Why USCIS Should Not ‘Streamline’ the Immigrant Investor (EB-5) Program

By David North on November 28, 2011

My comments are made on behalf of the Center for Immigration Studies, a Washington, DC- based, non-partisan think tank concentrating on the impact of immigration on American systems. I have done immigration policy research for 40 years for a variety of foundations and government agencies, and some years ago conducted a study on the Australian immigrant investor program at the request of the Australian government. I am a Fellow at CIS.

Introduction

America has what the U.S. Citizenship and Naturalization Services regards as an under-utilized immigrant investor program which it wants to expand, and to that end it has proposed several modifications, or “streamlinings” of that program. It is the EB-5 program, so named because the aliens who secure green cards from it, including family members, are in the fifth category of the Employment-Based immigrants.

Most aliens using the program must make an investment of $500,000 to secure entrance into the program, and two-year conditional visas. Should, after two years, USCIS regard the investment requirements as having been met, and should the family members be otherwise eligible for greencards, they will be awarded.

To secure the bargain rate of half a million, the aliens must invest in projects authorized by regional EB-5 service centers, private organizations licensed by USCIS to manage these investments. Otherwise, a full million-dollar investment is required. The latter option is rarely utilized.

Ten thousand visas, by law, have been set aside for this purpose. That limit has never been reached in the 20-year history of the program.

Overview

There are two significant tests of any governmental program:

A. What does it accomplish? And

B. What can it hope to accomplish, given the nature of the governmental platform from which it springs?

The dual questions about the EB-5 program are not only its minimal accomplishments — in terms of selling visas to otherwise undistinguished aliens of middling prosperity, a matter that has been discussed — but what are the inherent prospects of the agency involved to do anything really useful in this regard? The latter topic is never discussed.

Let’s assume for the sake of discussion that increasing overseas investment in the United States is a good thing, and that, similarly, improving high school education in North Dakota is a good thing.

Let’s see how helpful two government units, in addition to their other duties, might be toward meeting those two highly laudable public policy goals, goals, however that are clearly peripheral to their main missions.

For the sake of this exercise the unit worrying about North Dakota education is a Marine Corps Regiment based in, say, Kuwait, and the one thinking about investment in the United States is the U.S. Citizenship and Immigration Services.

It is instantly clear that the Marine unit, no matter how dedicated and skillful, could have minimal impact on North Dakota education. Maybe a couple of Marines leaving the regiment could be persuaded to teach in that state; maybe a larger number of them could be talked into pen pal relations with North Dakota high school students.

Almost any unit of state or local government in North Dakota could do more than the distant Marine regiment to improve local high school education as could many units of the federal government. Similarly a small bank or feed cooperative, in, say Grand Forks, could do more than the entire Marine unit — and that comment does not cast any aspersions on the Marines.

USCIS is about as well situated to help increase foreign investment in the United States as the Marines in Kuwait are to help improve high school education in North Dakota. The former agency’s primary purpose in life is to sort through aliens wanting to come to the United States, the talents and experience of its workforce are similarly aligned. People do not go to work for USCIS because they want to sharpen their skills in cross-national investment banking.

Just as there is an enormous geographical distance between Kuwait and North Dakota, there is an enormous statistical gap between the huge continuing flows of investment from overseas, generally, and the tiny ones that might be influenced by the sale of visas by USCIS.

Foreign investment comes to the United States routinely, in large volume, with minuscule help from EB-5. In 2010, total foreign investment in the United States increased by 1.9 trillion dollars,1 according to the U.S. Department of Commerce. My estimate (based on the investors’ green card applications filed two years after the first investment) is that EB-5 investment that year was about $150 million, and that was a well-above-average year for the program. So, for every $100.00 of increased foreign investment that year, the EB-5 program contributed less than one penny.

I have heard that using a much more wobbly statistical base (the initial applications of would-be immigrant investors) USCIS is telling journalists that the level of investment in the just concluded fiscal year (2011) was at the $1.2 billion level. For the sake of argument let us accept that estimate, but even this (probably inflated) number would bring the amount of increased foreign investment up to the level of six cents for every hundred dollars.

When looking at the macro finances of overseas investment in the United States, it should be obvious that the immigrant investors’ program produces peanuts for the American economy.

A slight twitch of the American tax law, or that of China or the European Union, would have a much greater impact on the level of foreign investment than all the visas USCIS could grind out, so would a decision or two by, say, Goldman Sachs, opening up otherwise tightly controlled IPOs (initial public offerings) to foreign investors.

Spending major public sector talent, time, and energy on trying to increase foreign investment in the U.S. in this program — in tranches of half-a-million-dollars each — is a remarkably foolish way to try to reach a public sector goal.

In short, EB-5 is a silly little program, and no more time and energy should be spent on it.

Who Benefits?

The aliens arriving through this program are a less than sparkling addition to the American population.

In the first place, they could not get green cards in any other way than by buying them (for a modest price). No one who can migrate to America because they have important skills, or who has close relatives in the States, or who is a refugee would dream of putting up half a million dollars if he or she did not have to do so. These EB-5 aliens have none of those things going for them.

The only thing that distinguishes these aliens is that they have enough money to buy their way into our society.

Secondly, the cost of a visa is pretty modest, much less than that demanded by most other English-speaking nations;2 further, the visa is not just for the investor, it is for his or her entire family. With a family of five, the price is only $100,00 a head, and the investment needs to last only two years.

