While it is not precisely clear when the U.S. Department of Homeland Security (“DHS”) will finalize its proposal to adjust the EB-5 minimum investment amount, it is now highly likely there will be a price increase on foreign nationals to obtain an EB-5 green card. This conclusion is based on the statements made during the recent March 8, 2017 U.S. House of Representative Judiciary Committee hearing on DHS’ Proposed Regulations Reforming the Investor Visa Program.
Quick Overview of U.S. Administrative Law
It is important to recognize the difference between the federal congressional (Legislative Branch) and administrative (Executive Branch) actions that may be taken to change EB-5. Congress first enacts legislation, which usually includes an instruction to a government agency (here, DHS) to draft regulations. Then, the government agency goes through a rulemaking process to work out the details based on the legislation. For EB-5, the applicable legislation is the Immigration and Nationality Act of 1990 (as well as the creation and extension of the Regional Center program) found at 8 U.S.C. § 1153(b)(5), and the regulations are found at 8 C.F.R. §204.6 and 8 C.F.R.§216.6.
March 8, 2017 Hearing
While the March 8 hearing was about DHS’ proposed regulations, conversation inevitably turned towards failed congressional efforts to enact legislative EB-5 reform. Several congressmen appear to have reached the conclusion that some reforms to the EB-5 Green Card program will need to be made at the administrative level, as Congress has failed to reach a consensus despite almost three years of attempts. Two issues have been particularly problematic: (1) the definition of a Targeted Employment Area (“TEA”), which defines the location where projects that allow for a reduced EB-5 investment can be located, and (2) the minimum investment amount, which has not been increased in over 25 years. There now appears to be bipartisan support to increase the minimum investment amount from $500,000 to $1.35 million for investors seeking to invest in a TEA (and an increase in the minimum investment amount from $1 million to $1.8 million for non-TEA projects). Although there have been calls from various EB-5 stakeholders to withdraw the regulations, it appears that the Trump Administration has no intention to withdraw the proposed rule presented by the Obama Administration. The comprehensive effort would amend the EB-5 regulations set forth at 8 C.F.R. § 204.6 and 8 C.F.R. § 216.6.
If this administrative proposal is finalized, it is very likely that demand for EB-5 will fall precipitously and endanger the viability of many EB-5 projects currently being developed to create jobs for U.S. workers. Interestingly, news that President Trump’s son-in-law and official Presidential Advisor, Jared Kushner, is seeking over $1B in EB-5 funds for a Manhattan office tower, raises questions on whether the Trump Administration will support a change in policy. To date, the Trump Administration has not yet taken an official position on EB-5, but since President Trump as a developer can see the obvious benefit in terms of job creation and infrastructure funding (and with so few visas allocated), it is anticipated the Trump Administration may take a positive view to the EB-5 Program, provided integrity measure reforms are instituted.
With only about six weeks left until the EB-5 Regional Center sunset date of April 28, 2017, and other pressing legislative matters including healthcare and tax reform on the agenda, it’s unlikely that a comprehensive EB-5 legislative compromise will be presented, although rumors are circulating that a new bill is in the making. Recent legislative proposals have included a proposed increase in the standard minimum investment amount from $1 million to $1.2 million and an increase in the minimum investment amount from $500,000 to $800,000 for investments located within in a TEA. There was also a proposal to reduce the “delta” between standard and TEA minimum investment amounts, with phased-in increases over several years.
During the March 8, 2017 hearings, there was support for the view that waiting until the current backlog cleared was not the best way to proceed. These congressmen therefore are seeking to implement changes retroactively, which could impact the viability of countless petitions and could be devastating for many current EB-5 projects that would have no chance to adjust to the new rules. This view misses the boat, as it is possible to enact viable “integrity measures” to improve the program and provide more transparency and protection that will provide additional protections to investors against fraud or misuse of funds. To apply these changes retroactively would be crippling for many including the many cases that include over 20,000 Form I-526s pending at USCIS as of December 31, 2016 and an additional 24,629 approved Form I-526s on waiting list at NVC as of November 1, 2016.
Another “Clean” Extension?
Although there was little congressional support for another clean extension of the EB-5 Program, it is hard to see how a legislative proposal could be enacted in such a short period when the nation faces so many other pressing matters. Some believe another clean extension until September 30, 2017 is needed to give Congress more time to work with stakeholders on a compromise bill that would extend the EB-5 Regional Center for five years, contain much needed “integrity measures” to protect investors, and resolve the minimum investment amounts and TEA-related issues.
It also appeared during the hearings that there was confusion regarding the April 28, 2017 sunset date that applies only to the EB-5 Regional Center program. It appears a thorough review is needed for Congress to fully understand all the relevant issues surrounding the reform of the EB-5 visa program.
The DOS April 2017 Visa Bulletin which provides information regarding visa availability, states the following:
The continuing resolution signed on December 10, 2016 extended this immigrant investor pilot program until April 28, 2017. The I5 and R5 visas may be issued until close of business on April 28, 2017, and may be issued for the full validity period. No I5 or R5 visas may be issued overseas, or final action taken on adjustment of status cases, after April 28, 2017.
Notably, there is no reference here to C5 and T5 visas, which relate to Non-Regional Center EB-5 visas, that will of course continue to be available.
While the authors believe that the difficult TEA and minimum investment amounts will likely be addressed by regulation, and the extension and integrity issues by statute, it may be noted that DHS has only just begun the first step of its rulemaking procedure which is governed by the Administrative Procedures Act. The public comment period ends on April 11, 2017. Thereafter, if public comments precipitate drastic revisions, a second draft may be published in the Federal Register potentially providing an opportunity for further comments. Then, the proposed rule will become final and published together with the comments submitted. After the final rule becomes effective, there may be additional time to give affected parties an opportunity to be compliant.
If Congress does enact legislation before DHS finalizes its rule to “modernize” the EB-5 Program, DHS may have to restart its rulemaking process to ensure the regulations cover all changes enacted by Congress. While Congress can enact self-enabling regulations with intricate detail, it is more common for Congress to pass legislation that requires further rulemaking.
Therefore, this initial rulemaking may merely be the start of a lengthy process that will ultimately result in President Trump signing new EB-5 legislation into law. After this lengthy debate, we expect to see a new program, with changes to the minimum investment amount, the definition of a TEA, and much-needed integrity measure that provide greater protection and transparency to investor.
Watching laws being made is a painful process but ultimately our democracy works, albeit it painfully slowly. It is important that Congress continues the EB-5 Program that provides jobs and brings much needed capital into countless companies throughout the United States.