Contentious negotiations delay the EB-5 program renewal
Unfortunately, the regional center EB-5 program was, once again, not extended because it was not included in the must-pass continuing resolution for funding of the U.S. government, which needed to be passed by December 3, 2021. As I have explained in previous blog articles, since the lapse of the program on June 30, 2021, this does not mean that members of Congress are not interested to extend the program, but rather certain members of Congress, particularly Senators Patrick Leahy and Charles “Chuck” Grassley, are very much interested in continuing the regional center EB-5 program, but they remain in contentious negotiations with the regional centers over the terms of the program in the extension. Most regional centers have accepted the program integrity provisions that these and other members of Congress have insisted upon. However, some regional centers continue to resist these senators’ and others’ insistence on tightening up the criteria for designating target employment areas, which is crucial in deciding which areas qualify based on a lower investment amount, and on increasing the overall minimum required investment amount.
It is important to note that Senator Grassley represents Iowa, a primarily rural and agricultural state, which has had no EB-5 regional center projects, while his primary opponents are regional centers from New York City, who have abused the system for designating target employment areas, to get areas such as Central Park West, the most affluent area of New York City, designated as high-unemployment areas in order to compete effectively for EB-5 investors who want to invest only the minimum required amount. Economically prosperous areas can use the EB-5 program, but they are supposed to offer their projects at the higher investment amount of $1 million, when the minimum required investment amount was $500,000, and now $1.8 million, since the minimum required investment amount has been increased to $900,000. If regional centers offering projects in these high-value real estate markets would be playing by the rules, they would have to require an investment of $1.8 million, and EB-5 investors would not be willing to invest with them, or they would insist on a much higher return on the investment for tying up an additional $900,000 of their funds in order to derive the same benefit from the EB-5 program.
Now that the EB-5 program is bringing lots of investment capital into the U.S. at low cost, politicians from the states that have not been benefiting from the program, like Senator Grassley’s Iowa, want to start benefiting from the program, too. EB-5 investors would obviously prefer to qualify for the green card by investing a lower amount of capital in projects located in higher-value, more in-demand real estate markets. However, the EB-5 program was designed to offer EB-5 investors a lower investment amount as an inducement to invest in less attractive real estate markets in higher unemployment areas. A loophole in the rules for designating target employment areas allows the unemployment rates in adjacent areas to help qualify economically prosperous areas that would otherwise not qualify. This loophole has been exploited by regional centers and state departments of labor, which understandably want to promote investment and job creation in their respective states. In other words, abuse of this loophole in the designation of target employment areas has been going on for years, but regional centers are now facing a day or reckoning due to Chuck Grassley’s determination to stop this abuse, since it has redirected to places like New York City and other high-value real estate markets the low-cost investment funds, under the EB-5 program, which Senator Grassley’s state, and other areas less attractive for investment, could possibly have attracted more investment if there had not been such widespread cheating in the designation of target employment areas.
Some regional centers that have built their business on exploiting this loophole got used to avoiding Senator Grassley’s reforms with contributions to other politicians who continued to renew the program by attaching the renewal legislation to must-pass continuing resolutions for funding of the government. Since they have thus far not been able to “buy” Senators Grassley’s and Leahy’s support for their position, the offending regional centers were maybe hoping to continue side-stepping or to wait them out. Leahy has announced that he will retire and not run for re-election. Senator Grassley, on the other hand, has announced that he will run for re-election. Considering that he has been in office over 40 years and still enjoys widespread popularity in Iowa, only his health would stop him, at this point, at 88 years of age. Hopefully, the abusive regional centers will recognize that Senator Grassley has the upper hand and will wait them out, since it costs him nothing to do so and he stands only to gain from winning this battle, since it could gain him votes for being seen as fighting for the integrity of the EB-5 program and for the benefit of his constituents, whereas it costs the regional centers millions in lost income the longer the regional center EB-5 program is not functioning.
At this point, we do not know when this conflict will be resolved. If the regional centers give Senators Grassley and Leahy what they want, the program could be extended tomorrow. If the defiant regional centers continue to resist, then the lapse will continue. As I discussed in my last blog article on why the EB-5 program was not extended in connection with the approval of the previous continuing resolution prior to the September 30, 2021, deadline, the regional center industry and its industry group, IIUSA, are pushing for beneficial provisions in the program extension, such as protections of investors from lapses in the program, protections of investors’ green card status from project failure, and for lower minimum required investment amounts. However, where the point of contention is maintaining the ability to cheat on the designation of target employment areas, those regional centers who hold out on this point are undermining the integrity, credibility, and the very reason for existence of the regional center EB-5 program, namely attracting investment to economically challenged areas with high unemployment. The most recently passed continuing resolution provided for funding until February 18, 2022, and so that is the deadline for the next continuing resolution that could serve as a vehicle for reinstatement and extension of the program.
USCIS will continue to leave the already filed I-526 petitions pending, since it is clear that Congress is still actively negotiating with regional centers the terms for extension of the program. USCIS does not want to be seen as undermining the regional center EB-5 program, while influential members of Congress are acting to “save the EB-5 program”.
Those EB-5 investors, who have an approved I-526 petition and a pending I-485 application for adjustment of status, are seeing the processing of their I-765 applications for work authorization and I-131 applications for an advance parole travel document moving forward and applications for renewals of the same being accepted, even though USCIS cannot process or make a final decision on the I-485 application. Unfortunately, those EB-5 investors with an approved I-526 petition, who have opted for consular process of an immigrant visa through a U.S. embassy or consulate abroad, are seeing processing of their case completely stopped by the National Visa Center until Congress reauthorizes the program. In general, we are all on the edge of our seats awaiting the extension of the program. Let’s hope that reason prevails and agreement is reached sooner rather than later.