So the unit cost is low, embarrassingly low.

Thirdly, half a million is not what it was 20 years ago when this program was created. It would take only $290,000 in 1990 dollars to equal $500,000 today. Just to keep pace with inflation, we should increase minimum dollar amounts by 74 percent — better that we round that up to a 100 percent increase.

Further, the sum of half a million dollars is not really an impressive amount of money when you compare it to the average (mean) net worth of American families generally. That figure in 2007 according to the Census was $556,3003 with the median number, of course, being a lot less.

We should offer visas to aliens with money, because they have money, and then make that offer to families investing less than the mean net worth of American families? It’s like recruiting teenagers who are five feet, six inches tall to make the high school basketball team, on average, taller.

Further, this is not a program for entrepreneurs, it is a program for passive investors. In the other countries with such programs there are often additional demands, beyond the ability to risk some money. Some nations want the aliens to actually operate a job-creating business, or to have substantial management skills, or to speak English. Some have (differing) upper age limits (of 45, 55, or 65 years of age). The U.S. program has no such demands, just the ability to write a check.

The Specific Changes Proposed

While I think that spending resources on changing this dubious little program is probably a waste, the four actual changes in the process are questionable in and of themselves, even if they came for free. They are:

A. Hiring more and (by definition) different decision-makers. Given fixed resources this means that fewer staff members are available to deal with the core task of the agency, sorting out which aliens should be welcomed, and which should not. Putting new staff people in place will probably make it likely that a higher percentage of approvals will be forthcoming, which is of course the aim of the leadership.

B. Setting new processing schedules and making quicker decisions for those paying more.

Speedy decisions are always sought by those seeking to water down government regulations; the utility of “streamlining” for the private sector, in these modifications, is always applauded, and that they often come at the expense of the public sector, is rarely mentioned.

In this instance, there will be still faster decisions for those willing to pay a nominal $1,225 for priority handling. This enshrines the wonderful old Third World practice of sending the rich to the head of the line.

C. Giving some EB-5 players direct access to decision-makers. It is generally not recognized that face-to-face sessions between those seeking benefits and decision-makers has all but been abolished within USCIS, despite decades of tradition to the contrary. A special little group, however, consisting of would-be middlemen in EB-5 service centers, those whose applications had been turned down at the staff level, would be allowed to make verbal pitches on behalf of their failing petition.

If your alien relative is dying of cancer in some medically under-served area overseas, and you want to get papers for her, can you get a similar hearing for your failed petition on her behalf? Of course not! That sort of thing is handled in USCIS via a paper process.

The regional service centers are an EB-5 program invention; almost exclusively private-for-profit entities, they broker the half-million dollar investments in depressed areas of the United States. The quality of the regional center proposals must be dismal. USCIS is an agency that routinely says “yes” to it applicants 90-95 percent of the time. But the same USCIS staff that is so welcoming, generally, ruled in 2009 that 45 percent of the regional service centers applications were ineligible. No wonder the agency leadership wanted to change the rules in the middle of the game.

D. Changing the command structure within the bureaucracy. USCIS proposes to insert into the process a new entity, a brand-new “Expert I-924 Decision Board,” which will supervise the line staff decision-makers.

Here’s what the USCIS document says about this new entity:

“[T]he Board will be composed of a USCIS economist and two USCIS adjudicators, and will be supported by legal counsel. The Board will receive a case for disposition from the Specialized Intake Team, and the Board’s first step in each case will be to approve the I-924, to route the I-924 back to the intake team for a Request for Evidence (RFE), or to issue the applicant a Notice of Intent to Deny (NOID).”4

The Board would not seem to have the power to reject an application immediately; initially at least, it could only issue the NOID; similarly staff members could not, apparently, send out the RFE notices, as they did in the past. In, short, the whole process will be tipped further toward saying “yes.” Given these new rules, the denial rate, last seen at 45 percent for 2010, will surely drop — which is the point.

If the Board does, in fact, issue an NOID, it will set in motion the unusual direct contract described above, or as the document says the Expert Board: “will offer the applicant the opportunity to have an in-person or a telephonic interview with the Board to inform its final decision … . The Board will audiotape or otherwise memorialize the interviews for the record.”

Summary

The EB-5 program is, in short, badly designed by the Congress, placing an investment strategy in the hands of a benefit-granting agency; the handful of mildly prosperous people that it brings to the U.S. need bring nothing with them but a check, and the new rules are simply designed to make sturdy federal decision-makers hold their noses and rubber-stamp bad applications that they had, appropriately, been rejecting in the past.

The proposal should be abandoned.


End Notes

1 U.S. Commerce Department data as quoted in a recent Bureau of Economic Analysis press release at http://www.bea.gov/newsreleases/international/intinv/2011/pdf/intinv10.pdf.

2 The Center for Immigration Studies will, by January, publish my Backgrounder on this subject. It will cover the much more demanding requirements for immigrant investors imposed by the other English-speaking nations, as well as much more information on the EB-5 program itself. To find that document go to the website and click on “Backgrounders and Reports.”

3 See U.S. Census, at http://www.census.gov/compendia/statab/2012/tables/12s0721.pdf.

4 See the USCIS document that is the subject of this comment at

http://www.uscis.gov/USCIS/Outreach/Feedback%20Opportunities/Draft%20Mem....