah, but DHS is not terribly worried about all those Chamber of Commerce types who start regional centers; the administration has other fish to fry. It wants more well-to-do immigrants (as it wants more immigration of all kinds) and the creation of all those regional centers will cause more business types to lobby Congress to continue and expand the EB-5 program, no matter if the majority of those businesses ultimately fail.

Currently Congress is contemplating extending the EB-5 program beyond its slated sunset of December 11. The large developers who have used the program extensively in Manhattan, Los Angeles, and Las Vegas want a straightforward renewal without changes (a "clean bill"); others would like to see the program reformed to limit corruption and to force investments to go, as originally intended, into low-prosperity rural and urban areas; a third group, including Sen. Dianne Feinstein (D-Calif.), wants it terminated. (The program has some rarely used provisions that will survive beyond December 11, but the heart of it will die on that date, unless it is extended.)

Given this struggle, which could have been predicted years ago, the administration is permitting the constant creation of new regional centers (costing their owners a minimum of $100,000-$120,000 in start-up costs each), apparently in the hope that all of them will add to the pressure on Congress to extend the bill. That many of the regional centers will only lose money on the deal does not matter politically; it is the current hopes and ambitions of the regional center operators, not the subsequent realities of the situation, that will be conveyed to their congressional representatives.

Who gains from the program in its present form? The 10,000 aliens, mostly nervous Chinese multi-millionaires, who will get visas that they could not get otherwise, and the big city developers whose capital costs will be reduced by the ultra-modest investment terms agreeable to the Chinese (who are much more interested in the visas than in maximizing the return on their money). And, briefly, some big city construction workers.

And who loses? Just about everyone else: most of the regional center owners, depressed rural and urban areas that need the investments, workers and residents of those areas, and our own national sense of justice when we sell permanent residence, and possibly U.S. citizenship, at an average of about $200,000 per visa.

Will the 1 percent win this battle, as they win most such conflicts? With the Obama administration riding shotgun, they probably will.