Lawmakers are again considering changes to the EB-5 Program. In fact, before the end of this month, we may see provisions from the “Immigrant Investor Visa and Regional Center Program Comprehensive Reform Act” or “EB-5 Reform Act,” which is still circulating in draft form, packaged into an omnibus appropriations bill. This is consistent with what we thought may happen last October, when we predicted that changes to the EB-5 Program could come through an omnibus bill.
The EB-5 Reform Act is troubling. The proposed legislation contains draft language that would change minimum investment amounts. Specifically, the proposed minimum investment thresholds would be $925,000 for projects in areas of high unemployment or targeted employment areas (TEA), and $1,025,000 for projects in areas of regular or high employment.
This is a substantial departure from the status quo. The current investment amount for EB-5 is $1,000,000, but investors in projects in TEAs (including rural areas) qualify for a downward adjustment of that amount to $500,000. These investment amounts currently in effect are consistent with the intent of lawmakers, who sought to create a program that gave economically challenged and rural areas an advantage in competing for foreign capital. In other words, the EB-5 Program should benefit areas of the country that have a tougher time incentivizing foreign investment.
But the EB-5 Program may be undergoing change that would severely limit rural states from access to this capital. The framework for changing the minimum investment amounts to $925,000 and $1,025,000 favors developers in major urban areas. The purpose of reducing the differential in investment amounts is to erase the relevance of targeted employment areas altogether.
Proponents of this framework claim that proposed annual EB-5 visa number set-asides for investments in rural and urban distressed areas balance out any concerns that rural regional centers should have about these proposed new investment amounts. But this new $100,000 investment differential will more likely than not have a chilling effect on any regional centers seeking to raise EB-5 capital for projects in rural states.
This re-setting of investment amounts to favor urban developers is bad policy for the EB-5 Program. The law should not give large developers a systemic upper-hand in attracting investment to the most prosperous areas of large cities, at the expense of this investment flowing into rural states.
If the new investment amounts in the framework become law, developers in major urban areas will use the EB-5 Program to enjoy the low costs of EB-5 debt or equity being deployed for large-scale refinancing of more expensive debt. This is not how Congress intended the EB-5 Program to work. It makes good sense for lawmakers to consider EB-5 investment amounts more carefully. Otherwise, the EB-5 Program will have a limited future in rural and distressed areas.